Nigeria’s IMC industry can survive rising inflation and impending recession – experts
The economic indices arising from the fallout of the Covid-19 global pandemic have been quite alarming in Nigeria in recent times. According to the Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS), Nigeria’s inflation rate rose by 12.82% (year-on-year) in July, compared to 12.56% recorded in June 2020. This was the highest rate recorded in 27 months since March 2018 when inflation hit 13.34%. Nigeria’s Gross Domestic Product (GDP) in real terms declined by 6.10% (year-on-year) in Q2 2020, thereby ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.
For consumers, an increase in inflation rate means that fixed income individuals have less purchasing power and their ability to afford the same quantity of goods and services has reduced significantly. For businesses, it also has the tendency to increase their wage bill. Wage inflation rises as people seek salary increase to maintain the real purchasing power of their pay. This is reflected in rising costs to businesses, which pass these on to consumers thereby generating a wage-price spiral. The effect has resonated across different sub-sectors of the economy, especially the advertising industry whose survival is largely dependent on businesses across different sectors and sub-sectors of the economy.
The recent announcement by the minister of finance that Nigeria may slide into recession, if the country does not achieve a strong Q3 economic performance, has, therefore, brought home the possibility of an imminent financial crisis across different sectors of the economy.
For the integrated marketing communications industry, stemming the tide of declining revenue, occasioned by the Covid-19 pandemic, is of utmost concern. However, the recent announcement of an impending recession amid the burgeoning inflation seems to be a pointer to a fatal blow for an advertising industry still recovering from a major financial crisis. How can brand owners and agencies prepare to avert or cushion the effects of a gloomy environment for an industry that seems to be haemorrhaging already?
Speaking to MARKETING EDGE, Dr. Rotimi Olaniyan, Marketing Consultant and Publisher of ExperientialNg, pointed out three possible consequences of the dire economic situation on the IMC industry.
“The first consequence with the contraction of economic activities is always a reduction in consumer confidence and spending. A drastic cut in discretionary spending means that the consumers would retreat to the most basic needs, which includes food, health care and education for their children. Messaging and communication are cut back to the most rational of purchase drivers; affordability, value for money and extended left of centre consumer propositions. All these imply a difficult time ahead for brand owners and their agencies as if that is not already bad enough.”
He continued: “The second consequence will be the nature of competition. The question most consumer service-oriented firms must figure out is how you grow in a declining economy which is adding close to 4 million people to the poverty line every year. The simple answer to that is to pivot hard towards frugal innovation and market systems development. We need to start thinking in terms of frugal innovation and stop operating the same market curves and find new ones truly indigenous to our situation.
“The third consequence is the attendant market and systemic risk that entrepreneurial capital now faces. It is sadly made more difficult by devaluation and the currency volatility. You can even see the consequences with the likely exit of even well capitalised firms like Shoprite. With thin operating margins and very little room to price for risk, you have no choice but to time out. The only other option is for players to consolidate assets and weather the storm together by retrenching risks and costs but with this comes all sorts of new governance approaches that most of our people, particularly our owner manager founders in ‘macrons’, are not used to.”
In his contribution, Bolaji Abimbola, MD Integrated Indigo, a leading PR agency, opined that the IMC being an integral part of the economy is not immune to the impending doom facing the economy. However, he differed on the notion that the agencies were bleeding. “The economy has been tough, especially with the Covid-19 situation, but agencies are adapting well by finding different ways to navigate the season through new service offerings and also adapting to cost saving methods.”
In his submission, Paul Ugoagwu, Managing Director, STB Mcann, noted that the situation in the IMC sector was a cause of worry.
“I think the IMC sector is already in recession. The last quarter has witnessed negative growths and contractions. Since the biggest spenders are in the real sector, what affects them affects agencies. Ad spend has steadily declined with many clients migrating to low-spend do-it-yourself digital. Agencies have responded by sticking to remote working thereby reducing overhead. Pay cuts, furloughs, layoffs are already happening.”
Commenting on the issue, Lanre Ashaolu, MD FPL Media, an OOH advertising agency, said: “Going into a recession is not a surprise at this point. Since the end of Q1, economic activities have been in a decline due to the pandemic. As I speak, the economy has not fully been re-opened for economic activities. Certain sectors like the IMC industry, sports, hospitality, education, tourism and construction have been severely affected by the pandemic.”
The economist turned advertising practitioner is, however, optimistic that Q4 will witness a positive growth rate in the economy due to the re-opening of virtually all sectors. “For the IMC, it was not all gloom and doom for the entire sector during Covid-19 as electronic media received attention and due business. Agencies will have to use this period to reinvent their business model and leverage technology in their operations to be able to remain relevant in the market place.
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