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Cowry Asset Management Limited Page 1 Cowry Industry Review Nigeria Industry: FMCG Report Date: July 2012 The Nigerian Fast Moving Consumer Goods …Vast Opportunities Amidst High Operating Cost… Over 150 million population Growing middle class High appetite for luxury Low cost of labour Availability of Raw Materials Tax Incentives High energy cost Poor Road Network Limited R&D Policy Inconsistency Volatility in Commodity Prices

Cowry Industry Review · Cowry Asset Management Limited Page 1 Low cost of labour Cowry Industry Review Nigeria Industry: FMCG Report Date: July 2012 The Nigerian Fast Moving Consumer

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Page 1: Cowry Industry Review · Cowry Asset Management Limited Page 1 Low cost of labour Cowry Industry Review Nigeria Industry: FMCG Report Date: July 2012 The Nigerian Fast Moving Consumer

Cowry Asset Management Limited Page 1

Cowry Industry Review Nigeria Industry: FMCG Report Date: July 2012

The Nigerian

Fast Moving

Consumer Goods …Vast Opportunities Amidst High Operating Cost…

� Over 150 million population

� Growing middle class

� High appetite for luxury

� Low cost of labour

� Availability of Raw Materials

� Tax Incentives

• High energy cost

• Poor Road Network

• Limited R&D

• Policy Inconsistency

• Volatility in Commodity

Prices

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Executive�Summary�

� The� Fast� Moving� Consumer� Goods� (FMCGs)� industry� is� a� multitrillion� dollar�

industry� cutting� across� the� entire� spectrum� of� manufacturing� value� chain�

including�production,�wholesale,�distribution�and�retail�trade.��

� The� industry� has� survived� harsh� global� economic� and� financial� crises� which�

spurred� volatility� in� price� of� commodities� and� curbed� lending� activities� of�

financial� institutions,� among� other� things.� Also,� natural� disasters� had� a�

negative�impact�on�production�activities-�especially�on�oil�input�prices;�not�to�

mention�their�overall�cost�on�the�global�economy.�

� In�spite�of�the�economic�and�financial�challenges,�which�began�in�2007,�global�

FMCG�brands�have�remained�resilient.�Amid�stiff�competition,�revenues�of�the�

top� 250� brands� rebounded,� year-on-year,� by� 9.72%� to� USD2.82� trillion� in�

2010;�with�Asian,�American� � and� European� companies� leading� the� pack.� The�

companies� also� expanded� their� operations� via� organic� (mainly� in� emerging�

countries)�and�inorganic�growth�(chiefly�in�the�developed�countries)�strategies.�

� �Nevertheless,�eventualities�or� fall� outs� in� the� troubled�Eurozone�may�pose�a�

risk�to�FMCG�players.�

� Nigeria�has�continued� to�attract� foreign�direct� investments�even�as�economic�

indicators�of�West�Africa’s�biggest�economy�remained�positive.�Manufacturing�

sector� continued� to� record� improvements;� receiving� support� from� relative�

macroeconomic� stability,� a� large� useful� population,� relatively� cheap� financing�

from�foreign�parent�FMCG�companies�to�their�local�units,�as�well�as�improving�

services�sector�(infrastructure)�inter�alia.��

� However,� the� FMCG�business� (along�with� the� rest� of� the� economy)�was� also�

affected� by� a� number� of� factors� which� included,� the� partial� removal� of� fuel�

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subsidy� in� January� of� 2012,� high� cost� of� borrowing,� incessant� attacks� by�

militant�group-�Boko�Haram-,�etc.�

� FMCGs� are� of� significant� benefit� to� the� local� economy� in� terms� of� providing�

employment;�producing�goods�for�local�consumption�(as�well�as�for�exports)�at�

competitive�prices;�spurring�fringed�economic�activities�such�as�distribution�and�

retail�activities�and;�providing�revenue�to�government�by�way�of�taxation.�The�

Nigerian� government� is� also� oiling� the�wheel� by� creating� incentives� to� boost�

domestic� manufacturing� activities� and� output� as� well� as� to� attract� greater�

foreign�capital�flows.�

� Given� current� high� procurement� cost� of� imported� raw� materials� amid� slim�

dollar-dominated�external�reserves�(to�warrant�increased�forex�risk)�as�well�as�a�

growing�population,� inter�alia,� the�future�of�Nigerian�FMCGs� is�dependent�on�

the�local�sourcing�of�these�needed�inputs�in�an�eco-friendly�fashion.��

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Contents� � � � � � � � ������Page�

� Executive�Summary� � � � � � � � 3�

� Global�Economy� � � � � � � � 5�

� Nigerian�Economy� � � � � � � � 13�

� General�features�of�FMCGs� � � � � � � 16�

� Global�FMCG�Industry� � � � � � � � 19�

� Nigerian�FMCG�Industry� � � � � � � 26�

� The�Fast�Moving�Consumer�Goods�Value�Chain� � � � 28�

� Drivers�of�Nigeria’s�FMCG�Industry� � � � � � 37�

� Nigerian�Market�Entry�Strategies� � � � � � 40�

� SWOT�Analysis�� � � � � � � � 46�

� Future�of�FMCGs�in�Nigeria� � � � � � � 68�

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The�Global�Economy�

The�world,�in�recent�times,�has�witnessed�a�spate�of�crises�that�has,�nevertheless,�been�

tempered� by� improved� prospects� especially� in� the� United� States� as� well� as� the�

resilience� of� developing� economies.� Despite� losing� its� AAA� credit� rating� along� with�

France,�the�world’s�biggest�economy�was�a�relatively�bright�spot�having�recorded�a�real�

GDP�growth�of�3%�in�the�fourth�quarter�of�2011�even�as�most�of�its�banks�passed�their�

stress� tests� in� 2012.� The� global� economy� has� also� witnessed� earthquakes,� political�

uncertainties,�lower�growth�in�credit�as�well�as�volatility�in�prices�of�commodities�and�

financial�assets.�

Natural�Disasters�Result�in�Costliest�Claims�

The� globe� recorded� world� changing� events� that� included� natural� disasters� which�

interrupted�lives�and�livelihoods�in�Asia,�New�Zealand�and�the�United�States.�Disasters�

such� as� earthquakes,� tsunamis,� tornadoes� and� winter� storms� wrecked� havoc� on� not�

only�economies,�but�also,�the�environment.�According�to�Munich�Re,�global�economic�

losses�from�natural�disasters�in�2011�totaled�about�USD380�billion�which�were�72.72%�

higher� than� recorded� losses� in�2005�of�USD220�billion.�The�earthquakes� in�Japan� in�

March� and� New� Zealand� in� February� alone� resulted� in� almost� two-thirds� of� these�

losses.� Insured� losses� of� USD105� billion� also� exceeded� the� 2005� record� (USD101�

billion).�Aside�affecting�businesses�by�disrupting�supply�chains�inter�alia,�epidemics�and�

nuclear� leakages�constituted� serious�and�varied�environmental� implications�on�public�

health� and� safety.� The� Arab� spring� which� began� in� 2010,� stretched� into� 2011� and�

continued� to� alter� the� political� landscape� of� MENA� (Middle� East� and� North� Africa)�

countries.�Toppling�of�despotic�regimes�was�a�common�feature�that�even�crystallized�in�

democratically� conducted�elections� in� Egypt.�However,� the�political� events�have�also�

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had�some�economic�implications.�According�to�Geopolicity,�GDP�losses�in�Libya,�Egypt,�

Tunisia,�Syria,�Yemen�and�Bahrain�was�estimated�at�around�USD20.56�billion�in�2011�

alone.�Furthermore,�the�International�Monetary�Fund�(IMF),�estimated�that�Libya’s�real�

GDP�declined�by�61.0%�in�2011�(from�a�growth�of�2.1%�in�2010)�while�Yemen’s�real�

GDP�fell�by�10.55�(as�against�7.7%�in�2010)-�both�countries�being�oil�exporters.�Also,�

Egypt’s�real�GDP�grew�by�1.8%�in�2011�(as�against�5.1%�in�2010)�while�Tunisia’s�real�

GDP� declined� by� 0.8%� in� 2010� (as� against� a� growth� rate� of� 3.1%� in� 2010)-� both�

countries�are�oil-importing.�

Economic�Challenges�hinged�on�Eurozone�

There� were� also� economic� woes� which� threw� the� global� economy� into� a� state� of�

uncertainty.� Concerns� have� lingered� over� the� health� of� economies,� especially� in�

developed�regions�of�the�world�(Eurozone�in�particular),�due�to�financial�crises�that�has�

crippled�real�sector�activities.�According�to�the�World�Bank,�world�economic�growth�in�

terms�of�real�Gross�Domestic�Product�declined�from�4.1%�in�2010�to�2.7%�in�2011�and�

is� being� estimated� at� 2.5%� for� 2012.� Much� of� this� growth� came� from� developing�

economies�which�appear� to�be� somewhat� resilient� to� turmoil� in� the�developed�world�

with�places�like�China,�India�and�Nigeria�showing�higher�degrees�of�resilience.�

The�Eurozone�experienced�pessimism�from�both�investors�and�consumers�alike�as�debt�

instruments� of� government� and� lenders� continued� to� receive� worsening� ratings.�

Appetite�for�risk�also�plummeted�as�indicated�by�the�increases�in�Credit�Default�Swap�

rates.� However,� efforts� at� fiscal� consolidation,� which� sought� to� reduce� government�

borrowing�and� increase� taxation,� received� support�of�major� stakeholders� such�as� the�

European�Union�and�the�United�States.�

In� response� to� the� challenges� that� resulted� in� declining� of� investor� confidence,�

whittling� business� output,� fall� in� consumer� demand� and� increase� in� unemployment�

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rate,�developed�economies�have�began�taken�significant�structural,�fiscal�and�monetary�

policy�steps�to�help�boost�sentiment�and�stimulate�economic�activity.�

The�major�threat�to�the�developing�economies�has�remained�the�foreign�trade�channel,�

as� traditional� exports� such� as� crude� oil� have� seen� less� demand� from� erstwhile� huge�

markets.� Also,� the� incidence� of� reduced� capital� inflows� (Foreign� Direct� Investments,�

Foreign�Portfolio�Investments,�Syndicated�Loans�from�leading�global�banks�and�Money�

Transfers)� from� developed� countries� as� well� as� the� ongoing� banking� sector�

consolidation� in� Europe� tended� to� stifle� financing� activities� and� stunt� growth� in� the�

emerging�markets.�

Financial�Channel�Chokes�

The� European� financial� crisis� remained� very� much� a� stumbling� block� as� member�

governments� in� the� Eurozone� struggled� under� huge� debt� obligations� amid� trailing�

productivity� levels� so� much� so� that� debt� to� GDP� ratios� remained� high.� As� part� of�

efforts� to� tackle� the� problem,� Eurozone� finance� ministers� in� February� of� 2011�

established�a�permanent�bailout�fund,�the�European�Stability�Mechanism�(ESM),�worth�

about� 500� billion� Euros.� The� IMF�was� also� actively� involved� in� providing� funding� to�

distressed�governments.�

Lenders� were� risk-wary� not� only� to� government� debts,� but� were� also� nervy� in�

extending� finances� to� businesses� and� consumers� alike� even� as� measures� for� risk�

tolerance� such�as�Credit�Default�Swaps� (CDS)� rates� increased.�Also,� capital� flows�via�

debt�issuance,�equity�placements�and�trade�finance�were�negatively�impacted�as�banks�

recalled� invested� funds.� However,� funding� pressures� on� European� banks� have� been�

eased� due� in� part� to� the� ECB’s� long-term� refinancing� operations� (LTRO)� since�

December� 2011.� In� addition,� many� European� banks� have� already� satisfied� the� new�

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requirement� under� Basel� Three� and� countries� have� begun� to� implement� fiscal�

consolidation-�a�precondition�to�receiving�bailout�money.�

Source:�UNCTAD�STAT,�Cowry�Research�

Source:�UNCTAD�STAT,�Cowry�Research�

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

450,000.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FDI inflows in Developing Economies (USD millions)

Africa America Asia Oceania

61.83%

31.70%

6.23% 0.23%

Percentages of FDI inflows in Developing Economies in 2011

Asia America Africa Oceania

The trend suggests that Foreign

Direct Investment inflows into the

developing economies (particularly

Asia) and America, seemed to have

shown some growth post global

financial crises (in 2007/2008),

indicative of a growing reallocation

of capital to the relatively

increasingly attractive developing

regions where cost of inputs such as

labour are more competitive.

