…as airlines, boarding schools, hotels, other large consumers remain under lock
By AYOOLA OLAOLUWA
Despite the significant spike in economic activities occasioned by the partial lifting of lockdown put in place to check the spread of Covid19, rising inventory has continued to hobble manufacturers’ profit projections, Business Hallmark findings can reveal.
It would be recalled that the Federal Government had on May 4, partiality lifted the restrictions it put in place on March 30 to revive the economy. Owing to the continued spread of the epidemic, the federal and state governments have refused to reopen several sectors of the economy vital to the sustainability of the manufacturing sector.
While economic activity in Nigeria has picked up significantly as the country enters into the fifth week since the relaxation, many businesses, especially manufacturers” are now faced with another major challenge, rising inventory.
BH reliably gathered that many manufacturing concerns have been having difficulties finding buyers for their finished products which are daily pilling up in warehouses. Worst hit is Food Moving Consumer Goods (FMCG) companies, including confectioneries, breweries, bottling companies, as well as garment and textile firms.
An industry source who spoke with our correspondent blamed the development on the continued grounding of airlines, boarding schools, hotels, event centres, as well as other large consumers vital to the continued sustainability of the FMCGCs. He also attributed the slower movement of the nation’s Purchasing Managers’ Index (PMI) in May to paucity of funds brought about by rising inventories.
“With invested funds tied up in unsold stocks scattered in warehouses across the country, most of our colleagues are finding it difficult to raise the required capital to defray the operating cost. Many producers are scaling down production. Profit will decline and many workers would soon be out of jobs. What is the essence of producing when you can’t get buyers for your products”, he demanded.
According to the Statistics Department of the Central Bank of Nigeria (CBN), Manufacturing PMI in May stood at 42.4 index points, indicating contraction in the manufacturing sector for the first time after recording expansion for thirty-six consecutive months. Of the 14 surveyed subsectors, only the electrical equipment sector reported growth (above 50% threshold) in the reviewed month, while the remaining 13 subsectors reported a decline.
At 44.5 points, the production level index for the manufacturing sector declined in May 2020 after thirty-seven consecutive months of recorded growth.
Checks revealed that the Food, Beverages, Tobacco, Textile, Apparel and Footwear sectors are witnessing a high level of inventory mostly due to the continued shut down of schools, hotels, nightclubs, event centres and airports, among several others.
These manufacturing concerns, it was gathered, depend largely on the patronage of these large consumers for survival. A sales executive with a textile firm in Isolo, Lagos, told BH that the continued closure of schools had rubbed off negatively on his company.
“The bulk of what we produce is materials for school uniforms. Since schools are on compulsory holiday, the demand for uniforms had crashed.
“We have a major customer, a Chinese garments firm based in Ibafo, Ogun State. It accounts for over fifty per cent of our market. Now, the company is almost idle as it specialises in sewing uniforms for schools, nurses, the armed forces and private security outfits.
“I was at the company some days ago to canvass for garment contract, but was told that they could only order for twenty-five per cent of their usual purchases as schools which account for over seventy per cent of their clientele are under lock and that they are no longer getting orders”, the worried sales executive said.
Also affected are food and beverage processing companies which cater to airlines passengers refreshments during flights. All Nigerian airlines provide in-flight services (foods and drinks) to their flying customers.
According to the National Bureau of Statistics (NBS), Nigerian air travellers (domestic and international) from July to December 2019 stood at 8.48 million; with a monthly figure standing at 1.4million passengers and daily 47,000.
In essence, 47,000 passengers get fed every day while on the air, a big revenue outlet for confectioneries, beverage and bottling firms. They also get menthol sweets like Tom Tom made by Cadbury Nigeria to fight air drowsiness. However, due to the continued grounding of airlines, in-flight services had ceased, resulting in revenue loss to confectioneries, beverage and bottling companies providing these services.
Like the aviation and education sectors, another sector badly hit is the tourism and hospitality sector. While the sectors are almost in a comatose state, the sectors serving them, namely food, brewery and bottling companies are worse off.
