Analysis: Africa’s largest economy “saturated” | poverty and development

Abuja, Nigeria – In February 2019, Eat’n’Go, the Nigerian franchisee of popular pizza maker Domino’s, offered a miniature version of the pizza boxes the market was familiar with, for 550 naira ($1.50).

Much smaller and cheaper than a medium pizza that costs N3,900 ($9), this new version is designed to be affordable.

CEO Patrick Michael told Al Jazeera that it was a necessary decision given the economic instability at the time.

“The Nigerian market is diversified, and the profit potential remains high,” he said. However, we can not overlook the economic instability [which] In some way it affected the purchasing power. At times like these, it becomes appropriate for industry players like us to mitigate the impact of this situation on clients.”

Two years earlier, StarTimes, a Chinese satellite TV provider with a strong presence in Nigeria, added daily and weekly subscriptions – with fewer channels – at N60 (15 cents) and N300 (72 cents) respectively, to its existing monthly option.

Since 2015, Nigeria, Africa’s largest economy, has been in recession twice and in that time, the naira has fallen against the dollar, losing 70 percent of its value. That put the economy in trouble. But things could get worse in the coming days.

According to the World Bank recently Report [PDF]By 2022, the number of poor people in the country is expected to reach 95.1 million – more than 40 percent of the population. Even as the negative economic effects of the COVID-19 pandemic continue, commodity prices are on the rise due to the impact of the Russian invasion of Ukraine.

The 2022 report from the National Bureau of Statistics (NBS) showed that Nigeria’s annual inflation rate accelerated for the third month in a row to 16.82% in April 2022, from 15.92% in March. This is the biggest rise in inflation since August 2021 and follows the trend of the global rise in commodity prices.

For Nigerians, the end result is a massive depletion of their purchasing power and, ultimately, less money in their accounts.

In fact, while there were 133.5 million active bank accounts in the country as of December 2021, 99% of these were under 500,000 naira ($1,200), according to Nigerian Deposit Insurance Corporation.

response to market realities

To deal with this reality, companies like Eat’n’Go are turning to bag marketing as a strategy to stay in business.

Researchers Rodolfo B. Ang and Joseph A. Si Changko of the Ateneo de Manila University in the Philippines, outlines it bag marketing as “an attempt to increase market penetration of a single product by making it available in smaller, more affordable packages…as a tool for market penetration at the bottom of the economic pyramid.”

Colloquially referred to as “sacrifice”, it has been in Nigeria for decades and it is Prevalent in other emerging markets such as Philippines and India.

Fast-moving consumer goods (FMCGs) companies have adopted it for items such as “pure water,” powdered milk, and packages of instant noodles. This allowed companies to cater to up to 80% of the market, Shakiruddin Tayo, a Nigerian economist, told Al Jazeera.

But in recent years, brands have strengthened the strategy, with the emergence of a new economic reality. These products are now sold in smaller pouches or smaller nylon bags.

“At the last count, we have over 75% of families in Nigeria living on less than $3-5 a day, which is a huge amount,” Taiwo said. “So companies start tailoring their products to fit this income bracket of people since they make up the bulk of the population.”

Doing so helps companies reach more customers and maximize profits as they can sell more products at a cumulatively higher price. But more importantly for buyers, it mitigates the effects of inflation even if they have to sacrifice quantity and in some cases quality as well.

How is the bag marketed in the technology industry in Nigeria

This trend is also seen in the technology industry in Nigeria and is affecting how more startups think about product pricing.

The industry may still be in its infancy but it is highly regarded all over the world. In 2021, nearly 60 percent ($1.7 billion) of the total amount ($2.9 billion) raised by tech startups in Africa He went to Nigeria lonliness.

But even giants are subject to market forces.

Many tech companies attract young Nigerians because they facilitate the bureaucratic and costly processes of investing, saving, buying insurance and getting loans by offering lower fees and cheaper payment plans, among other things.

Yanmu Omorogbe, co-founder and COO of investment platform Bamboo, says companies like hers must take into account market realities to come up with the right product for the market. Leveraging its partnership with a US broker-dealer, Bamboo allows Nigerians to participate in the US stock market for as little as $10.

“over here [in Nigeria]”The majority of people are working hard to escape the poverty line,” Omorogbe told Al Jazeera. “A small middle class is pulled in different directions, and then you have an equally small segment of high net worth individuals.

“Your strategies will need to take into account differences, but the core product should be able to accommodate everyone,” she said. “For us, that has meant adding features like fractional shares that allow people to invest with what they have and also lowering the bottom line so you can attract more people.”

Ike Aurum, a Lagos-based investor and financial analyst, agrees that the strategy is “a response to a bad reality” where “demand backed by purchasing power is shrinking.”

Rise, the fintech startup he runs, allows Nigerians to invest dollars in real estate and the US stock market, with as little as a dollar.

In Nigeria, where insurance penetration is less than 2%, a startup company, Reliance Health, has created a system where people do not have to be formally hired to access health insurance. It introduced plans from 3,500 naira ($7) to 148,500 naira ($297) that allow users to pay monthly, quarterly, or annually.

A solution or a problem?

The Nigerian government seemed to realize this as well when it launched a small pension scheme in 2019.

It has expanded the country’s contribution-based pension system to allow individuals in the informal and semi-formal industries to set up accounts without a plan sponsor – usually an employer – and save small amounts over an extended period.

While the scheme has not been fully captured yet various reasons, It shows the state of the market and how the institutions operating here are adapting.

But experts and industry stakeholders say saturation is as much an innovative solution as it is evidence of a widespread problem.

“[It] It could be a form of democratization where companies want to provide products to people who can’t afford them.” But the second perspective is that of rapidly increasing poverty, as most people in the economy cannot afford it. [a] product or service and increasingly moving away from providing it.”

With inflation rising while purchasing power inversely declines, more companies in various sectors of the economy may be willing to sacrifice, even service providers who previously served only the upper and middle class.

“A trip to the mall will show you that the stacking concept is gaining more momentum,” Taiwo said. “We may also start to see it in terms of services. Companies that provide integrated services may start offering specific services at lower rates [to] Ensuring affordability and business viability.