Developed countries in Europe

remained the largest recipients of

foreign inflows while developed Asian

countries like Japan were the weakest

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Source:�UNCTAD�STAT,�Cowry�Research�

Source:�UNCTAD�STAT,�Cowry�Research�

-200,000.00

0.00

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

199920002001200220032004200520062007200820092010 2011

FDI inflows in Developed Economies (USD millions)

America Asia Europe Oceania

35.87%

1.29%

56.86%

5.98%

%age of FDI inflows in Developed Economies

America Asia Europe Oceania

Compared to developing regions, Foreign

Direct Investments inflows into the

developed economies, particularly

Europe, seemed to have shown some

decline post global financial crises (in

2007/2008), which may be reflective of

increasing costs in both the

manufacturing and services sectors and

the consequent reallocation of capital so

as to remain competitive.

Developed countries in Europe

remained the largest recipients of

foreign inflows while developed Asian

countries like Japan were the weakest

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World�Financial�Markets�Tumble�

At� USD45� trillion,� global� stock� markets� lost� nearly� USD� 6.3� trillion� as� the� Europe’s�

financial� crisis� spread� across� the�world� in� the� latter� half� of� 2011.� The�UK�FTSE�100�

shed�5.6%�in�2011,�while�the�French�and�German�markets�declined�by�17%�and�15%�

respectively.� However,� US� stocks� fared� relatively� better.� Although� the� S&P� 500�

moderated� by� 0.003%,� the� Dow� Jones� industrial� average� of� 30� blue-chip� American�

stocks� gained� 5.5%.� China's� Shanghai� Composite� Index� lost� 22%� in� 2011� as� from�

efforts� to� slow� down� the� Chinese� economy� while� the� Bombay� Stock� Exchange's�

benchmark�equity�index,�Sensex,�lost�24%�same�year.�

Global�Inflation�and�Commodity�Prices�Moderate�

According�to�the�World�Bank,�developing�countries�inflation,�which�averaged�7.2%�in�

2011�eased�to�a�5%�seasonally�adjusted�annualized�rate�in�the�three�months�through�

April� 2012.� Also,� inflation� moderated� from� 2.7%� to� 2.5%� in� the� same� period� in�

developed�countries.�Despite�moderation�in�inflation,�international�crude�oil�prices�still�

traded�above�the�USD100�a�barrel�mark�in�2011�as�well�as�in�the�bulk�of�the�first�half�

of�2012.�This�was�amidst�speculative�activities�by�oil� traders,�natural�disasters�(which�

caused�supply�disruptions),�conflicts� in�the�MENA�countries�and� improving�economic�

prospects�in�the�United�States,�Germany,�France�and�in�some�emerging�economies.�ICE�

Brent�crude�oil�price�appreciated�by�4.11%�from�the�beginning�of�2011�to�USD97.57�a�

barrel�at�the�end�of�the�first�half�of�2012-�although�peaked�at�USD126.23�a�barrel�in�

the�middle� of� 2012.�Also,�Opec’s� reference� basket� price� of� crude� oil� also� rose� from�

USD89.79� a� barrel� early� 2011� to� USD92.99� a� barrel� at� the� end� of� June� 2012-� also�

peaking�at�USD124.59�in�mid�2012.�

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Following� a� similar� pattern� with� crude� oil� prices,� the� prices� of� several� other�

commodities� climbed�around� the�middle�of�2011�but� subsequently�declined� in�2012.�

According�to�World�Bank,�the�fall�in�prices�was�not�unconnected�to�the�debt�crisis�in�

Europe,� weakened� global� demand� as� well� as� slowed� growth� in� large� commodities�

consumer,�China.� IMF’s� Industrial� Inputs�Price� Index�(which� includes�Agricultural�Raw�

Materials�and�Metals�Price�Indices)�tumbled�from�a�high�point�of�217.17�points�in�April�

to�176.03�points�in�the�corresponding�period�of�2012.�The�Food�and�Beverage�Index�

also�declined�from�a�high�point�of�192.44�points�in�February�2011�to�169.9�points�in�

February�2012.�The�Food�Price� Index�includes�Cereal,�Vegetable�Oils,�Meat,�Seafood,�

Sugar,�Bananas,�and�Oranges�price�Indices�while�the�Beverage�Price�Index�consists�of�

Coffee,� Tea,� and� Cocoa� prices.� The� IMF� noted� that� part� of� the� recent� decline� in�

commodity� prices� reflected� the� greenbacks’� appreciation� against� the� Euro� as�well� as�

against�a�broader�index�of�currencies.�

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The�Nigerian�Economy�

The�Nigerian�economy� is�usually� classified� into�oil� and�non-oil� sectors�due�mainly� to�

the� critical� role� of� the� oil� &� gas� sector.� The� non-oil� sector� is� basically� driven� by�

activities� in� Tele-communications,� Wholesale� and� Retail� Trade,� Building� &�

Construction,� Hotel� &� Restaurant,� Real� Estate� and� Business� Services� sectors� which�

jointly� account� for� 30.4%� of� the� nation’s� real� GDP� as� at� 2011.� Conversely,� the� oil�

sector�which�constitutes�14.78%�of�total�real�GDP�continued�to�trail�from�the�effects�

of�series�of�shut-ins�of�oil�installations�and�oil�theft�in�the�oil-rich�Niger�Delta�region.�

The� Nigerian� real� GDP� grew� by� 7.45%� in� 2011,� down� from� 7.87%� recorded� in� the�

preceding�year-�albeit�exceeding�its�7%�projection�for�the�year.�

Nigeria� retained�a� trade� balance� surplus�as� trade� swelled� to�N9� trillion� in�2011� from�

N6.36�trillion�in�2010.�The�corresponding�exports/total�trade�were�65.5%�and�66.2%�

of�which�crude�oil/total�exports�stood�at�71.2%�and�70.4%�respectively.�Other�major�

exports� included� plastic,� rubber� and� associated� articles,� prepared� foodstuffs�

(beverages,� spirits� and� vinegar),� tobacco,� raw� hides� and� skins,� leather,� etc.� Foreign�

direct�investments�also�grew�year-on-year�by�46.17%�to�USD8.92�billion�in�2011.�

A� review�of� the�2011�Budget�performance� showed� that� receipts� from�Crude�oil�sales�

(N4.61� trillion),� Royalties� (N1.06� trillion)� and� Petroleum� Profit� Tax� (N2.92)� trillion�

exceeded� their� annual� estimates� by� 20.61%,� 67.26%� and� 45.63%� respectively.�

However,�total�revenues�which�accrued�to�the�Federal�Government�(after�distributions�

to�States�and�Local�governments)�amounted�to�N2.57�trillion�in�2011�as�against�a�total�

expenditure�to�N4.30�trillion�resulting�in�a�budget�deficit�of�N1.73�trillion.�

Total�domestic�federal�government�borrowings�of�N852.27�billion�in�2011�was�22.82%�

higher�than�N1.10�trillion�recorded�in�2010.�However,�the�alarming�rate�of�government�

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borrowing� necessitated� tighter� fiscal� consolidation� which� included� measures� to�

gradually� step�down� the�country’s�huge� recurrent�expenditure�by� four�per� cent� from�

2011�to�2015.�According�to�the�Debt�Management�Office,�the�country’s�total�nominal�

debt� stock� increased�at�a�CAGR�of�20.19%�to�N6.51� trillion�as�at�2011�(from�N2.59�

trillion�as�at�2007).�Nevertheless,�Nigeria’s�total�debt�stock�to�GDP�ratio�of�17.45%�as�

at�2011�is�still�below�her�self-imposed�threshold�of�25%�and�peer�group’s�threshold�of�

40%.�In�addition,�total�debt�service/revenue�ratio�as�well�as�external�debt/export�ratio,�

both�liquidity�indicators,�appeared�good�at�5.3%�and�4%�respectively�as�compared�to�

peers’�thresholds�of�30%�and�20%�respectively.�

Total�money�stock�in�the�economy�grew�year-on-year�by�15.77%�to�N13.30�trillion�as�

at� December� 2011� while� total� currency� in� circulation� increased� year-on-year� by�

13.62%�to�N1.57�trillion.�Demand�deposits�swelled�by�24.06%�to�N5.52�trillion�while�

near� money� (which� includes� savings,� time� deposits,� etc)� grew� by� 9.70%� to� N6.53�

trillion.�

The�Nigerian�financial�system�is�coming�out�of�reforms�which�began�towards�the�end�

of�2010�and�that�left�in�their�wake,�three�nationalised�banks�and�five�acquired�banks�in�

addition�to�mass�layoffs.�Financial�institutions�also�began�deleveraging�and�even�made�

huge� loan� loss� provisions� while� the� country’s� first� asset� management� company,�

AMCON,� was� established� to� buy� up� and� clean� up� toxic� risk� assets� of� banks� which�

amounted�to�N4.02�trillion�(or�USD28�billion)�at�a�price�of�N1.76�trillion�(or�USD11.73�

billion).�

Notwithstanding� the� losses� to� shareholders� (whose� banks� declared� losses� and/or�

decimated� profits),� the� mergers� and� acquisitions� in� the� banking� industry� as� well� as�

nationalisation�of�banks�have�led�to�stronger�healthier�financial�institutions�and�greater�

confidence� for� depositors.� Nevertheless,� following� the� ‘clean� up’� Nigerian� banks�

appeared�to�have�become�more�risk�averse�preferring�to�invest�in�risk-free�government�

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assets� rather� than�extending�credit� to� the�private� sector.�And�where� risk�assets�were�

created,�they�came�with�steep�interest�rates.��

The�Nigerian�capital�market�did�not�pass�the�turbulent�times�unscathed�as�it�witnessed�

its�own�share�of�battery.�The�NSE�ASI�lost�16.31%�on�a�year-to-date�basis�to�close�at�

20,730.64�points�while�the�market�capitalisation�declined�by�17.45%�to�close�at�N6.53�

trillion.�At�19,732.34�points�on�December�8th�2011,� the� index� fell� to� its� lowest� three�

years�with�several�companies’�stocks�from�the�various�sectors�undervalued�and�trading�

below�their�respective�book�values�per�share.�

Amid�rising�import�bills,�the�Naira�depreciated�against�major�trading�pairs,�particularly�

the�U.S.�dollar,� as�Nigeria’s� foreign�exchange� reserves,�CBN’s� tool� for�defending� the�

value� of� the� local� currency,� fell� to� an� average� USD33.54� billion� in� 2011� as� against�

USD38.09�billion� in� the�preceding�year.� In�2011,� the�Naira� lost�5.05%�(or�N7.53)� to�

close� at� N156.7/USD� at� the� official� market� while� it� shed� 7.57%� (or� N11.50)� and�

6.49%�(or�N10)�to�N163.54/USD�and�N164/USD�respectively.�

Domestic�prices�for�commodities�and�services�were�relatively�lower�in�2011,�as�headline�

inflation� averaged� 10.85%� per� annum� in� comparison� to� general� price� levels� in� the�

preceding�year�which�increase�by�an�average�of�13.76%�per�annum.�Inflation�fell�to�as�

low� as� 9.3%� in� August� of� 2011� from� a� year� high� 12.8%� in� March.� Core� inflation�

averaged� 11.73%� while� food� inflation� averaged� 10.34%.� The� slowdown� in� headline�

inflation�was�attributed� to� slowdown� in�economic� activities� resulting� from,� inter�alia,�

electioneering� activities� in� first� quarter� of� 2011,� reduced� lending� by� the� banking�

sector,� increased� unemployment� particularly� from� the� banking� reforms,� and� reduced�

investment�activities.�However,�headline�inflation�increased�in�January�2012�due�to�the�

partial�removal�of�fuel�subsidy�and�continued�to�fluctuate�afterwards.�

����

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General�features�of�FMCGs:�

• Products�are�sold�quickly�due�to�high�consumer�demand;�

• Are�generally� replaced�or�fully�used�up�over�a�short�period�of�days,�weeks,�or�

months,�and�within�one�year.�

• Are�relatively�low�cost;�

• The�absolute�profit�made�on�FMCG�products�is�relatively�small;�

• Generally�sold�in�large�quantities;�

• Cumulative�profit�on�such�products�can�be�substantial;��

• Include�non-durable�goods�such�as�soft�drinks,�toiletries,�and�grocery�items.�

From�the�consumers'�perspective:��

• Frequent�purchase�

• Low� involvement� (little� or� no� effort� to� choose� the� item.� But� products� with�

strong�brand�loyalty�are�exceptions�to�this�rule)�

• Low�price�

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From�the�marketers'�view�point:��

