Citing Nigeria’s challenging macroeconomic environment, multi-national company Procter and Gamble (P and G) recently announced its decision to exit Nigeria and transition its operations to an import-only model. This came barely four months after the same headwind forced pharmaceutical and biotechnology giant GlaxoSmithKline (GSK) to vote with its foot, prompting renewed fears that without urgent and significant improvement in the ease of doing business to halt the mass exodus of local and foreign companies from Nigeria, the road to opening the floodgate of investments to grow the economy and create jobs remains long and arduous. Assistant Editor CHIKODI OKEREOCHA reports.
President Bola Tinubu and his economic managers, including operators in diverse sectors and Nigerians generally must be disconsolate. The frenetic speed with which companies in Nigeria, especially multinational corporations, are either shutting down, divesting or relocating to other business and investment jurisdictions, apparently because of the country’s challenging macro-economic environment, must have been a devastating blow, a nightmare of sort, perhaps.
This is particularly so for the President, who, since his inauguration on May 29, has never hidden his resolve to reposition Nigeria as an investment destination of choice, and has been in search of countries and investors willing to do business or invest in Nigeria, including incentivising investors by easing stringent business policies that discourage investment.
Many industry operators and experts see the gale of mass exit of companies from Nigeria as a threat to the gains so far made by the administration in rekindling the enthusiasm of local and foreign investors in doing business in Nigeria. It means that the drive for economic growth and job creation, including a pushback on poverty, which is critical to the achievement of the administration’s Renewed Hope agenda, has come under serious threat.
In other words, the current administration’s renewed push to open the floodgate of local and foreign investments to grow the economy and create jobs has suffered a major setback. It also means, by extension, that Nigerians who had hoped that with more foreign and local companies operating in Nigeria, a significant dent would be made on the country’s embarrassing unemployment rate and ultimately, curtailing the socio-economic consequences of joblessness may have had their hopes dashed.
While these fears are not new, having been a recurrent feature in the Nigerian business and investment community, the fact that two major global brands were forced to join the inexhaustible list of companies that have shut down operations in Nigeria, under the current administration made such fears more pronounced; it also speaks to the urgent need for significant improvement in the ease of doing business in Nigeria to halt the depressing trend.
Procter and Gamble (P and G) was the latest global brand whose decision to pull out of Nigeria gave these fears more traction. The world’s largest personnel care and household products company, makers of brands such as Pampers and Gillette, among others, recently announced its decision to exit Nigeria and transition its operations to an import-only model. This is despite boasting an overall portfolio valued at $85 billion, with Nigeria contributing $50 million in its net sales business.
P and G, an American consumer goods company, which started operations in Nigeria in 1992 with the acquisition of the Richardson Vicks manufacturing plant in Ibadan, Oyo State, also manufactures Always, a popular brand of sanitary pad. It also manufactures and distributes brands of detergent (Ariel), fragrances, alkaline batteries, toothbrushes (Oral-B) and shaving sticks.
But after about 21 years of operations, P and G pulled out of Nigeria and said it was transitioning to an import-only model. The company’s Chief Financial Officer (CFO), Andre Schulten explained at the Morgan Stanley Global Consumer and Retail Conference in New York, that its decision to exit Nigeria was driven by the difficulty of operating as a dollar-based organisation in the country’s challenging macroeconomic environment.
However, Nigeria is not the only country hit by P and G’s current restructuring. Argentina is also affected.
Schulten said: “The other reality that arises in some of these markets (i.e. Nigeria and Argentina) is that it gets increasingly difficult to operate and create US dollar value. So, when you think about places such as Nigeria and Argentina, it is difficult for us to operate because of the macroeconomic environment.
“So with that in mind, we are announcing a restructuring programme with the intent to adjust the operating model and adjust the portfolio to ensure that we maintain the portfolio discipline that has brought us to this point. The restructuring programme will largely focus on Nigeria and Argentina. We’ve announced that we will turn Nigeria into an import-only market, effectively dissolving our footprint on the ground in Nigeria and reverting to an import-only model.”
