There are no real increases in wages as nominal wages cannot keep up with inflation. How can the economy grow with high lending rates, high inflation, with consumers having no disposable income to spend? Unless there is a clear policy to resuscitate the middle class and increase purchasing power parity, there will be continuing problems with the Shoprite model.
Organised consumer culture is not alien to Nigeria. At a time in Nigeria’s past, we had retail giants like A.G Leventis, Union Trading Company (UTC), Bhojsons, Chellarams and Kingsway Stores. Nigerian millennials might think The Palms at Lekki was the first mall with a Western style consumer culture in Nigeria; it is not. The United African Company (UAC) pioneered the department store concept in Nigeria in 1948, through its flagship Kingsway Stores. UTC, Chellarams, Bhojsons and Leventis followed and they all sold best-in-class household products in inviting, serene and engrossing ambiences that neither Shoprite nor Spar can match these days. From sparkling stainless kitchen utensils to fine clothes on the hangers and groceries; every consumer good offered on their shelves were comparable to those found on the shelves of any big chain retailer in Europe. Whatever one bought from these stores, was what one could buy abroad.
Before online shopping gained momentum, thriving brick and mortar stores were usually a good predictor of a strong economy. The stores mentioned above defined the post-civil war economy of the 1970s to the mid 1980s and the evolution of the Nigerian material culture. These department stores dominated the consumer goods formal retail market before the global oil price slump hit Nigeria hard in the mid 1980s, forcing the economy into a recession. As earnings from crude oil fell, and the profligate past caught up with us, household incomes and purchasing power fell drastically. To cope as a nation, Nigeria accepted the International Monetary Fund (IMF)’s Structural Adjustment Programme (SAP). As SAP’s biting effects grew, these department stores went under and their parent companies diversified away from import dependent consumables to survive the effects of SAP. From thereon, we lapsed into the stone age of shopping infrastructure, until The Palms at Lekki opened. Before The Palms came into being, a few years ago, two generations of Nigerians had grown up not seeing a decent strip mall. The store concept was so novel to them that they took excursions to The Palms, taking photographs and having wedding photo shoots there.
Like before, the aspirational middle class revived by President Obasanjo are losing their chops. They are fleeing the malls and finding succour in the informal economy, corner shops and car booth sales. With the continuous shrinking of the middle class and the emergence of e-commerce, shopping malls and Shoprite will have to rework their business model.
Reading through Shoprite’s recent announcement, it is clear that the company is not leaving Nigeria. What it seeks is a dilution of its investment through the injection of local capital. For all intent and purposes, markets are based on entries and exits. What Shoprite is facing and what it wants to do is not new. The company is reacting to an unstable, uncertain, adverse macroeconomic trend and a shrinking middle class environment. The factors that killed Nigeria’s iconic retailers like Kingsway, Leventis, UTC, Bhojsons are very much alive as they have not been slayed nor tamed. In those days, Nigeria’s manufacturing base was healthier but the implosion of institutions such as the Customs and Exercise, Nigerian Immigration Service, the Police, the judiciary et al, was a crucial factor in their demise. Leventis and the others could not compete with smugglers, and a compromised Customs department.
Forty years later, Nigeria’s manufacturing base cannot supply 50 per cent local content to any retailer. If Shoprite is to purchase from local suppliers, where is the local manufacturing to support the supply chain? Where local suppliers are available, as in the case of local foods, managers have been known to ask for bribes or a certain percentage of sales before they can stock products on their shelves. Like it was for Shoprite’s predecessors, the devaluation of the naira, several macroeconomic uncertainties, multiple foreign exchange regimes and the structural deficiencies in the economy is suffocating businesses and squeezing the shrinking middle class which can afford to patronise them. The wealth distribution in Nigeria cannot support the mall model. People are impoverished. Like before, the aspirational middle class revived by President Obasanjo are losing their chops. They are fleeing the malls and finding succour in the informal economy, corner shops and car booth sales. With the continuous shrinking of the middle class and the emergence of e-commerce, shopping malls and Shoprite will have to rework their business model.
The economy needs leadership; informed leadership. The cost of doing business is too high. Since the pandemic broke, no incentive has been given to businesses to cushion their losses of revenue. How about tax breaks? When will the naira racketeering and round tripping stop? When is Nigeria going to fix its power problem..?
For Shoprite, finding local investors is skirting the issues. The business model is too import dependent and the rank corruption within the buying and shelving infrastructure of Shoprite. How can we stem the dwindling prospects of foreign direct investment (FDI) in Nigeria? Well, we have a long way to go. We are not ready to face and pick our poison. We are still enamoured by short cuts and cut and paste solutions. Unfortunately, there are no short cuts. We have to think our way out of the structural imbalances in our economy. We have to be sincere that it will be painful and require sacrifices from everyone. What we are doing now is fakery and deceit.
The economy needs leadership; informed leadership. The cost of doing business is too high. Since the pandemic broke, no incentive has been given to businesses to cushion their losses of revenue. How about tax breaks? When will the naira racketeering and round tripping stop? When is Nigeria going to fix its power problem so that we can have profitable manufacturing businesses? Where did we get the idea of running a service economy without a solid manufacturing base from? Has that ever worked anywhere? An economy thrives on the tripod of agriculture to feed the people and supply raw materials, on manufacturing to process raw inputs and add value that services will rely upon. Instead of reducing the cost of borrowing to increase consumer spending and investment, lending rates are going up. There are no real increases in wages as nominal wages cannot keep up with inflation. How can the economy grow with high lending rates, high inflation, with consumers having no disposable income to spend? Unless there is a clear policy to resuscitate the middle class and increase purchasing power parity, there will be continuing problems with the Shoprite model.
Bámidélé Adémólá-Olátéjú a farmer, youth advocate and political analyst writes this weekly column, “Bamidele Upfront” for PREMIUM TIMES. Follow me on Twitter @olufunmilayo
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