• High�volumes�

• Low�contribution�margins�

• Extensive�distribution�networks�

• High�stock�turnover�

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Some�Global�Brands��

� � �

� �

���� � �

����

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Global�FMCG�Industry�

The�world’s�FMCG�brands�are�multitrillion�dollar�businesses�spread�across�the�various�

continents�to�meet�the�daily�needs�of�the�world’s�population.�They�elicit�huge�capital�

expenditure�and�offer�several�benefits�not�only�in�terms�of�value�creation,�but�also�in�

terms�of�employment�generation,�social�welfare�and�government�revenue.�Essentially,�

investments�by�some�of�the�famous�brand�manufacturers�are�tailored�to�influence�the�

spending�habits�of�a�significant�portion�of�the�over�seven�billion�citizens�of�the�world-�

by�catering�to�the�needs�of�both�high-end�and�low-end�consumers�irrespective�of�their�

geographical�locations.�

FMCGs�not�entirely�immune�from�global�economic�malaise�

The�world�economy� is� still�making�a� recovery� from� the�2007�economic�and� financial�

crises�and�so�are�the�operators.�The�scale�of�business�activities�in�the�more�financially�

hit� regions,� especially� in� Europe,� can� be� aptly� summarized� by� the� shrinking�monthly�

purchasing�managers’�indexes�in�the�constituent�economies,�as�recently�as�2012.�Also,�

the� lagging� economies� in� the� developed� world� have� witnessed� high� risk� sovereign�

debts,�declines� in� lending�activities,�drops� in� corporate�profits,� rising�unemployment,�

falling� consumer� demand,� etc� and� appear� to� be� the� least� likely� to� recover.� But� the�

current� trend� suggests� the� emerging� economies� are� increasingly� coming� under� the�

focus� of� Transnational� Corporations� (TNCs)� which� have� had� their� competitive� edge�

trimmed�as�a�result�of�the�effects�of�the�global�malaise.�

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Size�of�Global�FMCG�IndustrySize�of�Global�FMCG�IndustrySize�of�Global�FMCG�IndustrySize�of�Global�FMCG�Industry���� 2010201020102010���� 2009200920092009���� 2008200820082008����

Aggregate�sales�of�top�250�consumer�goods�manufacturers� USD2.82�trillion� USD2.57�trillion� USD3.2�trillion�

Average�size�of�top�250�consumer�goods�manufacturers� USD11.3�billion� USD10.3�billion� USD12.7�billion�

Minimum�sales�required�to�be�on�top�250�list� USD2.5�billion� USD2.3�billion� USD2.8�billion�

Composite�y-o-y�sales�growth� 8.40%� -19.69%� 4.80%�

Composite�net�profit�margin� 8.50%� 6.40%� 4.80%�

Composite�asset�turnover� 0.9x� 0.9x� -�

Composite�return�on�assets� 7.50%� 5.60%� 4.70%�

Economic�concentration�of�top�10� 27.80%� 26.80%� 26.30%�

Source:�Deloitte,�Cowry�Research�

FMCGs�were�prone�to�input�price�volatilities...�

In�the�developed�economies,�activities�of�FMCGs�have�been�hampered�by�high�cost�of�

raw�materials,� volatile� crude� oil� prices,� lingering� consumer� debt� and� unemployment.�

Weakened� currencies� of� countries� like� the�U.S.� (as� a� result� of� decline� in� confidence�

levels)�created�opportunities�for�bets�in�commodities,�thereby�dislocating�prices�of�raw�

materials.� Consequently,� a� significant� number� of� companies� have� resorted� to� cost�

reduction� initiatives� in� order� to� stay� competitive� in� the� market� place.� Very� familiar�

means�by�which�FMCGs�remained�competitive�were�via�inorganic�growth�(mergers�and�

acquisitions).� Also� they� outsourced� their� business� to� relatively� low� cost� areas� like�

China,�India,�Nigeria,�etc,�and�took�advantage�of�opportunities�for�inorganic�growth�in�

the�frontier�or�emerging�economies�where�growth�rates�are�faster�and�where�they�had�

access�to�raw�materials�and�labour�at�competitive�prices.�

Notable�Global�Brands�

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Source:�Deloitte/Cowry�

EUROPE� Country� Product�Sector� 2010�net�sales� 2010� 2010�

Company�name�� �

(USD�million)� net�sales�growth� net�profit�margin�

Nestle� Switzerland� Food,�Drink�&�Tobacco� 105,492� 2%� 32.20%�

Unilever�Netherlands�and�United�Kingdom�

Food,�Drink�&�Tobacco� 58,775� 11.10%� 10.40%�

Nokia� Finland� Electronic�Products� 56,364� 3.60%� 3.20%�

Anheuser-Busch�InBev�SA/NV�

Belgium� Food,�Drink�&�Tobacco� 36,297� -1.30%� 15.90%�

Koninklijke�Philips�Electronics�N.V.�

Netherlands� Personal�&�Household�Products� 33,754� 9.60%� 5.70%�

L'Oreal�SA� France� Personal�&�Household�Products� 25,888� 11.60%� 11.50%�

Compagnie�Generale�des�Establissements�Michelin�S.C.A.�

France� Tires� 23,757� 20.80%� 5.90%�

Imperial�Tobacco�Group�Plc� United�Kingdom� Food,�Drink�&�Tobacco� 23,415� 1.80%� 10.10%�

British�American�Tobacco�Plc� United�Kingdom� Food,�Drink�&�Tobacco� 23,014� 4.80%� 21.10%�

DANONE� France� Food,�Drink�&�Tobacco� 22,587� 13.50%� 12%�

Heineken�N.V.� Netherlands� Food,�Drink�&�Tobacco� 21,423� 9.70%� 9.60%�

Henkel�AG�&�Co.�KGaA� Germany� Personal�&�Household�Products� 20,041� 11.20%� 7.60%�

Adidas�AG� Germany� Fashion�Goods� 15,921� 15.50%� 4.70%�

Diageo�Plc� United�Kingdom� Food,�Drink�&�Tobacco� 15,808� 1.50%� 20.30%�

Source:�Deloitte/Cowry�

AMERICA� Country� Product�Sector� 2010�net�sales� 2010� 2010�

Company�Name�� �

(USD�million)� Net�sales�growth� net�profit�margin�

Procter�&�Gamble� United�States� Personal�&�Household�Products� 82,559� 4.60%� 14.30%�

Apple� United�States� Electronic�Products� 65,225� 52%� 21.50%�

PepsiCo� United�States� Food,�Drink�&�Tobacco� 57,838� 33.80%� 11.00%�

Kraft�Foods� United�States� Food,�Drink�&�Tobacco� 49,207� 21.80%� 8.40%�

The�Coca-Cola�Company� United�States� Food,�Drink�&�Tobacco� 35,119� 13.30%� 33.80%�

Mars�Incorporated� United�States� Food,�Drink�&�Tobacco� 30,000� 7.10%� n/a�

Tyson�Foods�Inc.� United�States� Food,�Drink�&�Tobacco� 28,430� 6.50%� 2.70%�

Philip�Morris�International�Plc� United�States� Food,�Drink�&�Tobacco� 27,208� 8.70%� 27.60%�

NIKE�Inc.� United�States� Fashion�Goods� 20,862� 9.70%� 10.20%�

Kimberly-Clark�Corporation� United�States� Personal�&�Household�Products� 19,746� 3.30%� 9.80%�

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ASIA� Country� Product�Sector� 2010�net�sales� 2010� 2010�

Company�name�� �

(USD�million)� net�sales�growth� net�profit�margin�

Samsung�Electronics� South�Korea� Electronic�Products� 134,528� 11.20%� 10.40%�

Panasonic� Japan� Electronic�Products� 101,704� 17.20%� 1%�

Sony� Japan� Electronic�Products� 73,761� 0.20%� -3.10%�

LG�Electronics� South�Korea� Electronic�Products� 48,506� -23.60%� 2.30%�

Sharp�Corporation� Japan� Electronic�Products� 35,357� 9.70%� 0.70%�

Bridgestone�Corporation� Japan� Tires� 32,680� 10.20%� 3.70%�

Japan�Tobacco�Inc.� Japan� Food,�Drink�&�Tobacco� 29,088� -1.10%� 6.00%�

Lenovo�Group�Limited� Hong�Kong� Electronic�Products� 21,594� 30.00%� 1.30%�

Haier�Group� China� Home�Furnishings�&�Equipment� 20,075� 9.20%� n/a�

Kirins�Holdings�Company�Limited� Japan� Food,�Drink�&�Tobacco� 20,959� -4.30%� 1.20%�

Acer�Incorporated� Taiwan� Electronic�Produts� 19,973� 9.60%� 2.40%�

Suntory�Holdings�Limited� Japan� Food,�Drink�&�Tobacco� 19,898� 12.40%� 2.70%�

Source:�Deloitte/Cowry�

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Current�and�Emerging�Trends�in�the�Global�FMCG�Market�

The� current� economic� and� financial� realities� in� developed� regions� of� the� globe� will�

necessitate�the�emergence�of�better�approaches�to�doing�business�in�order�to�increase�

competitiveness�and�to�remain�relevant�in�the�global�FMCG�space.�Also,�going�forward,�

there� will� be� a� shift� in� business� strategies� in� order� to� take� advantage� of� latent�

opportunities,�especially�in�the�emerging�markets.�While�doing�these,�there�will�also�be�

the�need�to�cater�to�and�conform�to�new�global�standards�and�demands�especially�with�

regards�to�ensuring�sustainability�of�not�only�raw�materials,�but�also�the�environment.�

The� Global� Commerce� Initiative� (GCI),� “2018� THE� FUTURE� VALUE� CHAIN”� report,�

identifies�key�trends�and�future�tendencies�in�the�consumer�goods�industry:�

I. Declining�economies,�especially� in�Europe,�due�to�the�recent�global�economic�

and�financial�crises�that�restricts�consumer�spending�and�reduce�the�availability�

of�funds�for�company�expansion.�

II. Important�changes�in�social�structures�in�regions�such�as�Asia�which�will�record�

more�growth�in�middle-class�consumers,�urbanisation�and�ageing�population.�

III. The� rising� cost� and� availability� of� raw�materials� will� disrupt� supply� chains� of�

global� FMCG� producers� and� consequently,� impact� negatively� on� their�

consumers.�

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Other�identified�areas�include:�

IV. Increased� awareness� of� sustainability� by� both� the� consumers� who� demand� it�

from/and� the� producers.� For� example,� the� growing� campaigns� against�

deforestation,� the� campaigns� for� using� recyclable� packaging� materials,� lower�

energy�consumption,�lower�CO2�emissions,�etc�

V. Increasing�use�of� consumer� technologies� that�will�change� the�way�consumers�

interact�with�each�other�and�the�companies�that�serve�them�

VI. changes�to�business�models�and�channels�to�the�market�

VII. Increasing� importance� of� information� in� the� supply� chains� which� will� see�

greater� collaborations� and� sharing� of� infrastructure� such� as� transport� and�

distributor�database�

VIII. Public� safety� concerns� as� an� increasing� number� of� food� safety� scares� put�

pressure�on�the�industry�to�secure�supply�chains�

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Nigeria�Basic�Information�

Land�areaLand�areaLand�areaLand�area����

923,773�sq�km�

PopulationPopulationPopulationPopulation����

158.3m�(2010,�IMF�mid-year�estimate)�

Main�towns�Population�in�millionsMain�towns�Population�in�millionsMain�towns�Population�in�millionsMain�towns�Population�in�millions����(2010,�World�Gazetteer�estimates)(2010,�World�Gazetteer�estimates)(2010,�World�Gazetteer�estimates)(2010,�World�Gazetteer�estimates)����

Lagos�10.0�

Ibadan�5.2��

Benin�2.4��

Abuja�1.4�

ClimateClimateClimateClimate����

Tropical;�with�a�long�wet�season�in�the�south,�particularly�the�south-east,�and�a�shorter�wet�season�in�the�north�

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Nigerian�FMCG�Industry�

Historically,�consumer�packaged�goods�have�been�in�existence�pre-independence�and�

forms�part�of�the�culture�in�modern�day�Nigeria.�The�very�diverse�brands�have�grown�

to�be�widely�accepted�and�well�positioned�in�Nigeria’s�consumer�market;�constituting�a�

respectable�portion�of�purchased�items�in�the�baskets�of�its�millions�of�shoppers.�It�also�

has�an�evolving�and�dynamic�value�chain� from� raw�materials� suppliers� to�distributors�

and�retailers.�One�of�the�oldest�brands�to�establish� in�the�country� is�Unilever�Nigeria�

