Food, beverages manufacturers groan as lockdown affects demand, production

With the coronavirus pandemic forcing Nigerian bars, restaurants, hotels and event centres to shut down or maintain partial operation in some cases, operators in the food and beverages sector may have to contend with newer challenges of poor demand and slow production.

Already, weakened purchasing power of consumers and higher costs of drinks as a result of excise duty introduced last year, have led to slump in demand for alcoholic and non-alcoholic beverages.

With the COVID-19 environment, there are concerns about stimulating demand, considering that many events and parties that account for large consumption and demand may not happen.

According to the 2019 Household consumption expenditure report released by the National Bureau of Statistics (NBS), out of the N23 trillion Nigerians spent on food, households spent N551.2 billion on non-alcoholic drinks, N205.5 billion on sugar, sweets and confectionary, and N150.3 billion on alcoholic drinks.

With dwindling demand affecting production and employment in the food and beverages sector, operators are hoping the lockdown will be lifted for the economy to run fully.

Although Lagos is considering full re-opening of the critical sectors of its economy after assessing the readiness of businesses, the Federal Government, on Monday, said the country was not yet ready for full opening of the economy and tough decisions have to be taken for the good of the greater majority.

The Secretary to the Government of the Federation (SGF) and Chairman, Presidential Task Force (PTF) on COVID-19, Boss Mustapha, said this at the 33rd joint national briefing of the Taskforce.

For operators in the Food, Beverage and Tobacco sector, confidence in the economy fell to 54.3 points in Q1 2020 from 61.2 points recorded in Q4 2019.

For Nigerian Breweries Plc, sales were flat year-on-year in Q1, whereas gross margin narrowed by -19bps y/y to 41.9%. Bottom-line was largely impacted by a 14% y/y increase in operating expenses to N24.1bn. As such PBT for the quarter declined by -28% y/y to N8.3bn.

On a sequential basis, sales declined by -5% q/q whereas gross margin expanded by 174bps q/q. Opex and net interest expense declined by -5% q/q and -31% q/q respectively while other income was down -31% quarter-on-quarter.

For Guinness Nigeria Plc, Q3 2020 (ended March 31) net sales declined -18% y/y, indicating that volume losses in Nigeria and Ghana (malt market), and the impact of higher excise taxes fuelled Guinness’ net sales decline.

To help the manufacturing sector, Manufacturers Association of Nigeria (MAN) urged the government to reverse the Value Added Tax Rate back to the pre-2020 Finance Act rate and reduce the Personal Income Tax to a flat rate of 10% for one-year effective April 2020.

According to MAN, this will improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.

“We urge government to grant manufacturers waivers from all demurrages payable between February and July 2020, especially those occasioned by the lockdown directives of Government and others associated with COVID-19 pandemic.

“Establish a special bailout fund for the manufacturing sector with set deliverables on the number of jobs to be created, the volume of export, quantum of locally raw materials utilized and projected revenue.

“Support manufacturing concerns with existing loan facilities by reviewing the terms, especially reducing interest rates to 5% with 2years moratorium. For manufacturers that are investing in order to scale up production should be granted loans at 5% interest rate for a period of 5 to 7 years. This measure will no doubt improve liquidity and ramp up productivity in the manufacturing sector in a manner that will cover up for obvious losses due to COVID-19”, MAN added.