MANUFACTURERS in the country are licking their wounds over streams of
loses as a result of built up finished inventories of goods in their
warehouses they can not sell. This is as a result of the insecurity in
the Northern part of the country that has taken away part of their
market. Many company chief executives who spoke to Vanguard said the
north is important to their business as the region accounts for more
than 30 per cent of the Nigerian market.
Though the manufacturers see the market as huge, distribution of goods
and services to this region is being hampered by security challenges
in the affected states.
This has led to significant reduction in turnover, reduction in sales
force/ sales outlets; layoff of production staff by companies
operating from other parts of the country due to high unsold
inventory. From multinationals to small and medium size firms, the
story is the same.
Speaking on the issue, PZ Cusssons Plc Chairman, Professor Emmanuel
Edozien, said its sales dropped by 1 per cent from N72.2 billion to
N71.3 billion. In a review of the company's performance for the
financial year ended 2013, he attributed the drop in the company's
revenue to: "The social unrest in the Northern part of the country and
the impact on the consumers' spending power subsequent to the
reduction of the fuel subsidy which exerted considerable pressure on
the top line throughout the year." According to him, profitability
however, increased with profit before tax growing by 78 per cent from
N4.3 billion to N7.7 billion off the back of reduced raw material
prices and manufacturing and supply chain efficiencies.
" In addition, net profit after tax and minority interests increased
by 102 percent from N2.4 billion to N 4.9 billion. "Though the top
line results are not in line with our projections, the choice of
investing in volume growth and improving the cost structure during the
year, gives us the confidence that this will put our company on the
right footing for profitable growth in the future.
"Our focus during the year was to drive shareholder value through
management of the cost base, and driving economies of scale from our
suppliers through our procurement division. We leveraged our
investments in supply chain and manufacturing to improve margins while
maintaining the quality of our products," he said.
"The marketing of our products in the north is being hampered," said
Martin Woolnough, the immediate past Managing Director of Nestle
Nigeria Plc. Describing the state of insecurity in some parts of
northern Nigeria as "A stress on the economy", he said: "We can't get
our sales team up there. That's likely to impact the middle to long
term brand equity in the future. Nestle Nigeria's first-quarter net
income fell by 3.4 per cent to N5.99 billion ($38 million) from a
year earlier. Revenue climbed 7 per cent to N30.7 billion.
Distribution, administration and other costs rose five percent from a
year earlier to N17.5 billion because of an increase in marketing
spend," Woolnough said.
Woolnough, who noted that the company has about 140 sales staff in the
country, said Nestle, the largest food company in Nigeria, temporarily
withdrew about 10 of its sales staff from the three states for a week,
the second time in four years it has evacuated employees since the
"People still need to eat food and cook their stews, so fortunately we
are less affected in the north than other products would be," said
Woolnough, referring partly to the company's food seasoning Maggi,
which he said was a "very strong brand" in some areas affected by the
fighting. Woonough retired recently after five years as head of the
Nigerian unit of Vevey, Switzerland-based Nestle SA (NESN).
He handed over to Dharnesh Gordhon, Nestle's former sales director in
Nestle has invested 500 million Swiss francs ($524 million) over the
past decade in Nigeria, building a second factory in Agbara, Ogun
state which opened in 2011. The company also produces Milo chocolate
malt and Golden Morn cereal.
Commenting on the impact of the state of insecurity in the North on
his company, Keith Richards, Managing Director of Promasidor Nigeria
Limited, said: "You know with the borders closed, a lot of formal and
informal exports are not happening. People are not coming from Chad,
Niger, Cameroon and Mali. So you see a downturn in demand. The North
is important to us. A lot of our brands are doing very well here.
"Now consumption is plummeting. In 1st Quarter 2012, our milk sales
volume declined by 14.3 per cent, powdered beverage sales by 3.7 per
cent and tea by 9.1 per cent. But our seasoning products sales grew by
7.1 per cent. And I know all the businesses in the Fast Moving
Consumer Goods, FMCG, are affected too, especially with products like
beer, soft drinks and tobacco."
Procter & Gamble Nigeria Limited (P&G) which has an expansive
distribution network in the north is affected by the shutting down of
stores, stemming from the crisis.
But Manoj Kumar, P&G chief for West Africa, says the company is up to
the task. "We have been here for 20 years. All sorts of crisis have
come and gone. We are therefore not worried like other companies which
have spent a few years operating in the country," he said.
The Lagos Chamber of Commerce and Industry (LCCI) in its Business
Environment Report, said that many firms in the country have lost 30
per cent of their sales because of insecurity in the north, which
denied them access to the region. The report, which was prepared in
the second quarter of the year, also said manufacturing firms sourcing
raw materials from the North are now facing serious challenges, while
projects funded by banks in the affected states are at risk.
According to the report, the hospitality industry in the affected
states have been paralysed just as many investors, especially small
and medium enterprises are relocating to other states.
"Many bank branches have been closed, while the working hours for
others have been drastically reduced. Sales representatives of many
companies have fled the affected states. Many projects under
construction in the north have been abandoned while security budgets
have been scaled up by many firms," said LCCI. The survey also
disclosed that expectations from the North which represent 30 per cent
of total Nigerian market have shrunk considerably due to goods
produced by these manufacturers are no longer sold out to the supposed
buyers because of the flinch market volume.
LCCI furthermore noted that the scope of coverage for manufacturers in
the northern part of the country is limited as investors could not set
up factories in the north out of fear of being terrorised, bombed or
shut down due to lack of low sales and that manufacturers who had
their companies in the north and those who distributed to the north
all had a loss of market share and revenue derivable from the region.
The survey also disclosed that marketing and distribution activities
of many companies in the North have been brought to a standstill
especially in the manufacturing sector, adding that most investors and
workers had to flee the state(s) to avoid being killed by terrorists.
On the effects of insecurity in the banking sector, the survey stated
that increased lending to northern business was impossible as the
possibility of paying back the loans were not visible .Consequently,
banks saw it as a great risk to lend to an investor intending to
invest in the north.