Plc,�which�was�incorporated�as�Lever�Brothers�(West�Africa)�Ltd�on�11th�April,�1923�by�

Lord�Leverhulme;�although�the�company’s�antecedents�have�to�be�traced�back�to�his�

existing�trading�interests�in�Nigeria�and�West�Africa�generally.�

The�Nigerian�FMCG�market� is� a� thriving�one�and� could�be� said� to�have�an�explosive�

growth�potential.�This�is�especially�so,�considering�key�supporting�economic�indicators�

such�as�growing�Gross�Domestic�Product,�a� large�and�growing�population,� increasing�

annual�disposable� incomes,� increasing�number�of�FMCG�businesses�as�well� as�a�wide�

mix� of� competing� brands� in� the�market� from�which� the� consumer� can�make� his/her�

choice.�Although�the�contribution�of�manufacturing�to�total�GDP�remains�very�low,�a�

significant�portion�of� the�over�N1� trillion� in�monthly�currency� in�circulation�(grew�by�

38.13%�from�N1.07�trillion� in�January�2010�to�N1.48�trillion� in�January�2012)� in�the�

country�is�earmarked�for�this�growing�segment�of�goods.�

Over�the�years,�activities�of�FMCG�companies�have�been�of�significant�benefit�to�the�

Nigerian� economy:� by� providing� direct� employment;� producing� goods� for� local�

consumption� (as� well� as� for� exports)� at� competitive� prices;� spurring� associated�

distribution� activities� and;� trading� up� value� to� the� consumer� having� performed� due�

diligence�via�research�and�development�in�accordance�with�the�socio�cultural�needs�of�

their�environment.�Most�of�the�leading�consumer�goods�brands�are�manufactured�and�

marketed�in�Nigeria�by�local�subsidiaries�of�renowned�multinationals�such�as�Unilever,�

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Procter�&Gamble,�P.Z.�Cussons,�Reckitt�Benckiser�and�GlaxoSmithKline�Consumer,�etc�

even�as� increasingly� sophisticated�marketing� activities�of� these� industry�players�have�

further�stimulated�demand�among�consumers.�

Typically,� the� best� familiar� brands� are� currently� international� brands,� which� are�

arguably� the� most� successful,� with� long� established� presence� in� the� country�

(incorporated� pre� Nigeria’s� independence)� and� have� consequently� gained� the� first�

mover�advantage�down�the�line�and�currently�enjoying�broad�acceptance.�In�addition,�

there�are�other�more�recent�brand�entrants,�such�as�Forever�Living�Products,�which�are�

aggressively� being� marketed� in� the� country� but� still� have� their� factories� located�

offshore.�

Given�the�current�global�economic�recession,�particularly�in�the�developed�economies,�

frontier�economies�such�as�Nigeria�seem�to�have�a�more�compelling�story�and�present�

strong� engines� of� growth,� not� only� for� the� �multinationals� (already� thinking� outside�

their�home�economies�where�competition�is�already�stiff)�but�also�for�the�local�firms.�

�Proportion�of�FMCG�Employees�to�total�Manufacturing�as�at�2010� �

Manufacture�of�Food�Products� 2,136,152�

Manufacture�of�Beverages� 111,470�

Manufacture�of�Tobacco�Products� 75,241�

Manufacture�of�rubber�and�plastic�products� 26,677�

Manufacture�of�basic�pharmaceutical�products�and�pharmaceutical� 16,666�

Manufacture�of�paper�and�paper�products� 11,478�

Manufacture�of�computer,�electronic�and�optical�products� 5,576�

FMCG�Total� 2,383,260�

Proportion�of�FMCG�Total�to�Manufacturing�Total� 44.66%�

Proportion�of�FMCG�Total�to�Overall�Employment� 4.91%�

Source:�NBS,�Cowry�Research�

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Nigerian�Fast�Moving�Consumer�Goods�Value�Chain�

����

Supply�Industry Research�&�

Development

Processing/

Manufacturing�Industry

Distribution�Industry

The�supply�industry�is�involved�in�the�production�and�collection�of� manufacturing� inputs� such� as� petrochemicals,� polymers,�agricultural� commodities� (such� as� palm� oil,� fruit� concentrates�and�raw�milk).��

The�manufacturing�industry�is�involved�in�the�processing�of�raw�materials�into�products�that�are�ready�for�use�by�final�consumers�and�that�can�be�easily�distributed�and�sold�to�them���

This�is�the�last�stage�of�the�FMCG�value�chain�and�has�to�do�with�the� distribution� of� finished� or� near-finished� products� to�consumers.�It�involves�both�distributors�and�retailers��

Lenders:�play�a�mediation�

role�by�financing�trade�for�

manufacturers�as�well�as�

by�granting�Consumer�

Finance�Loans�

Wholesaling�

Distributors�

Stores,�Super�

Markets�

Multilevel�

Marketing�

Value� creation� is� the� essence� of� Research� &�Development.� R&D,� as� a� unit� of� manufacturing�interfaces�between�consumers�and�manufacturers� in�order�to�create�value�for�consumers.�

Depots�

Network�

Acquisition�of�farms,�

raw�materials�

processing�plants�by�

FMCG�companies�

Packaging�of�manufactured�

goods:�this�enhances�sales�

Backward�Integration�by�FMCG�manufacturers� Forward�Integration�by�FMCG�manufacturers�

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Nigeria’s�Supply�Industry�

Nigeria� has� a� broad� raw� materials� base� ranging� from� agricultural� inputs� to�

petrochemicals�which�are�essentially�free�gifts�of�nature.�Agricultural�products�include�

groundnuts,� palm� oil,� cocoa,� coconut,� citrus� fruits,� maize,�millet,� cassava,� yams� and�

sugar� cane.� Nigeria� also� has� a� booming� leather� and� textile� industry,� with� industries�

located�in�Kano,�Abeokuta,�Kaduna,�Onitsha,�and�Lagos.�

Due�to�inability�of�local�supply�to�adequately�feed�manufacturing�production�activities,�

some�FMCG�companies�have�resorted�to�importation�of�some�of�these�raw�materials�to�

bridge�the� local�supply�gap.�However,�with� importation�comes�the�risk�of�volatility� in�

international�prices�of�commodities�and�increased�cost�burden�to�manufacturers.�

In� order� to� reduce� such� volatility� risks,� guaranty� the� availability� of� raw� materials� at�

optimum� cost� and� quality� as� well� as�maximise� economies� of� scale,� some� companies�

have� towed� the�path�of�backward� integration�as�a�way�of� shielding� themselves� from�

such�costs�and�consequently,�increase�their�margins�in�a�sustainable�fashion.�

Cases�of�Backward�Integrating�FMCGs�in�Nigeria�

� PZ� Cussons� Nigeria� Plc� (PZN)� is� one� of� such� companies� that� have� already�

towed�that�path.�In�December�2010,�the�Group�announced�plans�to�expand�its�

presence� in� the� Food� and� Nutrition� category� in� Nigeria� through� the�

establishment� of� a� joint� venture� with� Wilmar� International� Limited� for� the�

construction� of� a� palm� oil� refinery� with� Wilmar� International� as� well� as� the�

production�of�branded�consumer�edible�oils�and�nutritional�spreads.�

PZ�Wilmar�Limited�is�a�palm�oil�refinery�business�which�is�held�49%�by�Cussons'�

wholly-owned�subsidiary,�PZ�Cussons�(Holdings)�Limited�(PZCH)�and�51%�by�

Wilmar's� wholly-owned� subsidiary,� Wilmar� Africa� Investments� Pte.� Ltd.�

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(WAIPL).� Also,� PZ� Wilmar� Food� Limited� is� a� branded� consumer� edible� oils,�

spreads� and� margarines� business� which� is� held� 51%� by� PZCH� and� 49%� by�

WAIPL.�

PZN�already�operates�in�Personal�Care,�Home�Care,�Food�and�Nutrition,�among�

others.�In�its�Personal�Care�category,�the�company�recently�invested�in�a�more�

efficient�soap�manufacturing�at�the�site�in�Aba,�Abia�State.��For�its�Home�Care�

segment,� it� also� invested� in� a� new� detergent� tower� at� Ikorodu,� Lagos� State.�

The� investments� were� meant� to� improve� on� margins� by� partially� offsetting�

increases�in�raw�material�costs.�Raw�materials,�whether�organic�or�inorganic,�for�

some�of�its�investments�can�be�sourced�locally.�

� FrieslandCampina�WAMCO�Nigeria�Plc,�makers�of�Peak�milk,�is�looking�inwards,�

for� the� sourcing� of� fresh� milk� having� launched� a� Dairy� Development�

Programme�(DDP)� in�Shonga�Dairies� in�Kwara�State�to�harness� local�sourcing�

of�milk� in�Nigeria.�WAMCO� is�going�about� it� in� sustainable�manner�as� it� also�

aims� at� supporting� government’s� initiative� of� “developing� dairy� farming� in�

Nigeria�by�providing�the�required�Technical�Know-How�on�milk�production�to�

Nigerian�farmers�and�also�provide�the�necessary�market�for�the�farmers”;�Bob�

Steetskamp,�the�company’s�CEO�was�quoted�as�saying.�

Through�the�initiative,�WAMCO�is�aiming�for�10�per�cent�local�sourcing�in�the�

short� term.� The� company� is� currently� heavily� dependent� on� imported� milk�

powder.�

� Nestlé� Nigeria� has� trained,� 4,000� farmers� (including� agricultural� extension�

agents,�farm�village�heads,�grain�suppliers�and�transporters)�in�Nigeria.�

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Industrial�Uses�of�Selected�Agricultural�Products�in�Nigeria�

Agricultural�Product� Industrial�Use�

Palm�Oil�

Used�as�a�vegetable�fat�in�margarine�and�confectionary.�

It�is�also�suitable�for�the�production�of�biofuels�as�an�

alternative�to�mineral�oils.�

Palm�Kernel�Oil�

A�feedstock�for�the�production�of�Surfactants�(washing�active�

substances)�for�laundry�detergents,�household�cleaners,�and�

cosmetics.�

Soya�bean� Used�for�the�manufacture�of�Soap,�Paints/Varnish�

Coconut�Used�for�the�manufacture�of�Soap,�Paints/Varnish,�

Resins/Plastics�

Citrus� Used�in�the�manufacture�of�fruit�juices�

Millet� Used�in�the�brewery�industry�for�the�manufacture�of�beverages�

Maize�Used�in�the�manufacture�of�cereals,�glucose,�condiments,�

alcoholic�beverages,�formulated�dairy�products,�snack�foods�

Cassava�

Used�in�the�manufacture�of�laundry�starch,�glue,�biscuits,�

pharmaceutical�products,�confectionery,�noodles,�savouries,�

paper�cartons,�pastries,�mosquitoes�coils,�ethanol,�textile�

industrial�products,�dry�cell�batteries,�toothpaste,�etc�

Source:�USDA,�Henkel,�Cowry�Research�

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Nigeria’s�FMCG�Manufacturing�Segment�

Production�activities�in�the�FMCG�industry�are�segmented�into�Personal�&�Household�

Products,�Food,�Drink�&�Tobacco,�Chemicals�&�Paints,�Electronic�products�and�White�

goods.�Key�players�in�the�FMCG�manufacturing�business�include:�Unilever�Nigeria,�P.Z.�

Cussons�Nigeria,�Cadbury�Nigeria,�Procter�&�Gamble,�etc.�Production�activities�involve�

methods�such�as�the�mass�production�type�and�batch�production�type,�inter�alia.�

Local�units�of�the�multinationals�enjoy�certain�benefits�compared�to�their�competitors.�

Such�benefits�come�with� their� relationships�with�their�parent�companies�and� include,�

obtaining� cheaper� financing� from� parent� companies,� reduced� cost� of� research� and�

development,�foreign-sponsored�manpower�training,�greater�product�coverage�due�to�

prime�mover�advantage�etc.�

Generally,�Nigeria’s�manufacturing�sector�could�be�said�to�be�growing�but�hobbled�by�

a� host� of� challenges.� There� are� problems� of� inadequate� infrastructure,� competitive�

imports� of� foreign� substitutes,� high� transportation� costs,� high� cost� of� imported� raw�

materials� and� particularly� high� energy� cost� which� make� manufacturers� incapable� of�

satisfying�local�consumption�demand.�Tire�and�Textile�manufacturing�companies�died�a�

slow�death�due�partly� to�high�energy�costs�and�unfavourable�government�policies� to�

protect�against�harsh�operating�environment�and�foreign�competition.�

Pioneer�Status�Incentive�

In� order� to� stimulate� more� manufacturing� activities� in� the� country,� the� federal�

government� granted� Pioneer� Status� to� the� sector� (in� which� companies� must� have�

incurred� a� capex� of� not� less� than� N5� million� in� order� to� qualify)� with� the� aim� of�

enabling�the�industry�make�a�reasonable�level�of�profit�within�its�formative�years.�The�

profit�so�made�is�expected�to�be�ploughed�back�into�the�business.��

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����

List�of�some�Sectors�Eligible�for�Pioneer�Incentives��

s/no� Industries� Products�

1�Cultivation,�Processing�and�Preservation�of�food�crops�and�fruits�

Preserved�canned�foodstuff�and�fruits,�tea,�coffee,�refined�sugar,�tomato�puree/juice�etc.�

