As Nigeria gradually eases restrictions on movement and business activities, there are fears in different corners about the possibility of a recession spurred by the lockdown of several businesses since the advent of the COVID-19 pandemic, especially small and medium-sized enterprises (SMEs) that form the backbone of the nation’s economy – accounting for 48 percent of the national GDP. But the decision to ease the lockdown in May is an apparent compromise between substantial economic costs and the choice to contain a public health emergency.
Production hubs such as Ogun, Kaduna and Lagos states were shut down by the government to curb the spread of the infection. The devaluation in foreign exchange due to drop in crude oil prices also impacted all sectors, with mixed results in the FMCG sector as players in Food and Beverage & Pharmaceuticals were deemed as providers of essential products and services that are allowed to continue operations during the crisis. Unfortunately, several other factors also affected the potential gains or benefits of the lockdown policy for both large, medium, small or micro-businesses in the sector.
According to projections by the International Monetary Fund (IMF), Nigeria could face its worst recession in more than three decades – with the economy likely to shrink by 3.4 percent, over a period of one year. If the country is to reopen the marketplace successfully, it has become essential to leverage on coordinated decision-making supported by data on on-ground activities. Nigeria needs to be ahead of the curve, not just in managing the pandemic, but in understanding its effect.
Below are some of the challenges affecting the sector due to the COVID-19 pandemic, including recommendations:
1. Supply chain disruption/Higher cost of imported raw materials
Apart from lockdown nationwide, the disruption in the supply chain globally affected the flow of both people and goods across international borders and even locally. As supply chains faltered, stock replenishment and delivery issues prevailed during initial lockdowns. The retail environment also became increasingly fragmented with smaller retailers, direct-to-consumer models and stores filling the void and offering alternatives to traditional retail channels.
As restrictions continue to be lifted, retailers have to understand the unique consumer needs and priorities of different groups to ensure that they can offer tailored pricing offerings to retain consumers moving forward and ensure profitability in these challenging times. Either by increasing supplies or relying more on e-commerce, innovative organisations can meet these needs by localising their supply chains, offering a high degree of convenience and communicating clearly with the target customers.
One of the most significant changes that has emerged from the COVID-19 crisis is the surge in e-commerce. Consequently, FMCGs have to maximise e-commerce potential and logistics, as integrating delivery services and Fintech providers within the retail sector can be a turning point. Before the crisis, companies such as Unilever Nigeria and Nigerian Breweries already invested in local suppliers and local manufacturing facilities, which would result in an uplift in costs – even as the current devaluation of the Naira will weigh heavily on imported raw materials.
2. Cash Flow and Management
As the federal government prepared to announce a nationwide lockdown, millions of customers flooded markets, malls, stores, and street shops to stockpile on goods, leading to an increase in corporate profit. But the purchasing power of the average Nigerian consumer is limited, with many already adjusting the allocation of available funds depending on their circumstances. At the beginning of the crisis, 52 per cent of SMEs surveyed claimed that they were not sure of staying operational beyond four weeks due to cashflow problems, and 1 in 5 said they would be out of business if things remained the same.
The expected fall in cash inflows for these companies necessitates the need for a comprehensive cash management strategy to sustain the business. This will affect the ability of FMCG companies to fund operating costs, resulting in the reduction or deferment of specific expenses, mainly administrative and overhead costs that are not linked to production. It is recommended that companies invest in functional digital operations and realign their supply chain.
There should be a data-driven approach to companies and monitoring of high value/high-risk areas, and companies should establish tighter controls over cash and bring in cash-related KPIs to seek to reduce leakage. An extensive review of assets that will thrive post-COVID should enable the company to recover quicker.
3. Increased unemployment, limited spending capabilities
While interest in interventions and social relief packages appears to have decreased, it is important to state that millions of Nigerians are still impacted by the pandemic, with many experiencing salary cuts, outright deferment, and many companies already sacking their employees. The government, with support from FMCG companies, need to invest in palliatives to support communities across the country, while also ensuring to implement preventive measures across public spaces used.
4. Price Hike and Demand Fluctuations
Even as consumers initially rushed out to purchase goods, many wholesalers and retailers were already hinting at a possible price hike in FMCG goods, which will also lead to fluctuations in demand. With the impact of the pandemic on consumers’ purchasing power, recovery in discretionary spending is likely to be slow. For a quick economic recovery, a measure of support has to be provided for the final consumer.
Such government support, in partnership with FMCG companies, could include the implementation of reasonable price control policies on food and medical supplies. As a strategy to manage price hike due to limited access to raw materials, the government can assist companies through tax credits, lower interest rates and improving production factors, thereby allowing a partnership to control prices collectively during the crisis.
Financial institutions and governments should also consider commissions waiver on local currency electronic fund transfers, including a moratorium on debt payments on commercial banks and government loans.
5. Hygiene and Customer experience
With the rising number of COVID-19 cases across the country, sentiments remain higher and stronger for those who want to stay safe, and need to be reassured about preventive measures and procedures. Even with the guidelines issued across many states, the move towards a more healthy and hygiene-conscious population might be the long-term situation.
Companies that intend to build sustained brand loyalty have to implement health and safety measures to ensure the safety and welfare of the consumers and employees; deploy necessary technologies and guidelines to assist with remote work and reassure consumers of the continuity of quality service delivery. Customers need to know how their providers are dealing with issues directly related to the COVID-19 pandemic.
Brands should consider flexible discounts, generous return policies, including additional services to increase their total value proposition. Businesses must also get involved in the fight against the pandemic, by contributing cash and products or risk losing the confidence of consumers and investors alike.