But the restructuring programme does not come cheap for P and G. According to Schulten, the company could incur charges anywhere between $1 billion and $1.5 billion after-tax from restructuring its operations in Nigeria and Argentina, two markets where the business has been problematic for them.
He, however, noted that the latest strategic decision will help the company to focus on markets that have the highest potential, adding that compared to its overall portfolio worth $85 billion, the company does not anticipate any material impact on the group’s balance sheet from a sales or profitability standpoint.
P and G’s exit from Nigeria came barely five months after British drugmaker GlaxoSmithKline Consumer Nigeria Plc. (GSK) also made known its decision to shut down operations in Nigeria after over 51 years and resort to third-party distribution to serve customers in the West African market.
GSK, maker and distributor of Panadol and another portfolio of loved and trusted brands such as Sensodyne, Andrews, Macleans, Voltaren, Otrivin and Horlicks, in Nigeria, equally attributed its “strategic choice” to cease operations in Nigeria to unfavourable macro-economic dynamics including forex volatility, being a dollar-denominated organisation.
Founded on June 23, 1971, with a head office in Ilupeju, Lagos, and a manufacturing site in Agbara, Ogun State, GSK operates in the consumer healthcare and pharmaceuticals segments. While its healthcare segment includes nutritional healthcare, oral care, and Over-The-Counter (OTC) medicines, its pharmaceutical segment offers anti-bacterial, vaccines, and prescription drugs.
However, the exit of GSK and P and G added to the long list of companies, both local and foreign, that have either shut down, divested or relocated to other business and investment jurisdictions considered cost-friendlier than Nigeria.
Some notable brands whose relocations and divestments from Nigeria have continued to cause industry ripples among members of Nigeria’s business community and the authorities because of the obvious impact on consumers and the economy include the 2006 relocation of the factories of two of Nigeria’s leading tyre manufacturers, Michelin and Dunlop to Ghana.
Both companies, at that time, cited epileptic electricity supply in Nigeria as a major reason. Also, six of Nigeria’s automobile assembly plants have since disappeared from the landscape. They include Peugeot Automobile Nigeria Limited, (PAN), Kaduna; Volkswagen of Nigeria Limited, Lagos; Anambra Motor Manufacturing Limited; Steyr Nigeria Limited, Bauchi; National Truck Manufacturers, Kano; Fiat Production; and Leyland Nigeria Limited, Ibadan.
The situation in the textile industry is no less depressing. For instance, Kano, hitherto the hub of the textile industry in Nigeria, is currently a ghost of its former self. As of 2018, 232 manufacturing plants out of the 338 that existed in Sharada/Challawa and Bompai Industrial estates in Kano City have shut down.
Between 1999 and 2009, 38 major textile companies closed down in Nigeria, according to the Nigerian Textile Manufacturers’ Association. And there is hardly any sector in Nigeria that has not witnessed a mass exodus of companies from the country. Each of the companies employed thousands of Nigerians. And all the tiers of government also raked in huge revenue in taxes, levies and other charges from these companies.
Why companies are leaving Nigeria
Difficulty in sending back U.S. dollars outside Nigeria, by dollar-denominated companies, is not the only factor responsible for the mass exodus of companies from Nigeria. Rather, companies, both local and foreign, are being forced out by the myriad of binding constraints in Nigeria’s operational and fiscal environment.
For instance, as the Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, puts it, the increased mass exodus of companies from Nigeria “is a reflection of the increasingly difficult operating environment for investors, especially manufacturers.”
While noting that the macro-economic environment has been challenging, Dr Yusuf said: “Structural issues are impeding competitiveness, poverty is constraining affordability of products by consumers, the influx of Asian products into the Nigerian market is a manufacturer’s nightmare and foreign exchange market illiquidity and associated distortions is a major source of frustration for most investors.”