2� Integrated�dairy�production�Butter,�cheese,�fluid�milk�and�powder,�ice�cream�(by�products,�

livestock,�minor�edible�products).�

3�a)�Deep�sea�trawling�and�processing�Coastal�fishing�and�shrimping�

Preserved�sea�foods,�fish�and�shrimps,�fishmeal�

4� Oil�palm�plantation�and�processing� Palm�Oil,�palm�kennel�and�Offal’s�

5� Manufacture�of�enzymes� Enzymes�

6� Manufacture�of�concentrates� Food/fruits�concentrates�

7� Manufacture�of�hops� Brewing�hops�

8�Formulation�and�manufacture�of�pharmaceuticals�

Pharmaceuticals,�health�vitamins�

Source:�NIPC,�Cowry�Research�

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Nigeria’s�FMCG�Distribution�Strategies�

Nigeria’s�FMCGs�are�keenly�competitive�in�their�quest�to�win�customer�loyalty�and�thus�

spend�billions�of�Naira�annually�on�marketing�activities.�Distribution�strategies�to�get�

the� final� products� to� the� final� consumer� include�middlemen� strategies,� operation� of�

depot� networks,�multilevel�marketing,� etc.� There� are� also� informal� retailing� via� small�

kiosks,�open�markets�and�street�marketing.�

Long� established� FMCG� companies� in� Nigeria,� such� as� Unilever� Nigeria,� rely� on�

middlemen� distribution� strategies� while� the� more� recent� entrants,� such� as� Forever�

Living� Products� employ� multilevel� marketing� strategies.� P.Z.� Cussons� operates� a�

network� of� depots� where� consumers� could� walk� in� and� purchase� items.� Also,�

distributors� have� also� been� more� innovative� by� warehousing� their� wares� in� large�

shopping�malls�such�as�Shoprite�which�enjoys�large�traffic�of�shoppers.�

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�Schematic�FMCG�Distribution�Strategies�

����

����

����

����

����

����

����

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Nigerian FMCGs

Middlemen

Wholesaling in Large

Retail Malls

Depot Networks

Multilevel Marketing

Open Markets & Small Kiosks

Distribu

tion

Ch

ann

els

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����

Packaging�of�FMCGs�

Packaging,�which�requires�handsome�amounts�of� investment�by�manufacturers,�helps�

position�the�final�product�in�the�minds�of�consumers.�Nigerian�examples�of�consumer�

goods�packaging�companies�for�FMCGs�include�the�likes�of�Nigerian�Bottling�Company�

which� is� the� franchisee� of� Coca�Cola�Hellenic� Bottling�Company.�Also,�Nigerian�Bag�

Manufacturing� Company� is� a� subsidiary� of� Flour� Mills� of� Nigeria� Plc� and� provides�

packaging� bagging� services� for� its� parent� company�which� is� primarily� into�milling� of�

flour.�Basically,�the�big�brands�tend�to�provide�its�own�packaging�through�a�subsidiary,�

albeit,� there� are� various� local� packaging� firms� that� provide� services� to� the�

manufacturing�firms.�

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Drivers�of�Nigerian�FMCG�Industry�

Demand�Side�Drivers�

The�Nigerian�FMCG�market� is� a� thriving�one�and� could�be� said� to�have�an�explosive�

growth�potential.�This�is�especially�so,�considering�key�supporting�economic�indicators�

such�as:�

i. A�large,�growing�and�youthful�population�

ii. Product�price�sensitivity�of�consumers�

iii. Rising�urbanization,�middle�class�and�other�such�structures�

iv. Changes�in�consumer�behaviour�patterns�and�tastes�

v. Growing�real�estate;�hotels,�more�accessible�shopping�malls�

vi. Wholesale�and�retail�trade�activities�

vii. Changing�disposable�incomes�

viii. Changing�discretionary�Income�levels�

ix. Growing�gross�domestic�product�

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���

Source: CBN, NBS, Cowry Research

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Hotel & Restaurant Output (N' Million)

Increased activities in the hospitality industry are reflective of increased demand for services. This invariably is a booster to FMCG output which is required.

Source:, Cowry Research Source: CBN, NBS, Cowry Research

0

50,000

100,000

150,000

200,000

250,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Nigeria's Population Trend estimates ('000)

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000

1,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Wholesale & Retail Output to Total GDP at constant prices (N 'million)

Total GDP Wholesale & Retail Trade

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Supply�Side�Drivers�

i. Growing� number� of� FMCG� businesses� with� attendant� stiff� competition� for�

emerging�middle�class�

ii. Low�Labour�cost�especially�in�developing�economies�

iii. Need� for� proximity� to� local� sources� of� agricultural� raw� materials� and� other�

industrial�inputs�

iv. Growth�of�modern�retail�channels�

v. Product�innovations�resulting�from�market-focused�research�and�development�

activities�

vi. Low�entry�barriers�to�the�market�place�

Systemic�Drivers�

i. Changes�in�Government�Policies�

ii. The�right�incentives�

iii. Level�of�security�of�lives�and�property�

iv. Increasing�Foreign�Direct�Investment�Stock��

v. Infrastructure�Development�

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Nigerian�Market�Entry�Strategies�

Fast�Moving�Consumer�Goods�manufacturers� in� the�Nigerian�market� have� employed�

different� strategies� over� the� years� to� tap� the� leading�market� in� the�Africa.� This�was�

achieved� using� strategies� such� as� foreign� direct� investment,� acquisitions,� joint�

ventures,� Franchising� as� well� as� various� distribution�models.� Below� are� some� of� the�

entry�strategies�adopted�by�some�known�brands.�

Unilever�

In�the�early� twentieth�century,�Anglo-Dutch�group,�Unilever�Nigeria�Plc,�started�as�a�

soap�manufacturing�company-�a�Greenfield� initiative.�The�company�was� incorporated�

as� Lever� Brothers� (West�Africa)� Ltd� on� 11th� April,�1923.�After� series� of�mergers� and�

acquisitions,� it�has�diversified� into�manufacturing�and�marketing�of�foods,�non-soapy�

detergents� and� personal� care� products.� These� mergers� and� acquisitions� brought� in�

Lipton�Nigeria�Ltd�in�1985�and�Cheesebrough�Ponds�Industries�Ltd�in�1988.�

The� company� changed� its� name� to� Unilever� Nigeria� Plc� in� 2001.� Today,� Unilever�

Nigeria�is�one�of�the�oldest�surviving�manufacturing�organizations�in�Nigeria.�

PZ�Cussons�

PZ� Cussons� opened� its� first� branch� office� in� Nigeria� in� 1899� as� a� traditional� West�

African�Merchant.� It�acquired� its�first�soap�factory,�PB�Nicholis�&�Co�Ltd,� in�1948.� In�

2003,�PZ�Cussons�Plc�entered�into�a�joint�venture�(called�Nutricima)�with�Glanbia�Plc�

to�supply�evaporated�milk�and�milk�powder�in�Nigeria.�In�2010,�it�entered�into�another�

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joint�venture�(PZ�Wilmar�Ltd)�with�Wilmar�International�to�build�a�palm�oil�refinery�in�

Nigeria�and�build�up�an�associate�food�ingredients�business.�

Nestle�

Nestlé,� the� Switzerland-based� company� first� tested� the� ‘Nigerian� waters’� using� the�

distribution� model� as� the� first� sale� of� Nestlé� products� in� Nigeria� dates� back� to� the�

beginning�of� the�20th�century.�This,� it� achieved� through� local� importers�who�placed�

their�orders�directly�with�British�trading�companies�active�in�the�country.�Imports�were�

at�first�sporadic,�but�became�regular�from�the�1920s�when�Nestlé�decided�to�formally�

organise� the� importation� and� distribution� of� products.� In� 1961,� “Nestlé� Products�

(Nigeria)� Limited”� was� officially� created� and� thus� operations� in� Nigeria� as� a� locally�

based�subsidiary�of�Nestlé�began.�

Procter�&�Gamble�

Also,�United�States-based�consumer�packaged�goods�manufacturer,�Procter�&�Gamble�

(P&G),�entered�Nigeria� in�the�early�1990s�and�maintains�a�factory� in� Ibadan,�Africa’s�

second�largest�city.��

Darbur�

In�2007,�Dabur� India�Ltd�commenced�operations�at�a�new� facility� for� toothpastes� in�

Nigeria� that� was� set� up� by� African� Consumer� Care� Ltd,� a� subsidiary� of� Dabur�

International� Ltd,� a� wholly� owned� subsidiary� of� Dabur� India.� In� 2010,� Indian-based�

Godrej�Consumer�Products�Ltd�(a�home�and�personal�care�products�maker)�entered�the�

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Nigerian� market� via� its� acquisition� of� Tura� (a� soap� and� cleaning� products�

manufacturer).�

Tiger�Brands�

At�the�end�of�2010,�South�African�FMCG�company,�Tiger�Brands,�formed�a�partnership�

with� UAC� of� Nigeria� (UACN),� a� Nigerian� diversified� company.� The� joint� venture�

consisted�of�UACN’s�food�and�dairy�operations�as�well�as�the�SWAN�water�business.�In�

addition,�Tiger�Brands�bought�Deli�Foods�Nigeria�Limited,�a�company�engaged�in�the�

manufacturing�and�marketing�of�biscuits�for�the�Nigerian�market.�

Through�the�partnership,�Tiger�Brands�strengthened�its�presence�(as�well�as�the�reach�

of�its�products�portfolio)�in�Africa�having�gotten�access�to�its�biggest�market.�A�UACN�

press� statement� noted� that� “This� joint� venture� provides� UACN� with� the� necessary�

business�platform�for�expansion�into�fast-moving�consumer�goods�product�categories�

in� which� it� already� has� expertise� and� other� new� portfolios� relevant� to� the� Nigerian�

market.”�

Forever�Living�Products�

Pyramidal� networking� or� multilevel� marketing� strategies� are� also� being� adopted� by�

some� offshore-based� entrants� such� as� Forever� Living� Products,� sales� techniques� to�

further� stiffen� competition� in� the� industry.� This� further� pushes� the� boundary� for�

industry� players� beyond� the� conventional.� Based� on� regional� sales� of� the� Forever�

Living� Products� International,� Forever� Living� Products�Nigeria� recorded� the� biggest�

sales�in�Africa�and�ranked�number�ten�in�global�sales�in�2010.�

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Weighing�the�options...�

Greenfield�(Direct)�Investments�

Of�the�various�strategies,�FDIs�in�the�Nigerian�FMCG�space�are�the�most�expensive�to�

operate� due� to� large� size� of� overhead� charges� from� inadequate� infrastructure.�

However,� power� infrastructure� in� the� country� is� currently� being� tackled� as� a� front�

burner�issue�and,�together�with�the�right�government�policies,�availability�of�relatively�

cheaper� labour,� rising� income� levels� and� the� right� incentives,� investing� in� faster�

growing�developing�economies� should�be� far�more� lucrative� than� investing� in� slower�

growing�developed�markets.�

This� helps� multinationals� to� break� into� very� protective� economies� and� also� helps�

catalyze� economic� growth� in� the� host� countries.� For� Nigeria,� the� opportunities� are�

enormous� for� consumer� packaged� goods� manufacturers� who� choose� to� establish�

