As Nigeria exits recession, government should introduce initiatives to enable growth, says Mouka CEO

Ray Murphy is the CEO of Mouka, one of the biggest manufacturers of mattreses and pillows in Nigeria. The 800-employee company established in 1959 was recently identified and recognized by London Stock Exchange as one of the companies to Inspire Africa. ‘Companies to Inspire Africa’ is part of London Stock Exchange Group’s broader support campaign for inspirational and dynamic companies that have shown excellent growth rate and potential to power Africa’s development. In this interview with BusinessDay, Ray who retained his workforce even in recession speaks on the recognition, impact of recession and his expansion plans. Excerpts.

To what extend did economic recession impact on your margin?

Obviously, 2016 was an extra-ordinarily challenging year. After 20 years of consistent average four percent GDP growth, that year went negative for the country. But for Mouka, we bucked the trend a little bit. As the country went into recession, that was the time we reinvested in our business. We took the view that we have to focus on three key areas. Firstly was the Nigerian consumer. As the Nigerian consumer was seriously affected by the recession, decreasing their disposable income, many companies cut their marketing budgets and stopped communicating with the consumers, but we did the reverse.  We significantly increased our marketing spend and communicated more with consumers. Secondly we revisited the quality of our products. When many companies cut pack sizes and cut the formulation of their products, we went the opposite way, demonstrating that we consistently improved the quality of our products. The third was reaching the consumer base. We partnered with 250 business partners in Nigeria. We laid series of support plans with them which actually strengthened their business. In 2016 we fulfilled our promises. The forth and most important are the Mouka staff. One cannot have a successful business, without a strong loyal workforce. Collectively, the Mouka people made a big difference in 2016. Many companies retrenched, but Mouka did not lay off staff. We also increased our training budget in 2016. We saw 2016 as an opportunity to continue investing. Our quality product is non negotiable and we can’t compromise our relationship with our esteemed customers by giving them something less.

Are you saying that the difficult situation did not affect your margins?

Our margins remained at the levels which we expected.

Another thing that characterized recession was forex scarcity, how did you navigate through the challenge?

We were affected but we developed tactic and strategies to help us manage the forex situation. There were game of two halves in  2016. Pre June, the exchange rate to the dollar was about N200/$ and later there was adjustment to the dollar. The mechanism through which one procured forex changed from first to second half. So we had strategies in place for the first half of the year and we were very agile. Yes we did face forex challenges but as a company we were agile to it.

How are you keying in to the backward integration policy of government?

Two major chemicals are used for the production of our products. I wish I could procure them locally. But all other raw materials from textile to packaging and number of raw materials are locally sourced. In value terms, the local procurement is about 40 percent. Majority of Mouka cost is related to imported oil derivative chemicals. That was why we made sure that we had strong strategy in place to mitigate the impact of forex.

How do you face electricity challenge?

In terms of electricity, we have three manufacturing facilities and  they all have primary and backed up generators. Of course the main grid is cheaper than a company running its generators but we build our infrastructure upon self generation of electricity and any support we get from main grid is a benefit but we are not dependent on it.

Government is reviving the EEG, what is your view on this?

First of all, we don’t have any plans to directly export at this stage. Our products are a big bulky product and the freight cost of transporting that would be huge. Presently 100% of our revenue is in Naira from Nigeria but we do have aspiration to extend our footprint to W/Africa and beyond but that will come less through export and more through looking at opportunity to set up another company or merge with another company in another country. This will be our strategy to extending our footprint.

There are talks that Nigeria would exit recession in Q3 this year, do you see signs to this effect?

In the last couple of months, there is increasingly level of optimism. Some are of general view that things have bottled out and there are green shoot of recovery. We can see what the government and Central Bank of Nigeria had done in the recent months in terms of the new forex window. Things are looking more optimistic for the second half of 2017. We are optimistic too. As a manufacturer, our biggest challenge is volatility in terms of exchange rate, inflation, GDP growth and where these are high, it makes planning difficult. Some of the indices that would likely make 2017 stronger are declining inflation; increasingly this would be a good news for the economy. Now we are getting more optimistic than being pessimistic and this is driving confidence in consumers to spend.

Mouka was recently identified and recognized by London Stock Exchange as a company to inspire Africa, what does this mean to you?

For us, it is a tremendous honour to be recognized internationally for the performance of the company within Nigeria. We are one of a select band of companies not just in Nigeria but Africa who are recognized for our success and asked to participate in this initiative. We are about 300 companies in Africa who were identified and about 60 of them are in Nigeria. The London Stock Exchange is now on a road show in Africa to get Africa back on the agenda of the investment hub. This is to say that there are a number of notable success stories within Africa but many within Nigeria despite the gloomy performance of 2016. One looks at the future and one should not be distracted by the one year economic bleep. This is the view the LSE has taken to identify companies to inspire Africa.

Are there some roles expected of you under the initiative of inspiring Africa?

It is really  being able to profile, create awarenss of the investment community and of opportunities in Africa. This is to ensure that we do whateve we can to increase or bring investment to Africa. LSE is focusing on private companies and support these companies with capital to grow and perhaps list in Nigerian Stock Exchange or even list in the London Stock Exchange. There was a re-signing of agreement between the LSE and NSE recently on partnership that has been in place for a period of time. It is to increase awareness of investment opportunities to get capital inflows going again.

Are there roles governments are expected to play to also inspire companies in Africa?

Yes, government should partner with private sector. But I think, as we move out of recession, government would be able to help come up with series of initiatives to enable growth. But as private companies, we are not going to wait for governments whether in Nigeria, Africa or Europe.  Governments should come up with series of initiatives that would support private public partnerships.

What is you projection of mattresses business  in Nigeria?

25 percent of the continent population is Nigerian and we are getting increasingly high level of urbanization. Nigeria has a young population growth, middle class growth, growing disposable income and GDP growth. Again if the economic stability is sustained there would be further growth as it would attract investments. These give me the right confidence to continue to invest because there is expanding market opportunity in Nigeria. This is true of all manufacturers of consumer goods.