In the last one month, I have had the opportunity of attending some sessions where the economy or related topic was the focal point. This is understandable given the current state of the Nigerian economy. Mr Bismark Rewane was a guest speaker at the Men’s Conference of Province 35 of the Redeemed Christian Church of God which held on November 12, 2016 at the Rose of Sharon Centre in GRA, Ikeja where he spoke on ‘Repositioning for Economic Growth’. I was to listen to him again at a book launch where he was the reviewer a few weeks later where he again spent considerable time speaking on the economy.
In his introduction, he highlighted the need to take note of trends but not be overwhelmed by them as the economic environment is dynamic. We therefore must avoid making decisions based on ‘static equilibrium instead of dynamic equilibrium’. Simply put we must realise that there is a season for everything and no situation lasts for ever, whether good or bad.
He also emphasised the need to understand the economic realities of the times we are in. Global economies have shifted from production to services over the years and the same is true in Nigeria. Services account for roughly 50% of our Gross Domestic Product (GDP), Agriculture, Industry and Construction, 39% and Oil & Gas, 11%. The truth is that our economy is actually diversified but the problem is how much do they contribute to government revenue? Oil & Gas which is just 11% of GDP accounts for over 70% of our revenue which is why we are susceptible to global systemic shocks. We are also gradually shifting to a market oriented economy as we see a gradual acceptance of market deregulation and privatization of public enterprises. The informal sector is also shrinking as they move to the formal. More and more people playing outside the formal sector are coming into it as we scale up financial inclusion.
Our political environment is also becoming more stable as we see a shift from military to civilian rule and non-violent change of power across the continent. This is evident from the numbers as we have witnessed, in recent times, 145 changes in government in Africa with the opposition taking over from the incumbent in 48 instances. This is good as it gives assurance of political stability which is critical for economic stability.
We have also witnessed massive levels of urbanization to the detriment of the rural population and also seen the consequences in Britain and America with the rural community revolting resulting in unexpected political outcomes. Massive fall in oil prices and lower production in Nigeria due to activities of militants have led to economic slowdown that has graduated into recession. Revenues are seriously down and lower oil receipts is seriously affecting our foreign reserves which has steadily declined. It was $60 in 2007 and declined to $33 in 2015 and $28,16b in January 2016 and currently at $24.05b.
The real challenge we have is that this has greatly affected supply of dollars which is critical to an import dependent economy and when demand outstrips supply, price go up. So there is a challenge with aggregate supply and this is why we have a situation where the interbank forex rate is N305 and the parallel market N470 to a $1. We have a misaligned currency as the Naira is overvalued. The Market value is higher than real value and this is as a result of regulation. It is inevitable that market forces will decide. Sooner or later there will be a convergence between market rates as we have market driven exchange rates. Our currency is devalued by 50% (official rate) and inflation is currently 18.3% but the actual cost of price increases for commodities is over 50% hike in most cases. It is therefore very likely that inflation figures will climb. To put things in perspective, global inflation is 4 to 5%, African inflation is 9% so Nigeria is double the average for Africa.
The Nigerian economy grew by 6.6% in 2014 but there was no forex savings and investment during an economic boom, rather the savings that we had was shared by the three tiers of government. And now we are facing economic recession which is technically two consecutive quarters of negative growth in GDP. 2016 will end in negative growth of -2% and hopefully we will see signs of economic recovery in Q2, 2017 but the symptoms of economic recession will still be there. So we are in a recession and we must take cognisance of the macroeconomic impact of recession by adjusting for recovery. Everyone is anxious and consumer and business confidence is declining. We can no longer be oblivious of the environment and must constantly monitor the following trends; Inflation rate, Exchange rate, Interest rate, Consumer confidence vis a vis spending.
Given the general macroeconomic picture above, businesses and individuals must come up with winning strategies. For manufacturing, they must explore backward integration, local sourcing of inputs, low cost variants of products, cost saving measures and generally look for ways to improve efficiency. Businesses have been negatively impacted by the economic downturn. High exchange rates have resulted in high cost of raw materials. We have witnessed mass retrenchment, loan restructuring for big businesses and bankruptcies in SMEs.
It is very clear that 2016 will end with a negative growth of -2% but the outlook for 2017 is bright as the likelihood of success is 70%. This is predicated on Oil price and production increase (Oil prices have since gone up following the OPEC meeting) so we can expect minimal recovery by Q2 2017. Although the symptoms of recession will still be there, things will progressively get better. Employment will pick up slower than economic growth as employers want to be assured of steady growth before recruiting. We also expect that interest rates will start coming down. It is important to be ready to engage and be economically active, to develop products and services and to deliver them efficiently and at competitive prices to stay ahead of the pack.
