Russia War: Impacts on the Nigerian FMCG Sector
The war in Ukraine has led to a deep crisis for Russia, and as the ruble began to slide toward par with the U.S. dollar, it was clear that the share of imported goods would increase as sanctions were being placed on Russia. Companies in the FMCG industry in Nigeria with no exception have been affected.
The aim of this insight is to highlight how the continued war in Russia has impacted the Nigerian FMCG sector.
The increase in the cost of crude oil of which Russia is the world’s largest exporter and ranks second in crude oil exports only behind Saudi Arabia has caused a sharp price increase in all major commodities hurting every step of a company’s supply chain from manufacturing to packaging to distribution. Because crude oil and its derivatives are key raw materials used in making soaps, cosmetics, detergents, etc these prices have gone higher.
It is reported by the Food and Agriculture Organization of the United Nations, that Russia and Ukraine account for more than 25% of the world’s trade in wheat and for more than 60% of global sunflower oil, and 30% of global barley exports and other commodities. Russia, accounting for 10% of the global nickel supply, and 6% of the aluminum output, had no choice but to adjust its business strategies as a result of these restrictions placed on them.
Due to Russia’s status as a major fertilizer, any shortages or restrictions would have detrimental effects on all crops worldwide. As a result of Nigeria’s dependence on international trade and imports, Nigeria like most other countries is not exempted from the effects of this war.
2. Increased Transportation Cost
With respect to transportation, every transportation mode has been affected. The rise in oil prices has become a major problem when considering air, ocean, and rail shipping as they now must take an alternative route away from Ukraine. As a result of rerouting and increased oil prices, transportation of materials, goods, equipment, and people in Nigeria has become higher. For the FMCG industries, they have to endure bearing costs alone for the time being. Hence, the question ensues; how long can they endure bearing the cost?
3. Disruption of Supply Chain
The margins on certain goods will usually shrink when consumer demand increases for those goods. An increase in demand for logistics and transportation services is generally a consequence of an increased consumer activity, which can result in the manufacturer’s products being delayed in getting to distribution centers and retail shelves.
4. Staggered Economic Growth
Shortly after the FMCG industry began its post-COVID economic recovery phase which occurred between December 2021 to January 2022 from the financial hits, the war has taken it back drastically as a result of the increased input costs which has resulted in a shortage supply of various commodities for a sector with high supply-demand.
The impact of this war is already felt in the Nigerian economy as seen in the prices of diesel which have more than doubled likewise prices for food & non-alcoholic beverages. According to the National Bureau of Statistics, Nigeria, Nigeria’s annual inflation rate climbed to 15.92% in March of 2022, from 15.70% in the prior month, the fastest rise in consumer prices since October 2021.
In conclusion, the FMCG market in Nigeria has been heavily impacted negatively by the Russia-Ukraine war as a result of rising costs for diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure, raw materials, energy, and a weakening purchasing power.
However, Small and medium-scale FMCG players will be more vulnerable to this spike than the big FMCG players. Bigger FMCG manufacturers can still receive some price increases on their products because of their brands’ reputation and the fact that they have customers who buy value-brand items.