Greenfield�plants.�

Joint�Ventures�

Joint�Ventures,�on�the�other�hand,�provide�a�lower�risk�option�through�which�FMCGs�

can� have� access� to� greater� markets� such� as� Nigeria’s� (although� the� partnership�

between�the�parties�has�a�definite�lifespan�compared�with�direct�investments).�

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Pyramidal�Networking�

The�Nigerian�consumer�market�is�also�a�target�of�foreign�multinationals�that�may�not�

be� immediately� willing� to� establish� their� presence� through� organic� or� inorganic�

expansion.� Given� the� growing� preference� of� Nigerian� consumers� for� new� brands,� as�

well� as� the� strong� growth� (and� contribution� to� GDP)� of� the� wholesale� and� retail�

business,� the�cheapest�entry� strategy� for� newcomers� to�adopt�may�be� the� pyramidal�

model� which� would� not� involve� large� capital� expenditures� incurred� by� the�

aforementioned�strategies.�

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Below� are� examples� entry� strategies� of� foreign� based� FMCGs� and� their� respective�

modes�of�tapping�the�Nigerian�market�in�the�recent�past:�

Parties� Entry�Strategy:�

P.Z.�Cussons�(L)�and�Wilmar�International�Limited�(F)�PZ�Wilmar�Limited�and�PZ�Wilmar�Foods�Limited�(Joint�Venture)�

P.Z.�Cussons�(L)�and�Glanbia�(F)� Nutricima�(Joint�Venture)�

P.Z.�Cussons�(L)�and�Haier�(F)� HPZ�(Joint�Venture)�

Procter�&�Gamble�Built�Greenfield�manufacturing�plant�(Direct�Investment)�

Godrej�Consumer�Products�Ltd�(F)�and�Tura�Nigeria�(L)� Acquisition�

Tiger�Brands�(F,�49%)�and�UAC�of�Nigeria�(L,�51%)� Joint�Venture�

Tiger�Brands�(F,�100%)�and�Deli�Foods�Nigeria�(L)� Acquisition�

Dabur�International�(F)�Built�Greenfield�manufacturing�plant�(Direct�Investment)�

Kraft�Foods�(F)�and�Cadbury�Nigeria�(L,)� Acquisition�

Kentucky�Fried�Chicken�(F)� Franchising�

Flour�Mills�of�Nigeria�Built�Sugar�Refinery�(Direct�Investment)�

Olam�International�Plans�to�construct�Sugar�Refinery�(Direct�Investment)�

Dangote�Industries�Limited�(L)�and�Savannah�Sugar�(L)� Acquistion�

Guinness�Nigeria�Plc�(L,�a�local�unit�of�Diageo�Plc)�Built�of�Greenfield�brewery�plant�in�Lagos�(Direct�Investment)�

SABMiller�Plc�(F)�and�Pabod�Breweries�(L)� Acquisition�

Heineken�NV�(F�through�local�subsidiary,�Nigerian�Breweries),�Sona�(L)�International�Beer�&�Beverages��Industries�(L),�Benue�Breweries�(L),�Life�Breweries�(L)�and�

Acquisition�

Champion�breweries�(L)� �

Coca�Cola�Hellenic�(F)�and�Nigeria�Bottling�Company�(L)� Divestment�for�expansion�

Nestle�Construction�of�Greenfield�plant�for�(Direct�Investment)�

������������Source:�Cowry�Research��

�������������Key:�(F)�means�Foreign;�(L)�means�Local�or�already�established�

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Some�fast�moving�consumer�goods�manufacturers�operating�in�the�country�are�listed�in�

the�table�below:�

Company�Name� Products� Location�

Sunlight,�Lifebuoy,�Blue�

Band,�Omo,�Close�up�

Tooth�Paste,�Vaseline,�

Royco,�Lux,�Lipton,�Knorr�

Lagos,�Ogun�

Elephant,�Zip,�Jet,�

Tempo,�Rex,�Morning�

Fresh,�Premier,�Imperial�

Leather,�Joy,�Venus,�HPZ�

Fridges�and�Air�

conditioners�

Lagos,�Abia�

Oral�B�Tooth�Paste,�

Always,�Ariel,�Duarcel,�

Gillete,�Hugo�Boss,�Vicks�

Ibadan�

Dettol,�Airwick,�Durex� Lagos�

Fizzled�drinks� Lagos�

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Electronics�and�white�

goods�Lagos�

Aloe�Vera�Gel,�Forever�

Bright�Aloe�Vera�Tooth�

gel,�Aloe�Liquid�Soap,�

SONYA�Colour�Products�

Lagos�

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SWOT��Strengths�of�the�Nigerian�FMCG�Industry�

� Annual�Performance�Growth�

�Amid� the�global�economic�and� financial� straits,� listed�FMCG�companies�grew�

their� turnover� by� nearly� fifteen� per� cent� to� more� than� N1� trillion.� This�

represents� over� eighteen� per� cent� of� the� Nigerian� Stock� Exchange’s� total�

market�capitalisation�as�at�March�of�2012�and�over�three�per�cent�of�2011�total�

gross� domestic� product� at� current� basic� prices.� Net� profit� margins� averaged�

3.38%,�the�highest�being�22.25%.�

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Source:�NSE,�Cowry�Research��

Consumer�Goods�Listed�on��the� Product�Sector� 2011�Turnover� 2011�Turnover�Growth� 2011�Net�Profit�Margin�

Nigerian�Stock�Exchange��

(N’�Million)� (%)� (%)�

Flour�Mills�Nigeria�Plc� Food�Products� 258,268.00� 8.15� 3.24�

Nigerian�Breweries�Plc� Food�Products� 230,123.00� 23.81� 16.52�

Guinness�Nigeria�Plc� Food�Products� 123,663.00� 13.07� 14.50�

Dangote�Sugar�Refinery�Plc� Food�Products� 106,510.00� 18.37� 6.68�

Nestlé�Nigeria�Plc� Food�Products-�Diversified� 97,961.00� 22.29� 17.16�

Dangote�Flour�Mills�Plc� Food�Products� 66,281.00� -1.95� 1.02�

P�Z�Cussons�Nigeria�Plc� Personal�&�Household�Products� 65,877.00� 5.12� 7.92�

7-UP�Bottling�Company�Plc� Food�Products� 59,864.00� 17.15� 3.46�

Unilever�Nigeria�Plc� Personal�&�Household�Products� 54,724.00� 16.91� 10.03�

Honey�Flour�Mills�Plc� Food�Products� 38,072.00� 11.80� 7.10�

Cadbury�Nigeria�Plc� Food�Products-�Diversified� 34,110.00� 16.93� 10.85�

Vitafoam�Nig�Plc� Household�Durables� 14,520.00� 36.67� 3.53�

Beta�Glass�Company�Plc� Household�Durables� 12,726.00� 13.95� 12.14�

Northern�Nigeria�Flour�Mills�Plc� Food�Products� 11,448.74� 12.02� 3.98�

International�Breweries�Plc� Food�Products� 9,908.00� 106.68� 1.49�

National�Salt�Company�of�Nigeria�Plc� Food�Products� 9,681.00� 8.85� 22.25�

Multi-Trex�Integrated�Plc� Food�Products� 6,736.11� 116.94� 1.01�

U�T�C�Nigeria�Plc� Food�Products� 2,798.00�� �

Nigerian�Enamelware�Plc� Household�Durables� 2,365.10� 0.35� 3.73�

Champion�Breweries�Plc� Food�Products� 1,791.00� -4.42� -101.90�

DN�Tyre�&�Rubber�Plc� Tires� 1,362.00� 15.03� -7.19�

Vono�Products�Plc� Household�Durables� 666.56� 52.40� -13.30�

P�S�Mandrides�&�Co�Plc� Food�Products� 174.00� 8.07� 3.45�

Total�Turnover�(NGN)Total�Turnover�(NGN)Total�Turnover�(NGN)Total�Turnover�(NGN)�����

1,209,629.511,209,629.511,209,629.511,209,629.51���� 14.8614.8614.8614.86��������

Total�Turnover�(USD)Total�Turnover�(USD)Total�Turnover�(USD)Total�Turnover�(USD)�����

7,138.427,138.427,138.427,138.42�������� ����

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� Attractive�Investment�Ratios�

Current� low�prices�make�good� investment�candidates�out�of� consumer�goods�

companies� as� price� to� sales� ratios� of�most� listed� FMCG� companies� averaged�

about�1.61�times*.�

Consumer�Goods�Listed�on��the� Product�Sector� Price/Sales� Price/Earnings� Price/Book�

Nigerian�Stock��Exchange��

(x)� (x)� (x)�

Flour�Mills�Nigeria�Plc� Food�Products� 0.20�� 14.63�� 1.49��

Nigerian�Breweries�Plc� Food�Products� 0.52�� 23.69�� 11.54��

Guinness�Nigeria�Plc� Food�Products� 1.96�� 19.91�� 8.86��

Dangote�Sugar�Refinery� Food�Products� 0.04�� 7.59�� 1.37��

Nestle�Nigeria�Plc� Food�Products-�Diversified� 5.10�� 23.58�� 16.87��

Dangote�Flour�Mills� Food�Products� 0.10�� 48.47�� 1.22��

P�Z�Cussons�Nigeria�Plc� Personal�&�Household�Products� 0.37�� 18.65�� 2.27��

7-UP�Bottling�Company�Plc� Food�Products� 0.67�� 12.42�� 2.52��

Unilever�Nigeria�Plc� Personal�&�Household�Products� 0.64�� 24.11�� 13.70��

Honey�Flour�Mills�Plc� Food�Products� 0.05�� 5.61�� 0.90��

Cadbury�Nigeria�Plc� Food�Products-�Diversified� 0.42�� 12.09�� 1.33��

Vitafoam�Nig�Plc� Household�Durables� 0.23�� 5.25�� 0.96��

Beta�Glass�Company�Plc� Household�Durables� 0.83�� 3.41�� 0.47��

Northern�Nigeria�Flour�Mills�Plc� Food�Products� 1.87�� 8.39�� 2.81��

International�Breweries�Plc� Food�Products� 0.57�� 125.76�� 14.23��

National�Salt�Company�of�Nigeria�Plc� Food�Products� 0.48�� 5.69�� 2.12��

Multi-Trex�Integrated�Plc� Food�Products� 0.16�� 60.27�� 0.65��

U�T�C�Nigeria�Plc� Food�Products� 0.22�� 0.54�� 0.46��

Nigerian�Enamelware�Plc� Household�Durables� 14.54�� 24.72�� 0.00��

Champion�Breweries�Plc� Food�Products� 1.83�� -1.62�� -1.45��

DN�Tyre�&�Rubber�Plc� Tires� 0.37�� -24.36�� -0.81��

Vono�Products�Plc� Household�Durables� 4.32�� -9.75�� 1.66��

P�S�Mandrides�&�Co�Plc� Food�Products� 34.14�� 39.60�� 1.08��

AVERAGESAVERAGESAVERAGESAVERAGES�����

3.03�3.03�3.03�3.03����� 19.51�19.51�19.51�19.51����� 3.66�3.66�3.66�3.66�����

Source:�NSE,�Cowry�Research�

NB:�NA�means�Not�Available;�Prices�as�at�July�31,�2012�*�Means�that�with�the�exclusion�of�P.S.�Mandride�&�Company’s�excessively�

high�P/S�ratio�of�32.53�times,�average�P/S�ratio�becomes�1.61�times.�

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� Growing�manufacturing�sector�

Source:�CBN,�Cowry�Research�

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Manufacturing Output to Total GDP at constant prices(N 'million)

Total GDP Manufacuring (FMCGs)

Manufacturing output

excluding cement and oil

refining output (a proxy for

the FMCG output) has been

growing at a CAGR of 7.71%

basic prices between 2000

and 2010.

