Earnings focus: consumer goods sector

The consumer goods sector in Nigeria is currently facing challenges as a result of the effects of a weaker Naira on raw materials. Esili Eigbe, the Director and Head of West Africa Research at Exotix, highlighted the impact of foreign exchange losses on companies within the sector. Despite some improvement in the second quarter compared to the previous quarter, companies are still grappling with rising costs due to currency fluctuations. The recent evaluation of the Naira in the official window has provided some stability, but the uncertainty in the parallel market continues to pose risks to profitability. The recent earnings reports from companies like Guinness and PZ Cussons have reflected the challenges faced by consumer goods companies. Guinness reported a significant loss attributed to sharp rises in the cost of sales and an increase in payables denominated in dollars. Companies are hedging against further devaluation by accumulating inventory, leading to additional costs. The weak performance in the consumer goods sector is expected to persist throughout the year, with the future heavily dependent on the direction of the Naira. There is a sense of disconnect between the government's economic policies and the realities faced by businesses. While the government emphasizes the positive impact of its measures on the economy, business operators continue to grapple with the challenges of the FX issue and other macroeconomic factors. The low ranking of Nigeria in the ease of doing business index reflects the challenges faced by businesses in the country. Looking ahead, the outlook for the consumer goods sector remains uncertain, with downside risks prevailing. The volatility in oil prices and security concerns in the region add to the challenges faced by companies. While there is a slight optimism driven by higher oil prices leading to an increase in reserves, the overall environment is fraught with uncertainty. Consumer companies are adjusting their strategies by raising prices to cope with the currency fluctuations, but the impact on consumers, particularly the common man, is concerning. In conclusion, the consumer goods sector in Nigeria is bracing for a tough year ahead. The reliance on imported raw materials and the currency issues pose significant challenges to profitability. Companies are cautiously navigating the current economic landscape, but the road ahead remains uncertain. The hope for a turnaround in consumption levels may be pinned on 2018, but the prevailing conditions suggest a more cautious approach is warranted.