Although the outlook is generally bright, we must also look at risks. As oil prices go up, there might be a petrol price hike which may lead to a labour unrest and trigger a social unrest. The exchange rate market may collapse and the economy may further contract as a result of policy delays and ideological backsliding as well as inability to stick to economic recovery principles. Then there is also the fear of conflicting messages and mixed signals which inhibit investors and entrepreneurs. And as we inch closer to the 2019 elections, political squabbles may also create uncertainty and we of course cannot forget structural corruption which is still very much around.
I found Mr Bismark Rewane’s presentation quite compelling and I hope I captured a significant part of what he said in this write up developed from my notes at the session. I believe there are some insights that will prove useful in developing corporate or personal strategy in order to be better positioned to overcome the challenges and take advantage of opportunities that 2017 will present. Mr Rewane’s presentation focussed on the macro-economic environment which is more of a helicopter view, so how does all of these affect the Marketing Communications industry in general and individual agencies specifically.
The answer to this was presented by Dr Doyin Salami of the Lagos Business School who was guest speaker at a session organised by the Experiential Marketers Association of Nigeria (EXMAN) on Wednesday, November 30 at Ibis Hotel, Ikeja for CEO’s and other top executives of member agencies. He spoke extensively on how to successfully navigate the Nigerian economic waters which is currently experiencing some turbulence. He spoke candidly about the economy, highlighting the statistics many were already familiar with but presenting a fresh perspective on how to interpret and apply them. Dr Salami then proceeded to highlight how all of these will affect the marketing communications industry.
Given the economic realities, the ultimate risk is faced by advertisers because affordability is back to being a challenge. This used to be a problem in the past until innovation changed the game. Bulk breaking and the introduction of cheap, single serve options made a lot of formally inaccessible products become affordable for consumers particularly at the lower bottom of the pyramid. As the economy shrinks and prices increase due to inflation, issues of affordability are back on the block. This is compounded by the unemployment and underemployment situation which takes a lot of products out of the reach of majority of Nigerians.
The implication is that advertisers are going to be under serious pressure as consumer are not buying as much as they prioritize their expenses. We will face two challenges as professionals. Our clients will be asking themselves a big question. Is this company a cost or a revenue? Agencies whose services can be considered a cost and not revenue will lose their commission. It goes to the heart of value proposition. Can you share in their risk? We must be ready to share the risk by doing whatever we can do that will give the client a verifiable advantage. Help clients understand the status and evolution of the market so they can take better advantage of it. The reality is that clients are looking for value they don’t have to pay for. Agencies that can provide these will be well sort after. If the client can do what you do, you offer no value. So you must be clear about your value proposition and remember that this changes over time as the environment is dynamic.
We must monitor trends and be aware of what is happening within the economy and the markets where our clients play. Government policy can increase or reduce the size of the pie. Technology can also be a serious game changer. Except for those who corrected predicted the future and started planning years ago, many cannot adopt a Blue Ocean strategy going into 2017. But for those who can, value brands are key. This is the big opportunity as consumers’ trade down to look for products that address their needs for a lot less. This is one area to look into. So whose dinner can you steal? Understand the market place and advise the clients whose dinner to steal. We need to know our business as well as that of the clients.
We must understand what is happening in the market, what competition is doing and how they can gain competitive advantage. As a survival strategy, we must avoid our clients seeing us as a cost to stay relevant. We must look for ways to tie ourselves to the customer at the hip by being ready to share the risks with them. Clients being under pressure themselves will not concede to price increases so margins are going to be under tremendous pressure in 2017. We must explore innovative ways to keep costs down.
In summary, agencies that will be successful in 2017 must be willing to share risk, Have knowledge, offer real value, move from invoice side to income side. It is imperative to highlight how you contributed to the clients’ income. We must always remember that it is our job to help client gain access to and increase share of the market. Agencies must position themselves as part of the route to market process and identify which part of the route to market process you will be part of. Those who are an essential part will have their services retained and those who are not run the risk of being cut off.
It is also pertinent to note the nature of the marketing communications industry. Market power is in the clients hands. There are few high spending clients and many agencies across industries specialities each angling for a piece of the budget. So clients to a large extent dictate pricing because supply outstrips demand due to low entry barrier in the industry. The fragmentation of the industry also plays to clients’ advantage so they dictate terms and play one against the other to demand financial discount but accept no discount on quality. The industry as a whole need to recognise that there is an existential challenge and must critically look into how to organise and rethink the industry structure because the current approach is undermining the industry. It is therefore in the best interest of sectorial groups to work together to the advantage of the entire industry in general and individual agencies specifically.