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� Increasing�acceptance�in�the�rural�areas�

Forty� five� per� cent� of� the� Nigerian� population� resides� in� urban� areas� with� a�

significant� number� aspiring� to� live� an� ideal� modern� lifestyle.� Also,� the� rural�

areas,� previously� perceived� as� laggards� in� matters� of� modern� taste,� are�

increasingly� becoming� an� avenue� for� competition� amongst� FMCG�makers� for�

the�last�kobo�in�the�consumer’s�wallet.�

� Innovative�Retail�Outlets�

The� increasing�establishment�of� innovative�channels� like� shopping�malls� such�

as� Shoprite� as� well� as� other� innovative� retail� business�models� provide� ample�

opportunities� for� volume� and� turnover� growth� of� FMCGs’� products� and� at�

competitive�prices.�

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Weaknesses�of�Nigerian�FMCGs�

� Limited�financial�muscle�

Limited� financial� muscle� of� indigenous� players� for� robust� research� and�

development.� High� operating� cost� of� businesses� in� Nigeria� tends� to� stifle�

funding�for�research�and�development�amongst�FMCGs�as�well�as�opportunities�

for� their� expansion.� Consequently,� the� FMCG� sector� is� a� low� contributor� to�

overall�Nigerian�economic�output.�

� Exposure�to�fluctuation�in�international�commodity�prices�

Due� to� the� seasonality� and� increasing� demand� for� raw� materials,� consumer�

goods�makers� are� often� exposed� to� highly� volatile� international� commodities�

market�which�tend�to�erode�margins.�

� Relative�low�per�capita�income�signals�of�weak�demand�

With�a�significant�bottom�of�the�pyramid�segment�of�the�population�facing�low�

standard�of� living,�demand�for�fast�moving�consumer�goods�remains�shackled�

in�spite�of�various�product�innovations�to�target�this�market�segment.�

� Eroding�Margins�from�high�energy�cost,�poor�infrastructure�

Eroding�margins�due�to�high�overheads�resulting�from�higher�energy�cost�and�

inadequate� public� infrastructure.� This� weakens� the� ability� of� local� players� to�

compete�favourably�with�imported�substitutes.�

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� High�Price�Elasticity�

Consumer� goods� are� highly� price� elastic� making� it� difficult� for� Nigerian�

manufacturers�to�pass�on�the�input�costs�to�the�final�consumer.��

Opportunities�in�the�Nigerian�FMCG�Industry�

� Political�Stability�

Following� the� successful� April� 2011� elections,� there� has� been� optimism� of�

greater�political� stability�and� that� the�Nigerian�economy�would� fare�better� in�

the�years�ahead.�Also,�there�is�a�growing�opposition�base�that�will�tend�to�put�

checks�and�balances�on�the�polity�and�serve�also�as�alternatives�to�incumbents’�

leadership� styles.� As� such,� the�Nigerian� economy� is� currently� on� the� path� of�

less� obscure� development� following� ongoing� reforms� in� its� institutions� and�

revitalization�of�key�infrastructure�such�as�power�and�transport.��

� Raw�Material�Availability�

Nigeria�is�blessed�with�vast�agricultural,�petroleum�and�other�natural�resources�

so� much� so� that� raw� materials� and� can� be� readily� sourced� locally.� Nigeria’s�

tropical�climate�supports�cultivation�and�production�of�a�vast�number�of�agric�

inputs�required�by�consumer�goods�manufacturers�while�its�petroleum�industry�

is�a�primary�source�of�plastics,�industrial�fuels,�etc.��

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� A�Large�Youthful�Population�Segment�providing�ready�Market�

With� a� population� of� over� 158� million,� the� most� populous� country� in� Africa�

grew�at�an�annual� rate�of�2.5%�in�2010�(according�to�the�World�Bank).�Over�

sixty�seven�per�cent�(67%)�of�the�population�are�between�ages�10�and�59�years�

which�constitutes�the�focal�point�of�FMCGs�marketing�activities;�although,�the�

economic� significance� of� bottom-of-the-pyramid� (BOP)� consumers� is�

increasingly�being�realized�and�exploited.�

� Consumer�Financing�

Up� until� the� recent� financial� industry� reforms,� which� tended� to� slow� down�

financing� activities� by� lenders,� fast� moving� consumer� goods� manufacturers�

have� enjoyed� a� symbiotic� relationship� with� financial� institutions.� Such�

relationship� spurred� growth� in� the� FMCG� space� especially� with� regards� to�

lifestyle�product�segments�such�as�consumer�electronics�as�well�as�white�goods,�

thus� leading� to� increased� turnover� for� FMCGs,� while� generating� income� for�

banks.�However�ongoing� reforms� in� the� financial� industry�have� led� to� limited�

consumer�financing�activities�by�lenders�who�had�to�book�loan�loss�provisions�

that� significantly� reduced� their� bottom� lines� and� in� some� cases,� resulted� in�

outright�losses.�Nevertheless,�consumer�financing�remains�an�attractive�source�

of� business� for� both� FMCGs� and� commercial� banks� and� the� relationship�

between�the�two�is�expected�to�pick�up�post-reforms.�

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� Bottom�of�the�Pyramid�Market�Penetration�

FMCGs�are�already�realizing�the�need�to�reach�the�BOP�consumers�by�providing�

everyday� necessities� ranging� from� margarine� and� washing� detergent� to�

toothpaste.� They� have� been� achieving� this� by� deploying� low-price� packaging�

strategies�as�well�as�direct�to�consumer�distribution�schemes�through�vendors.�

These� goods� are� sold� in� well� branded� smaller� packages,� known� as� Low�Unit�

Packs�(LUPs)�or�sachets,�weighing�from�45�grams�to�just�four�grams�and�selling�

at�very�affordable�prices.�

� Wage�Increase�

As�at�2010,�the�economically�active�population�segment�recorded�year-on-year�

increases� in� average�monthly� wages� for�most� economic� sub� sectors� with� the�

manufacturing�and�professional�services�sub�sectors�paying�the�highest�average�

wages.�The�two�sub�sectors,�along�with�others�like�real�estate�and�mining�and�

quarrying,� are� also� responsible� for� producing� the� emerging�middle� class�who�

are�the�major�targets�of�well�known�consumer�brands.�However,�following�the�

partial� removal�of�fuel�subsidy�early�2012,�disposable� incomes�of�the�working�

class�have�commanded� less�of� consumer�products.�Nevertheless,� future�wage�

increases� are� likely� given� current� efforts� by� government� at� diversifying� the�

economy,�providing�infrastructure�and�attracting�foreign�direct�investments.�

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� Growth�in�infrastructure�supporting�FMCG�activities�

Opportunities� for� FMCGs� abound� in� the� rural� parts� of� the� country� which�

constitute� fifty� five� per� cent� of� the� entire� population.� As� ongoing� national�

infrastructural�development�and�empowerment�efforts�by�government�spreads�

to�the�rural�areas,�fast�and�responsive�FMCGs�are�bound�to�reap�the�potential�

economic� benefits� as�more� rural� dwellers� are� exposed� to� newer� products.� As�

earlier� noted,�making� products� affordable� to� the� poor� is� fast� gaining� priority�

amongst�FMCG�manufacturers.�

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nigerian Infrastructure Output (N' Million)

Transport Communication Utilities

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� Labour�availability�

Unemployment� remains� the� highest� amongst� the� very� youthful� population�

(ages� groups15-24� and� 25-35� at� 35.9%� and� 23.3%� respectively)� and� also�

amongst� graduates� of� higher� institutions� of� learning.� These� constitute� an�

advantage� to� prospective� consumer� goods�manufacturers� needing� to� engage�

the�services�of�and�who�have�access�to�a�large�pool�of�unemployed�graduates.�

Furthermore,�statistics�show�that�unemployment�is�highest�amongst�graduates�

in�rural�areas.�

Unemployment�rate�by�level�of�Education,�Age�Group,�Sector�and�Gender�

� �Urban�

� �Rural�

� �Total�

Education�Level� Male�Female�

Both�Sexes�

Male� Female�Both�Sexes�

Male� Female�Both�Sexes�

Junior�Secondary�School�

13.4� 16.9� 15.2� 22.6� 29.4� 25.6� 19.5� 24.2� 21.7�

Vocational/Commercial�

10.7� 18.5� 14.4� 21.6� 27.5� 24.5� 15.2� 22.4� 18.7�

Senior�Secondary�School�

14.2� 17.3� 15.6� 27.2� 30.3� 28.4� 21.2� 23.4� 22.1�

NCE/OND/NURSING� 18.3� 19.5� 18.9� 25.3� 28� 26.2� 21.9� 22.7� 22.2�

BA/BSc/Bed/HND� 19.1� 26.7� 21.7� 29.5� 34� 30.8� 22.6� 28.8� 24.6�

MSC/MA/Madm� 10.1� 14.3� 11.1� 19.4� 27� 20.9� 12.6� 17.5� 13.7�

� � � � � � � � � �Age�Group�

� � � � � � � � �15-24� 32.2� 30.9� 31.5� 36.7� 38� 37.3� 35.6� 36.1� 35.9�

25-34� 16.4� 19� 17.8� 21.2� 31� 26.5� 19.5� 26.7� 23.3�

35-44� 8.5� 13.8� 11� 14.5� 26.8� 20.3� 12.3� 21.8� 16.8�

45-54� 8.6� 11.7� 10� 13.5� 22.4� 17.1� 11.8� 18.2� 14.4�

55-64� 10.6� 13.1� 11.6� 16.5� 21.9� 18.3� 14.6� 18.4� 16�

� � � � � � � � � �National� 13.3� 17.1� 15.2� 19.9� 29.2� 24.2� 17.7� 24.9� 21.1�

Source:�NBS,�Cowry�Research�

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� Political�stability,�huge�market�attracting�greater�FDI�flows�

Since� its� return� to� democracy� in� 1999,� inflows� into� the� country� via� foreign�

direct�investments�rose�from�an�average�of�USD1.64�billion�to�USD8.65�billion�

in� 2009� (although� they� dropped� to� USD6.09� billion� in� 2010� partly� due� to�

weakness� in� the� global� economy).� This� should� serve� as� bullish� signal� for�

discerning�players�in�the�FMCG�space.�

Also,�because�of� its� large�population� size�and�economic�potentials,�Nigeria� is�

fast� gaining� recognition� from� foreign� direct� investors� and� is� on� the� path� to�

becoming� a� vital� manufacturing� hub� in� Africa,� from� where� products� can� be�

exported�to�neighbouring�countries.�

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Sources: UNCTAD STAT, Cowry Research

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

FDI Inflow @ Current Prices & Exchange Rates(in USD Million)

Nigeria West Africa

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FDI Inflow @ Current Prices & Exchange Rates(in USD Million)

Nigeria Sub-Saharan Africa excluding South Africa

0 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000

FDI Inflow @ Current Prices & Exchange Rates(in USD Million)

Nigeria Sub-Saharan Africa

0

20,000

40,000

60,000

80,000

100,000

120,000

1999 2000 200120022003200420052006200720082009 2010 2011

FDI Stock @ Current Prices & Exchange Rates(in USD Million)

Nigeria Western Africa

0

50,000

100,000

150,000

200,000

250,000

300,000

199920002001200220032004200520062007200820092010 2011

FDI Stock @ Current Prices & Exchange Rates(in USD Million)

Nigeria Sub-Saharan Africa excluding South Africa

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

FDI Stock @ Current Prices & Exchange Rates(in USD Million)

Nigeria Sub-Saharan Africa

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� Favourable�Government�Policies�

Favourable�government�policies�(such�as�granting� tax�holidays�to�new�market�

entrants)�and�the�ongoing�infrastructural�development�(especially�in�the�power�

and� transport� sectors),� should� encourage� the� establishment� of� fast� moving�

consumer� goods�manufacturing� plants.� The� Nigerian� Government� has� put� in�

place�a�number�of� investment� incentives� for� the� stimulation�of�private� sector�

investment�from�within�and�outside�the�country.�

� Agricultural�Incentives�

Recent� policy� thrust� of� the� Government� through� the� introduction� of� several�

incentives� is� focused� towards� encouraging� investments� in� the� agricultural�

sector� which� is� a� primary� source� of� raw� materials� for� food� and� beverage�

companies�as�well�as�other�manufacturing�companies.�

According�to�the�Nigerian�Investment�Promotion�Council�(NIPC),�the�incentives�

include�inter�alia:�

� A�zero�duty�on�agricultural�machinery.�

� Pioneer� status� incentive� (three� years� tax� holiday)� for� agro-processing�

industry.� The� grant� of� Pioneer� Status� to� an� industry� (in� which�

companies�must�have�incurred�a�capital�expenditure�of�not�less�than�N5�

million�in�order�to�qualify)�is�aimed�at�enabling�the�industry�concerned�

to� make� a� reasonable� level� of� profit� within� its� formative� years.� The�

profit�so�made�is�expected�to�be�ploughed�back�into�the�business.�

� Several�food�items�have�been�prohibited�from�being�imported�in�order�

to� encourage� local� production.� � � � These� include� frozen� foods,� juice�

among�others.�

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� Nigeria�Export�Processing�Zones�

The� Federal�Government� of�Nigeria� has� passed� an� aggressive� Free�Zone� Law�

with�the�following�incentives:�

� Complete�tax�holiday�for�all�Federal,�State�and�Local�Government�taxes,�rates,�

custom�duties�and�levies�

� One-stop�approval�for�all�permits,�operating�licences�and�incorporation�papers�

