Troubles in Nigeria bad for business

  

The past few months have been a rough ride for Nigeria. Various attacks by militant group Boko Haram have killed hundreds of people, while an increase in the fuel price led to widespread protests and financial hardship for consumers.

It is estimated that Islamic sect Boko Haram has killed 500 people in 2011 and 250 in the first weeks of this year in numerous gun and bomb attacks. Although Boko Haram, which is Hausa for “Western education is sin”, has been in operation for a number of years, its attacks have become more sophisticated and deadly in recent times. Several bombings on Christmas Day claimed dozens of lives. On 20 January, the group launched its most bloody attack yet in the northern city of Kano, killing over 180 people.

To add to the troubles, 1 January 2012 marked the more than doubling of the pump price of petrol, from 65 naira per litre to around 140 naira, due to the Nigerian government’s decision to stop subsidising fuel. This led to a nationwide strike and protests that brought economic activities to a halt in many parts of the country. Although the government initially said the price increase was irreversible, it was forced to reach a compromise by restricting the fuel price to 97 naira.

Negative impact on sales and production

These issues are not only keeping politicians and security chiefs awake at night, but companies are also experiencing pain.

PZ Cussons – a producer of household and personal care products – this week said in a statement that the turmoil in Nigeria is impacting sales and production. “Two events have affected Nigeria … First, social instability over the Christmas period led to a state of emergency being declared in a number of northern states which has impacted sales in those areas. Second, the removal of the fuel duty subsidy led to civil disruption during January and a week-long national strike which affected production in all factories and sales on a national level, during what is a peak trading period. Whilst the strike has now ended and the fuel subsidies have been partially reintroduced, continued social instability in the north together with ongoing fiscal reforms may create further unrest in the balance of year.”

PZ Cussons is based in the UK with operations in Europe, Africa and Asia. Nigeria is its largest single market.

The company said that performance over the coming months partly depend on “the severity of any further disruption in Nigeria as well as any impact on consumer disposable income from removal of the fuel subsidy”.

The higher fuel cost is likely to lead to a rise in prices, affecting consumers’ disposable incomes, which could hurt the sales of companies like PZ Cussons. Renaissance Capital noted in a recent report that “the impact of the petrol price hikes could go beyond simply pushing up transport costs. It is also expected to affect the cost of producing goods and services. In particular, the prices of food, clothing and footwear, furnishings, as well as housing and utility costs may tick up on the back of the scrapping of the petrol price subsidy. In addition to higher petrol prices, the cost of producing electricity from petrol-powered generators is also expected to rise.”




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