What does the Nigerian consumer spend his money on? And how have these spending patterns evolved in recent times? Thinking comprehensively about consumer spending entails reflecting, in a broad-based manner, on the range of commitments to which income earners – and non-income earners (who, nonetheless, make expenditures) – are obliged, on account of what they receive periodically.
The first-line obligation that income earners generally meet is tax, which, in the case of salaried workers in the formal sector of the economy, is often deducted at source. Certain categories of income earners in Nigeria pay some form of ‘taxes’ or dues out of their earnings to various non-state actors – an example being the dues paid by commercial road transport operators to representative unions like the National Union of Road Transport Workers (NURTW) in Lagos. Some income earners maintain fidelity to institutions which levy them routinely or to which they make donations. Prominent examples among these are religious institutions – churches, mosques, etc. And yet, despite all of these commitments, some income earners set aside a portion of their incomes, whatever the frequency of their receipt, as savings.
The foregoing helps us distinguish between the macroeconomic concept of disposable income (i.e. income less taxes) and the reality of commercially available disposable income, which is what is left to income earners in their wallets after a range of often routine and sometimes ironclad financial commitments have been met. It is out of this commercially available disposable income that households and consumers spend. Given that the aforementioned commitments do not apply to every individual income earner or income-earning household, including the possibility that some income earners do not pay taxes, it is possible for commercially available disposable income to equate total income.
The patterns of spending arising out of Nigerian households’ commercially available income have been changing significantly over the past two decades. In 2003, Nigeria’s official consumer basket weighting structure (for the calculation of domestic price movements) indicated that household spending patterns were heavily skewed towards subsistence consumption. The weights assigned to the various items in the consumer basket available then indicated that the average Nigerian spent about 64.4% of his commercially available disposable income on Food and Non-Alcoholic Beverages. Spending items such as Communication (0.1%), Education (0.2%), and Health (1.4%) accounted for a small fraction of spending by that measure.
By 2009, the implied proportion of spending by Nigerian households on Food and Non-Alcoholic Beverages, out of their commercially available disposable, income stood at 51.8%. Implied average spending on Communication had risen seven-fold to 0.7%; Education, nearly twenty-fold, to 3.9%; whilst Health more than doubled from about 1.4% to 3%.
In light of these changes, the perception that spending patterns are increasingly moving away from subsistence could justifiably be formed, although the question of whether they were moving definitively towards lifestyle spending patterns might elicit a less certain response. The implied proportion of spending on Recreation and Culture tapered off a bit, to 0.7% from 0.9% six years earlier, as did spending on Restaurants and Hotels, to 1.2% from 1.3%.
Ten years on from 2009, the consumer basket has not changed to reflect more recent household spending patterns, creating a gap in how these patterns are assessed. One implication of this is a lack of understanding of the ways in which the recent recession, and the slow recovery from it, have affected the evolution of consumer spending patterns. To be sure, there are some partial insights available out there. A survey of 1,500 online respondents, conducted in 2016 by Philips Consulting, places the proportion of expenditure allocated to food by Nigerian households at 58.7%. This article also refers to data originating from the United States’ Department of Agriculture (USDA) which estimates the proportion of spending on food in Nigeria to be 56.4% (although the year to which the figure applies is unstated).
At issue is this: has the recent recession forced Nigerian consumers to adjust their spending in a manner that has strengthened spending on subsistence, reversing the apparent trend observed a decade ago? Given the sample size limitations of the Philips’ study and our inability to establish the precise timing of the USDA reference, we cannot say for sure that this is the case (assuming the criteria for determining the movement towards or away from subsistence depends on whether food expenditures, as a proportion of household expenditures, are rising or shrinking).
Establishing this with greater certainty is of immense value to commercial and non-commercial interests. KAINOS Edge Consulting has commissioned an ongoing survey of household income and expenditure patterns covering a sample of 25,000 households, drawn to cover each of the 36 states and the Federal Capital Territory (FCT). The survey provides analysis across three levels – national, regional, and state. Furthermore, data will be decomposed by socioeconomic classification (SEC) – AB, B1, C1, C2 and DE, representing the upper, upper-middle, lower-middle, and lower classes respectively; and municipality – rural, semi-urban, and urban.
Thus far, results have come in from the field for Lagos and Rivers States. Regarding expenditure patterns specifically, the data indicate that, as of 2018, Lagos State households allocated 23.8% of their spending budgets to Food and Non-Alcoholic Beverages. In Rivers State, the figure is 32.1%. The national picture cannot, of course, be painted until data from all states have been compiled and analysed. However, available data immediately suggest the following:
- In at least two states in southern Nigeria, the move away from subsistence appears to be continuing. This interpretation is offered with caution, given that there are no publicly available data on the consumer basket from the past, at the state level, with which to compare today’s conditions.
- The disparities in conditions between states are as important – or perhaps more important – than the national picture itself. They reinforce the emergent perspective that Nigeria cannot be viewed, by corporates and other commercial interests, and even non-commercial interests, as a single market.
Given that the consumer basket as described presents a fairly exhaustive coverage of the spending items to which household budgets may be allocated, these insights in are useful to all commercial interests who are interested in scoping consumer demand for what they produce. The data is presented in such a manner that, even within states, it is granular enough to show differences in spending basket compositions across socioeconomic classes and municipalities. Armed with such information, business strategists can begin to construct a comprehensive matrix of the demand for their goods and services, and align their market positioning strategies accordingly.
Insights emanating from analysis such as the foregoing – and more – will be the substance of KAINOS Edge’s Consumer Insights Series which, driven by primary data, aims to become the go-to source for comprehensive, granular consumer-related intelligence in the Nigerian market. At a time of heightened interest in the precise sizing of the Nigerian market, this series places a veritable tool in the hands of decision makers. We invite you to join us on this journey.