Monday, November 28, 2016

Is it advisable to invest in manufacturing in Nigeria for 2017 or to venture into trade?




The year 2016 has been one of the worst economically in the history of Nigeria, first came devaluation of the Naira due to scarcity of dollars for importers, there has been spiraling inflation of over 18% and a liquidity squeeze (partly due to non-performing loans and the Treasury Single Account) which is affecting the ability of banks to fund businesses.
 
The question of whether or not one should invest in manufacturing or trading in 2017 is necessary to answer because of the implication it could have on investors and the economy at large. Another way to look at it is would I make more money in 2017 and perhaps risk having losses if I put in money to fund a manufacturing Startup or trading venture.  

What this means is that an ordinary businesses is that there will be little money to fund working capital and/or expand their operations. In addition to this is the cost of importing raw materials has gone up by over 100% in less than 18 months and worse still the Finance Minister Mrs Kemi Adeosun has projected the recession to continue into first quarter of 2018.

Key Economic Factors in Nigerian Economy for 2017

  •   Recession
  •     Government Policies
  •   Import tariffs
  •   Weak Naira
  •     Declining Purchasing power

 What will the economy in 2017 be like for manufacturing and trade?
If you decide to go into either trading (retail shops such as supermarkets, boutiques, pharmacies, auto parts stores etc) or manufacturing such as cottage industries or agro processing factories it is important to mention that these issues will not be avoidable.

Decreased patronage
As the purchasing power of the middleclass is gradually declining so too is the tendency and ability of businesses to and individuals to buy products and services, so people will place premium on price or would prefer cheaper substitute products if available, this can only mean decreased sales.

Capital Flight
More foreign companies based in Nigeria are less likely to invest more, rather they would take away their profits to their home countries

Decreased Capacity Utilization
In order to compete and maximize profit, companies may have to reduce their capacity utilization and instead focus on reducing costs to stay afloat.

Decreased Profit Margins
As production costs go up fast but sales increase at snail speed this should lead to decreased profit margins especially for manufacturers. Retailers would suffer this less

Conclusion
It may be more profitable to engage in trading as retail businesses have more options in terms of product selection and diversification than manufacturers do. Therefore in my opinion engaging in trading will be a more profitable investment in 2017 for Nigerian entrepreneurs 

Hi, my name is Paul Onwueme and I write bankable and professional business plans. Give me a call on: 0803 206 4106 or email me: paulonwueme@gmail.com for details