The devaluation of African currencies is affecting Indian two-wheeler and consumer goods sales in the continent. Bajaj and TVS Motor have started seeing sales slowing, and Godrej said profitability was under pressure due to the African crisis. Industry experts have urged the Centre to consider reciprocal trade arrangements to help companies exporting to Africa.
Africa’s economy mainly depends on crude oil and other commodities. As crude oil prices have fallen drastically, the trade balance of many African countries has been affected.Bajaj had lowered its export guidance for the year by 10 per cent to 1.83 million two-wheelers from 2 million, mainly because of the slowdown in Africa.
While the company did not respond to emails, Bharat Gianani, analyst at Angel Broking, said, “Africa is a major market for Bajaj and it is feeling the pressure for the last few quarters.”Bajaj’s exports have been growing at 15-17 per cent annually for the last five years. Africa accounts for nearly 45-50 per cent of Bajaj's export volume. For TVS Motor, export growth has slowed. The company's CFO S G Murali said, “Exports are under pressure. We could have sold more, but we did not.”
The issue in countries like Nigeria, where 1 million two-wheelers are sold a year, is inadequate dollars. Local distributors were unable to import as planned and billing from India suffered, Murali said. Reciprocal trade arrangements could help, he added.
Vivek Gambhir, MD, Godrej Consumer Products, said, “The company is not seeing a slowdown in sales. The geographic breadth in our portfolio insulates us against volatility in an individual country.”
The considerable devaluation of African currencies has raised Godrej’s raw material import costs.
“We can increase prices to absorb the cost increases. There is, however, usually a lag of a quarter or two before that can happen. So, near term profitability comes under pressure. We have been trying to mitigate this by managing our costs more tightly,” said Gambhir.
The flip side benefit to this devaluation is that it is enabling companies which manufacture locally.
"Some of our competitors rely on an imports model and so, they find it harder to compete. Since we manufacture locally, we have an advantage," said Gambhir, whose company does local manufacturing.
Africa accounts for about 35% of the two-wheeler export volume Nigeria is the biggest market in Africa of two-wheelers contributing 60% of sales volumes in Africa and about 20 per cent of total export volumes Nigerian currency has depreciated 25 % during the past 15 months due to a decline in oil prices. Exports YTD (Apr-Dec) (two- wheelers) for the industry were flat (0.1 % growth). Indian OEM ‘s have cut prices of 2-wheelers marginally to arrest the fall in volumes Besides with crude oil prices not expected to rebound strongly in the near term at least, the problems are likely to stay Near-term profitability comes under pressure for FMCG majors; two-wheelers see drop in growth and volume