In this report, Daniel Anazia takes a look at the recent upsurge in the number of multinational companies exiting Nigeria and its implications for the economy.
IT’s no news that Nigeria, Africa’s largest economy, is facing significant economic challenges, leading to an exodus of multinational companies (MNCs) on a daily basis. The news, however, is that it has raised concerns about the country’s business environment and economic stability.
This trend has significant implications for investment climate and employment. No thanks to the country’s policy uncertainty, insecurity, and infrastructure deficits that have made it increasingly difficult for businesses to operate.
As a result, several multinational and local companies have closed shops, while more are shutting down or relocating their operations due to economic challenges such as economic instability, policy uncertainty, insecurity and violence, infrastructure deficits (power, transportation, logistics), corruption and bureaucracy, high operating costs, and foreign exchange challenges (currency volatility) among others
The latest company to announce its departure from Nigeria is South African grocery retailer Pick ‘n Pay, which confirmed on Monday that it will exit the country’s market by selling its 51 per cent stake in a joint venture.
Its Chief Executive Officer, Sean Summers stated that the exit decision aligns with the company’s broader restructuring plan outside its home market. The retailer has two stores in Nigeria, having entered the market in 2016 through a partnership with A.G. Leventis (Nigeria). It opened its first store in 2021 and went on to operate in two locations.
This venture was seen as a strategic move into one of Africa’s largest consumer markets, aiming to tap into Nigeria’s growing demand for grocery retail. However, the exit suggests that economic challenges, naira instability and regulatory hurdles have impacted the viability of this investment in Nigeria’s competitive retail sector.
The exit of the store adds to the growing number of international companies leaving the shores of the country due to growing threats to their businesses. Multiple multinationals have left Nigeria by scaling down operations, transferring ownership or selling their stakes.
While companies like Unilever, Nestle, and Procter & Gamble have closed or scaled down operations, international oil companies like Shell, Chevron, and ExxonMobil are divesting assets, just as Cadbury, Siemens, and Ericsson have relocated to other African countries.
According to Dr. Muda Yusuf, Founder/CEO, Centre for the Promotion of Private Enterprise (CPPE), a non-governmental organisation committed to the ideals of free enterprise and private sector development, essentially, what Nigeria is witnessing with the multinationals that are leaving has to with the prevailing macro-economic conditions, especially challenges around the foreign exchange environment and trade policy.
He said, “Within the context of the current economic environment, any business with huge foreign exchange exposure will have to struggle under the current situation. When I talk about foreign exchange exposure, I’m talking in terms of those who are funding the business, I’m talking about their shareholders, I’m talking about their procurement processes which are mainly externalised from abroad, their creditors.
“If all of these are anchored on foreign exchange, then those businesses are bound to struggle, and that is what we are witnessing with many multinationals. Most of them, their shareholders, are expecting returns in foreign exchange. And like I said earlier, most of them, their procurement is such that their materials are procured in foreign currency, most of them have creditors or funding in hard currency. So these are the issues. And given what the exchange rate is and the current volatility, it is becoming increasingly difficult for businesses to survive, unless they are businesses that are ready to be patient until we stabilise this whole environment.”
“The latest company that is leaving, which is Pick n Pay is a trading company, and most of their activities are foreign exchange related and they also into brands that you regard as premium brands in terms of wear and whatever they produce or sell. So in that kind of scenario, again, you are talking of foreign exchange, issues of purchasing power. Because in the current business environment, any product that is in the premium category, such a product will struggle because of the general situation with the purchasing power.
“So when we talk specifically about the latest company that has announced its exit that could also be a factor. But generally, the issue is around foreign exchange, and the fact that we have seen a dramatic or considerable depreciation in our exchange. By the time you convert what they earn in naira to whatever foreign currency – dollar, pound – the shareholders will just see it as peanut because the dollar value of their investment in Nigeria has been massively eroded, and when they compare it to what they have in other business climes, I think it is a rational decision to pull out of Nigeria where if they it easy to do so,” he added.
The immediate past Director General of the Lagos Chamber of Commerce and Industry (LCCI), further said that: “It will be alot difficult for some of them that are in foreign direct or manufacturing that have already invested heavily in fixed assets. But for those of them that are not, they can easily sell their shares and move out. So to redress or see what we can about the situation, we have to stabilise our macroeconomic environment, stabilise our foreign exchange environment, ensuring that we have some stability, and even some strengthening of the currency because the naira has been so badly weakened; I don’t think our economy is as weak as being reflected in the exchange rate.”
“So we need to address some fundamentals around our macro-economic management, fiscal deficits, environment, money supply goods. Those issues are extremely important and of course boost our export, especially in our oil and gas sector, and the non-oil export. So these are the things I think the government can do to get us off this challenge,” he opined.
Also commenting on the development, Vincent Nwani, an economist and former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry (LCCI), noted over 10 companies shut down operations in 2020 alone and more than 20 companies exited the country. He stated that the most recent is the sale of Diageo’s 58.02 per cent shareholding in Guinness Nigeria to Tolaram.