According to a 2019 report by the NBS, alcohol consumption is big business in Nigeria with consumers spending just less than a quarter of a trillion naira in 2016. According to the data, in 2016 alone, Nigerians spent at least N208 billion on alcohol – this amount was more than the budget of Ondo State for that year.
According to Euromonitor, Nigerians consumed over 13 litres of alcohol per capita in 2019, making it the leading country in terms of alcohol consumption per capita that year. Followed by the Kingdom of Eswatini and South Africa in second and third respectively.
The report also suggests that over 70% were consumed in hotels, pubs, parties, nightclubs, event centres and beer parlours. Although food and beverage companies are exempted from the lockdown, the decision of the government to restrict movements and shut hotels, clubs and bars negatively affected distribution and consumption.
BH gathered that shares in the nation’s three main breweries, AB-InBev, which own International Breweries; Heineken, which controls Nigerian Breweries and Champion Breweries and Diageo, which owns Guinness Nigeria, have tumbled over the last month.
An event planner based in Ikeja, Lagos, Tutu Badmus, said her firm has been seriously affected by the continued partial lockdown.
“This obviously affects big corporate producers in Nigeria. We have had to out-rightly cancel nine major events where large amounts of alcohol would have been served in April and May alone. Our headache is that we don’t even have an idea on how long the debacle will last”, Bhadmus said.
Also speaking, a sales representative with NB Plc, Collins Ebue, lamented the continued interstate border closure, insisting that despite the exemption given to food and beverage companies from the lockdown, they could still not move freely within state borders.
“If interstate travels are restricted, how do sales agents get products to sell? Breweries and bottling plants are located in just a few states, with finished products hauled across borders.
“One of our trucks that left Aba in Abia State four days ago en route Port Harcourt is still trapped at the Rivers State border after it was refused entry by security men”, he said.
Also, the banning of social events and restriction of attendance at burials and wedding parties to not more than 20 people is undermining the profitability of FMCG companies which depend largely on patronage from event planners. In November 2013, former Lagos State Governor, Babatunde Fashola, had revealed that more than N36 billion was spent annually by Lagos residents in organizing different social events.
Fashola had explained that the figure was collated after a careful study of social events especially party life in Lagos.
“This was the study of nightlife carried out by the government in five local governments including Agege, Mushin, Ifako-Ijaiye and Ikeja and another local government. It showed that more than N36 billion was spent on 1,555 parties held within the period.
“We did a study between October and November last year, we took just five local governments in Lagos; Agege, Mushin, Ifako-Ijaiye, Ikeja and another one. We studied from Thursday, Friday and Saturday nights, three days every week for four weeks which was 12 nights.
“In 12 nights, 1555 parties were held in these local governments. In terms of drinks, food and all other engagements during such parties, about N1.2 billion was spent and when we dis-aggregated them we saw how much went to DJ, MC, food and drinks, the total picture in the state now and I don’t want to give you a wrong number but it’s something in the region of about N3 billion monthly on that side of our life and people are playing and impacting on that side of our economy.”
The ex-governor noted that clothing materials worn during such parties popularly called “Aso-ebi” gulped at least N1.2 billion monthly, saying the market is huge with much yet to be tapped from it.”
A senior government official with the Lagos State government told our Correspondent that the current conservative figure currently should be over N60bn.
“Though we don’t have a precise figure now, I believe the amount spent annually should be above the N60bn mark. Last year alone, the state generated over N10bn from permits to host parties alone. The industry is quite huge”, the official stated.
Meanwhile, many workers may soon lose their jobs as the problem persists. Already, many companies, including Guinness, NBPlc and NBC have started shutting down idle plants. What this means is that several idle workers, especially unskilled ones might be asked to go until the situation improves.
“Our stores are already filled up with unsold goods. So, production is being scaled down until we clear the stores of unwanted goods”, said a boiler room technician of a brewery in Sango-Ota, Ogun State.