The times appear no longer easy for businesses as every new day comes with bigger operational challenges not only in Nigeria but all over the world.
Many businesses are, in fact, finding it very difficult not only to break even in a world economy that has lost hugely to the Coronavirus pandemic which is ravaging the globe, but even firms which were thought to boast of strong fundamentals are now merely struggling to keep afloat without much deliberate ambition for now. Their recent state of fragility, caused by the devastating effect of Covid-19, has exposed their soft underbelly as most have even jettisoned the pursuit of meeting new and higher targets and projections. The unpleasant situation is also now dragging down profit margins in almost all the sectors of the economy.
Surprisingly, the Food & Beverages sector of the economy which was believed to be in a position to strongly resist the harsh effect of head and tail winds across seasons has presently also succumbed to the corrosive operational environment.
In recent times, the F&B sector, the fast moving consumer goods playground, which has been the toast of many investors, has been facing tough times. Today, investors in the F&B sector are stunned at the weak performances of their companies which had almost always made them smile to the banks in the past. The weak performance of these firms is reflected in the sliding of their top and bottom lines especially that of leaders like Nestle Nigeria Plc and Cadbury Nigeria Plc.
For instance, Nestle Nigeria’s second quarter results show that profit before income tax plunged 16% from N40.436billion in 2019 to N33.862billion in 2020. Its profit also slid in the first quarter of 2020 by 8.1 per cent, showing that profits had eased downwards in two successive quarters this year contrasted against the annual financial result of 2019 when it had most impressively posted a 19 per cent growth in profit.
On its part, a cursory look at Cadbury Nigeria’s half year 2020 performance shows that its revenues had dropped 18 per cent from N19.454billion in year 2019 to N15.917billion in 2020.
The firm’s half year results also revealed that while results from operating activities dropped 20 per cent, profit before tax also declined 20 per cent from N957.055million in 2019 to N766.657million in 2020.
Profit for the period followed the same trend and eased down by 20 per cent from N669.938 million in 2019 to N536.660 million in 2020, while earnings per share also declined 20 per cent from 35.67 kobo to 28.57 kobo.
As for Unilever Nigeria Plc, the second quarter also revealed that it had performed quite woefully as it posted a loss of N1.515billion with revenues dropping by an astounding 40 per cent. In its first quarter ending March 30, 2020, the company’s profit dropped 53.2 per cent while revenues also plunged by 53 per cent.
As if it would be of some comfort for the embattled Food and Beverages sector, keen observers of the economy could also point to some banks whose profit margins have also shrunk; as well as the fact that the jet-setting aviation industry is already having a quite huge operational crisis and is currently laying off huge numbers of staff.
Reportedly, over 30 firms have closed shop in the USA which even has a stronger economic structure even as the situation in Europe is not any better. Businesses in the United Kingdom and many other parts of the world have had their fair share of upheavals, no thanks to the ravaging pandemic which has succeeded at the moment in ensuring the closing down of many otherwise redoubtable firms.
Analysts believe it has become hard for firms to fly in such a weak economy as Nigeria where the economy is expected to slide into recession by about -5 per cent; where inflation is hitting the roof top; where the Naira has lost value and vigour; where the budget deficit stands at -4.69% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; and where economic policies are allegedly carried out to favour a section of the country.
This is in addition to the wobbling price of crude which hovers between $38 to over $40 bpd which is the main survival plank of the Nigerian economy.
In fact, many have attributed the weak performance of the economy as having been caused by a combination of the ravaging coronavirus pandemic and the harsh operating environment for business in the country.
‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print, responded rhetorically, when asked to place an handle on the root cause of the challenge.
As spiraling inflation continues to ravage disposable income and push up cost of production, consumers’ preference for cheaper imported goods has also spiked. To worsen matters has been the entrance of shrewd and buccaneering businessmen from the Middle East and Asia who use mostly unconventional means of doing business in order to gain market share.
Another contributory factor, analysts say, is the poor state of the national infrastructure and the porous, though closed borders. Thus, while factors like the epileptic power supply and deplorable transport system are pushing up costs for manufacturers and taking the top range of locally produced brands out of the reach of average Nigerians, the flooding of the nation’s markets with cheap and largely untaxed goods by smugglers has provided Nigerians with much cheaper sources for consumer products, including those of the F&B sector, but at such colossal costs to the larger economy and the nation. From where and when will deliverance come?