Impact on the Economy
The exit of the multinationals from Nigeria no doubt has significant impacts on the country’s economy. These include:
Increased Unemployment: Thousands of jobs lost due to closures and downsizing.
Reduced investment: Decreased foreign investment and divestment.
Economic contraction: GDP growth slows, and economy contracts.
Increased poverty: Reduced economic activity exacerbates poverty.
Reduced government revenue: Decreased tax revenue and royalties.
Decreased economic diversification: Dependence on the oil sector increases.
Loss of technological expertise: Departure of skilled foreign workers.
Reduced competition: Local businesses face reduced competition.
On sector-specific impacts, manufacturing has witnessed reduced production capacity and output, while oil and gas has seen decreased investment in exploration and production. The telecommunications sector has been grappling with reduced investment in infrastructure development, thus resulting in poor network and service delivery, just as the agric sector has witnessed reduced access to international markets.
According to experts the long-term consequences of this exit include, reduced economic growth potential, increased dependence on oil exports, decreased economic competitiveness, reduced attractiveness for foreign investment, and brain drain (japa), as skilled Nigerians seek opportunities abroad.
A look at the statistics shows that the country’s inflation rate as of September 2024 stands at 32.7 per cent, a slight increase from 32.2% in August 2024. This upward trend is attributed to factors such as the depreciation of the Naira and rising transportation costs, which have surged by 27.2 per cent due to fuel price hikes.
Food inflation, a significant component of Nigeria’s inflation basket, has also risen to 37.8 per cent in September, up from 37.5 per cent in August, largely due to severe floods affecting food production.
Breakdown of the Inflation rate put the Headline Inflation rate at 32.7 per cent, Food Inflation at 37.8 per cent, Core Inflation Rate at 27.4 per cent, and Monthly Inflation rate at 2.5 per cent.
Year-by-Year breakdown of companies that exited the Nigerian market from 2020 to mid-2024
2020:
In 2020, more than 10 firms reportedly exited the Nigerian market, as the impact of economic instability and other operational challenges became evident. Notable closures included: Standard Biscuits Nigeria Ltd, NASCO Fiber Product Ltd, Union Trading Company Nigeria PLC, Deli Foods Nigeria Ltd
2021:
The departure escalated in 2021, with over 20 firms shutting down operations in the country. Among those who left were: Tower Aluminium Nigeria PLC, Framan Industries Ltd, Stone Industries Ltd, Mufex Nigeria Company Ltd, Surest Foam Ltd
2022:
The trend continued in 2022, with more than 15 prominent brands ceasing operations in the country. This include: Universal Rubber Company Ltd, Mother’s Pride Ventures Ltd, Errand Products Nigeria Ltd, Gorgeous Metal Makers Ltd
2023:
The wave persisted in 2023, as over 10 major brands pulled out from the country, citing profitability concerns and challenging business conditions. Notable among these departures included: Unilever Nigeria PLC, Procter & Gamble Nigeria, GlaxoSmithKline Consumer Nigeria Ltd, ShopRite Nigeria, Sanofi-Aventis Nigeria Ltd, Equinox Nigeria, Bolt Food, and Jumia Food Nigeria
2024 (January – October):
In the first two quarters of this year six no fewer than five significant companies exited the Nigerian market as the business climate remained difficult. These included: Microsoft Nigeria, Total Energies Nigeria (impacted by divestment strategies), PZ Cussons Nigeria PLC, Kimberly-Clark Nigeria, Diageo PLC
Light at the end of the tunnel
The federal government in response to the trend, established the Nigerian Investment Promotion Commission (NIPC), launched the Economic Recovery and Growth Plan (ERGP), began implementation of the Presidential Enabling Business Environment Council (PEBEC), and improved transparency and accountability in government.
This development has seen the GDP growth rate move from 2.98 per cent in the first quarter (Q1) to 3.19% in second quarter (Q2), which is a slight increase (0.21%) as of June 2024. The growth is driven mainly by the services sector, which expanded by 3.79 per cent and accounted for 58.76 per cent of the GDP. The oil sector also saw significant growth, expanding by 10.15 per cent in the second quarter, driven by increased oil output.
A breakdown of the GDP growth rate by specific-sector shows that the non-oil sector accounted for 2.80%, oil sector 10.15%, services sector 3.79%, agriculture 1.41%, and manufacturing 3.53%.
According experts, by addressing the underlying issues and implementing mitigating strategies, Nigeria can reduce the negative impacts of multinationals exit and create a more attractive business environment by diversifying the economy – encourage non-oil sectors (agriculture, manufacturing, services); improve business environment – streamline regulations, reduce bureaucracy; enhance transparency by adopting and implementing an open, accountable governance.
They also recommended that the government should address the infrastructure decay in the country with investment in power, transportation, and logistics, address insecurity and violence, strengthen institutions and combat corruption; offer incentives to attract and retain investors, foster public-private partnerships by collaborating with the private sector to address infrastructure deficits,
The exodus of multinationals from Nigeria is a wake-up call for policymakers to address the underlying issues. By implementing policy reforms, investing in infrastructure, and enhancing security, Nigeria can restore investor confidence and stimulate economic growth.
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