� Duty-free,�tax-free�import�of�raw�materials�for�goods�destined�for�re-export�

� Duty-free� introduction� of� capital� goods,� consumer� goods,� components,�

machinery,�equipment�and�furniture�

� Permission� to� sell�100%�of�manufactured,�assembled�or� imported� goods� into�

the�domestic�Nigerian�Market�

� When�selling� into� the�domestic�market,� the�amount�of� import�duty�on�goods�

manufactured� in� the�free�zones� is�calculated�on�the�basis�of�the�value�of�the�

raw�materials�or�components�used�in�assembly�not�the�finished�product�

� 100%�foreign�ownership�of�investments�

� 100%�repatriation�of�capital,�profits�and�dividends�

� Waiver�of�all�import�and�export�licenses�

� Waiver�on�all�expatriate�quotas�for�companies�operating�in�the�zones�

� Prohibition�of�strikes�and�lockouts�

� Rent-free�land�during�the�first�6�months�of�construction�

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Name�of�Free�Trade�Zone� Location�(Geographical�Zone)� Status� Ownership�

Calabar�Free�Trade�Zone�(CFTZ)� Cross�River�State�(South-South)� Operational� Fed.�Govt.�

Kano�Free�Trade�Zone�(KFTZ)� Kano�State�(North)� Operational� Fed.�Govt.�

Onne�oil�&�Gas�Free�Zone� River�State�(South-South)� Operational� Under�Parallel�Authority�

Tinapa�Free�Zone�&�Tourism�Resort� Cross�River�State�(South-South)� Operational� Private/Public�

Snake�Island�Integrated� Lagos�(South-West)� Operational� Private�

Maigatari�Border�Free�Zone� Jigawa�State�(North�Central)� Operational� State�

LADOL�Free�Zone� Lagos�(South-West)� Operational� Private�

Airline�Services�Export�Proc.�Zone� Lagos�State�(South-West)� Operational� Private�

ALSCON�Export�Processing�Zone� Akwa�Ibom�(South-South)� Operational� Private�

Ogun�Guangdong��Free�Trade�Zone� Ogun�State�(South-West)� Operational� Public/�Private�

Sebore�Farms�Export�Processing�Zones� Adamawa�State�(South-South)� Operational� Private�

Ibom�Science�&�Tech.�Park�Free�Zone� Akwa�Ibom�(South-South)� Under�Construction� Public/Private�

Living�Spring�Free�Zone� Osun�State�(South-West)� Under�Construction� State�

Lekki�Free�Zone� Lagos�State�(South-West)� Under�Construction� State/�Private�

Brass�LNG�Free�Zone� Bayelsa�(South-South)� Under�Construction� Public/Private�

Abuja�Technological�Village�Free�Zone� Abuja�(Federal�Capital�Territory)� Under�Construction� Public/Private�

Specialized�Railway�Industrial�FTZ�-�Kajola� Ogun�State�(South-West)� Under�Construction� Public/Private�

Imo�Guangdong�FTZ� Imo�State�(South-East)� Under�Construction� Public/Private�

OK�Free�Trade�Zone� Ondo�&�Ogun�(South-West)� Under�Construction� States/�Private�

Lagos�Free�Zone� Lagos�State�(South-West)� Under�Construction� Private�

Kwara�Free�Zone� Kwara�State�(Middle�Belt)� Declaration� State�Govt.�

Oluyole�Free�Trade�Zone� Oyo�State�(South-West)� Declaration� State�Govt.�

Koko�Free�Trade�Zone� Delta�State�(Niger�Delta)� Declaration� State�Govt.�

OILSS�Logistics�Free�Zone� Lagos�(South-West)� Declaration� Private�

Banki�Border�Free�Zone� Borno�State�(North�East)� Declaration� State�

Source:�NEPZA,�Cowry�Research�

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� Investment�Promotion�and�Protection�Agreement�(IPPA)�

As� part� of� additional� effort� to� foster� foreign� investors’� confidence� in� the�

Nigeria� economy,� Government� continues� to� enter� into� bilateral� investment�

promotion�and�protection�agreements�(IPPAs)�with�countries�that�do�business�

with�Nigeria.�The�IPPA�helps�to�guarantee�the�safety�of�the�investment�of�the�

contracting� parties� in� the� event� of� war,� revolution,� expropriation� or�

nationalisation.�It�also�guarantees�investors�the�transfer�of�interests,�dividends,�

profits�and�other�incomes�as�well�as�compensation�for�dispossession�or�loss.�To�

this�end,�Nigeria�has�concluded�and�signed�IPPAs�with:�

� France;�

� United�Kingdom;�

� Netherlands;�

� Romania;�

� Switzerland;�

� Spain;�

� South�Africa;�etc.�

Negotiations� with� the� United� States� of� America,� Belgium,� Sweden� and� the�

Russian�Federation�are�at�various�stages.�

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� Liberalisation�of�Ownership�Structure�

The�government� in�repealing�the�Nigerian�Enterprises�Promotion�Act�of�1972�

(Amended� in� 1977� and� in� 1989)� and� promulgating� the� Nigerian� Investment�

Promotion�Commission�Act�of�1995�has�liberalized�the�ownerships�structure�of�

business� in� Nigeria.� The� implication� of� this� is� that� foreigners� can� now� own�

100%�shares� in�any�company�as�opposed�to� the�earlier�arrangement�of�60%-

40%�in�favour�of�Nigerians.�

� Repatriation�of�Profit�

Under� the� provisions� of� the� Foreign� Exchange� (Monitoring� &�Miscellaneous�

Provision� Act� No.� 17� of� 1995),� foreign� investors� are� free� to� repatriate� their�

profits� and� dividends� net� of� taxes� through� an� authorised� dealer� in� freely�

convertible�currency.�

� Guarantees�against�Expropriation�

The� Nigerian� Investment� Promotion� Commission� Act� guarantees� that� no�

enterprise�shall�be�nationalized�or�expropriated�by�any�government�in�Nigeria.�

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Threats�to�the�Consumer�Goods�Industry�

� High�Cost�of�Production�

Although� market� potentials� based� on� sheer� population� strength� have� been�

compelling,� cost� of� doing� business� in� the� country� has� been� rather� high� due�

inter�alia,� to� inadequate� social� infrastructure� such�as�power,�distribution� road�

network� as� well� as� relatively� expensive� information� technology.� Like� other�

industries�in�the�country,�the�FMCG�industry�has�had�to�tackle�these�shortage�

problems�by�committing�their�own�resources,�which�would�have�otherwise�been�

turned�into�profit,�to�the�provision�of�these�basic�services.�

� Low�entry�barriers�eliciting�a�highly�competitive�market�

Nigerian�FMCG�companies� listed�on�the�floor�of�the�Nigerian�Stock�Exchange�

are� worth� billions� of� dollars� (over� USD7.14� Billion)� -� more� so� their� unlisted�

counterparts.� The� consumer� goods� industry� can� be� said� to� be� highly�

competitive� and� contends� with� a� high� level� of� brand� awareness� of� the�

population-�a�scenario�which�is�indicative�of�a�low�barrier�of�entry.�

� Double�Digit�Inflation�

Apart� from� the� cost� of� doing� business,� turnover� growths� of� these� businesses�

have�also�been�encumbered�by�relatively�weak�purchasing�power�of�the�poorer�

segment�of�population.�Thus,�it�is�not�uncommon�to�see�short�spells�of�drops�in�

turnover�and�net�earnings�among�FMCG’s,�in�harsh�economic�times�especially�

in�the�wake�of�the�global�financial�crises.�

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� High�Unemployment�Rate�

The� recent� sanitisation� in� the� financial� sector� which� led� to� significant�

retrenchment� of� workers,� particularly� in� the� banking� industry,� could� shrink�

sales�and�profit�targets�as�increased�unemployment�means�reduced�disposable�

income�to�purchase�their�products.�As�a�result�of� the�financial�sector�crisis� in�

2009�and�2010,�national�unemployment�rate�was�the�most�pronounced�in�2010�

in�which�21.1�per�cent�of�the�labour�force�(increased�from�19.7%�in�2009�and�

13.1%� in� 2000)� was� unemployed.� Average� national� household� size� was� five�

persons� while� overall� dependency� ratio� was� 2.3;� indicating� that� about� two�

persons� are� dependent� on� each� economically� active� person.� Higher�

unemployment�rates�invariably�results�in�higher�dependency�ratio.�Amongst�the�

educated�youthful�population,�unemployment�is�still�rather�high�at�35.9%�and�

23.3%�for�the�age�groups,�15-24�and�25-34�respectively.�

� High�Security�Risk�

The� scourge� of� insecurity� of� lives� and� property� resulting� from� attacks� by�

militant� groups� such� as� Boko� Haram,� operating� predominantly� in� Northern�

Nigeria,� is� a� serious� risk� factor� to� businesses� operating� in� the� country.� P.Z.�

Cussons�recently�blamed�its�weak�bottom�lines�in�three�successive�quarters�on�

disturbances�in�the�Northern�part�of�Nigeria.�Prior�to�now,�kidnapping�of�both�

locals�and�foreigners�was�rampant.�In�addition,�occupancy�rates�in�hotels�have�

been�on�the�decline,�invariably�affecting�sales�by�FMCG�manufacturers,�due�to�

the�disturbances.�

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Future�of�FMCGs�in�Nigeria��

� Greater� number� of� players� in� the� consumer� goods� industry� is� expected� given�

the�(aforementioned)�incentives�by�the�government�to�encourage�participation�

by�both�local�and�foreign�investors.��

� The�emerging�middle�class�will�continue�to�expand�within�the�social�structure�

and�dictate�the�pace�of�FMCG�activities�

� Sustainability�of�both�raw�materials�sources�as�well�as�the�environment�will�gain�

more�priority�given�the�alarming�global�population�growth�rate�forecasts�vis�as�

vis� limited�natural� resources,� anticipated�demand�pressure�on� these�resources�

as�well�as�the�effects�of�climate�change�on�the�environment.�For�example,�to�

improve� the� quality� of� grains� used� in� the� manufacture� of� its� cereal-based�

products�(e.g.�Nestlé�Golden�Morn)�Nestlé�Nigeria�launched�the�Grains�Quality�

Improvement�Project�in�conjunction�with�the�International�Institute�of�Tropical�

Agriculture� to� reduce� mycotoxin� contamination� levels� in� grains� by� 60%� in�

Nigeria,�Ghana�and�Cote�d’Ivoire.�

On� its� own� part,� Unilever� has� already� achieved� 44%� reduction� in� CO2� from�

energy�per�tonne�of�production�by�its�factories�from�1995�to�2010�and�has�also�

reduced� its� water� use� per� tonne� of� production� by� its� factories� globally,�

according�to�its�preliminary�data�

� The� current� efforts� by� Nigeria’s� government� to� reform� the� power� sector� as�

enshrined� in� the� power� sector� ‘Road� Map’� and� to� further� develop� and�

rehabilitate� key� sectors� like� information� technology,� aviation� industry,� roads�

and� rail� infrastructure� is� gaining� momentum� and� fast� attracting� the�

international� investment� community.� Consequently,� there� will� be� greater�

improvements� in� power� supply,� information� technology� as� well� as�

transportation�system�for�use�by�the�FMCG�supply�and�distribution�chains�

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� There�will�be�need�to�develop�commodities�exchange�market�in�order�to�secure�

prices�of� raw�materials�used�my�consumer�goods�manufacturers�against�price�

volatility�in�the�face�of�possible�global�economic�threats�

� Policies� will� be� reviewed� to� protect� the� interest� of� farmers� in� order� to�

encourage� greater� productivity.� Again,� Nestle� has� trained,� 4,000� farmers�

(including�agricultural�extension�agents,�farm�village�heads,�grain�suppliers�and�

transporters)� in�Nigeria.� And� as� the� need� for� greater� efficiency� in� the� future�

increases,�greater�technology�and�practices�will�need�to�be�imparted.�

� Use� of� alternative� raw� materials� by� manufacturers� (for� example,� currently,�

government�policy�is�substituting�cassava�for�wheat�with�the�expectation�that�

companies�will�follow�suit).�

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Disclaimer�

This� report� is� produced� by� the�Research� Desk� of� Cowry� Asset�Management� Limited�

(COWRY)�as�a�guideline�for�Clients�that� intend�to� invest� in�securities�on�the�basis�of�

their� own� investment� decision� without� relying� completely� on� the� information�

contained�herein.�The�opinion�contained�herein� is�for� information�purposes�only�and�

does�not�constitute�any�offer�or�solicitation�to�enter�into�any�trading�transaction.�While�

care� has� been� taken� in� preparing� this� document,� no� responsibility� or� liability�

whatsoever� is� accepted�by�any�member�of�COWRY� for�errors,�omission�of� facts,� and�

any�direct�or�consequential�loss�arising�from�the�use�of�this�report�or�its�contents.