Economic recovery may spur increased consumer spending
As the economy gradually inches towards a recovery, experts have stated projected a resurgence in consumer demand as well as discretionary spending that may further aid the fortunes of operators in the real sector.
The experts also noted that higher prices of goods which rose due to higher cost of inputs are expected to ease as foreign exchange pressure subsides. Presently, local producers of consumer goods are struggling to maintain a balance in the management of input costs and price consumers are willing to pay for products, even as many continue to increase their inventories for the fear of further instability in the foreign exchange management policy as well as intensify their backward integration agenda.
According to the latest report by United Capital Plc, players that have successfully diversified their energy sources are more likely to outperform their peers.
“As more capacities come on stream in 2017 and beyond, we expect players with high energy efficiency to continue to benefit from increasing price competition in the industry
“Further buttressing the point we made in our January 2017 report, we see medium to long term upside potential in this sector as we recognize the strength of the underlying market opportunity.
“In addition to this, the 2017 budget, with record capital expenditure of N2.2tr is positive for the industrial goods sector. The capital expenditure represents 29.3% of the total proposed spending and may mark the commencement of the long awaited large scale infrastructural project, even as a possible issuance of infrastructure bond further buttresses this view.
“Therefore, we are bullish on companies that have spare production capacity which we think will be a long term strategic advantage”, the report read in part.
Though the Nigerian Stock Exchange Consumer Goods Index closed has been bullish, manufacturers and other stakeholders in the value chain alleged that it is too early for consumers to feel the impact of the apex bank’s interventions in the retail sector.
According to the President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, manufacturers for a very long time, had been having difficulty sourcing foreign exchange.“Things began to improve in February this year. This is something that takes time. You don’t expect immediate change in the price of good and products. It will take some time. I am talking of timeline of about three to six months before we begin to see the effects. For traders, it is okay to buy and sell, but for manufacturers, it takes time to re-stock and sell”, he added.
Explaining the lag between interventions and expected outcomes, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said there is always a lag because many of the manufacturers and retails are still carrying old stocks which they bought at very high prices.
“We have to give some allowance for some of those stocks to be disposed; we also need to give allowance for confidence to fully return, so that people need to be assured that the new relief has come to stay. The need to be sure that the improvement in the forex is sustainable. It is something that we will endure. Once things stabilise, the prices will fall or competition will drive them down”.