According to the former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), losses declared by many firms recently were a manifestation of the impact of exchange rate risk. He said typically, firms with huge foreign exchange obligations are very vulnerable in a volatile macroeconomic environment and exchange rate risks are very high because of Nigeria’s weak balance of payment position.
Yusuf said the revaluation of foreign exchange liabilities amid the reforms in the forex market would predictably result in current outcomes for companies with significant foreign exchange obligations. “It is a question of crystallisation of exchange rate risk. It is quite predictable,” he stated.
The Director-General of Nigeria Employers’ Consultative Association (NECA), Mr Adewale-Smatt Oyerinde, in a statement titled “Rising Rate of Business Divestment, Capital Flight and Business Closure in Nigeria–NECA Raises the Alarm” described the recent trend of business relocations and divestments from Nigeria as “unfortunate.”
He said over the last decade, the private sector had been adversely affected by various policy thrusts of government, and that many of these policies were anti-growth, ill-timed or not well thought out, while others were not in alignment with the country’s economic realities.
The NECA D-G said in more complex cases, the private sector witnessed an era of policy clashes and contradictions, and regulatory and legislative strangulation of businesses, which left many companies without a clear path for planning and decision-making. Operational costs have also increased astronomically, heaping more woes on many companies.
The consequences of years of wrong policy choices, according to Oyerinde, have been manifest. “As expected, divestment, capital flight and outright closures have become the ‘new normal’ within the business community. This is one of the chief reasons why the unemployment rate continues to soar with the consequential rise in crime and other security issues,” he said.
Oyerinde expressed fears that as a large number of Nigerians become unemployed when businesses cease operations either by divestment or a move to other more profitable and hospitable environments, the country inadvertently loses income from taxes, even as social investment is hindered and poverty continues to hold sway.
For the Director-General of LCCI, Dr Chinyere Almona, the mass exit “critically reflects on the country’s poor ranking on the ease of business measures, which the chamber has constantly spoken about.” She said factor cost, as an integral element of the profit equation, is viewed with utmost seriousness by business people such that in the face of rising costs, businesses will likely search for cost-friendlier locations.
Dr Almona said the Chamber views the situation with grave concern, and expressed regrets that “despite presenting international businesses with the largest market on the Continent, Nigeria still suffers from worrying economic slow-down decisions, which are often provoked by the rising cost of doing business, exposed by epileptic power supply, and weak infrastructural backing, among others.”
Giving more details about why companies are closing shop and relocating from Nigeria, the President of the Manufacturers Association of Nigeria (MAN), Otunba Francis Meshioye said power crisis, high interest, smuggling, coupled with the unpredictability of the country’s foreign exchange rate before it was recently unified were contributory factors.
The MAN President also said multiple taxations and levies imposed on manufacturers by the various levels of government, including the high cost of funds and lack of long-term credit, among other factors have become too heavy for most manufacturers to bear.
Meshioye described the mass exodus of companies from Nigeria as “a very concerning development that should be stopped given Nigeria’s unrivalled leadership role as the hub of industrial production in West Africa.”
The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Dele Kelvin Oye corroborated the MAN President’s assertion on the need to stop the trend, considering that the development has dealt a heavy blow to the manufacturing sector.
Oye’s idea of halting the trend is for the government to work collaboratively with the private sector to develop policies that will stimulate economic growth and create job opportunities in the country, pointing out that with the right policies in place, Nigeria’s economy can be revitalised and the country can become a hub for business and investment in Africa.
The NACCIMA boss said while the Bola Tinubu-led administration had commendably set Nigeria on a long-term path to economic progression, the adverse effect on certain sectors of some of its economic policies has been an issue.
“In particular, the sudden rise in the price of petrol and abolition of the official Naira rate has caused a significant backlash, eroding the already earned income and trading capital of several multinational companies that had established their previous earnings based on the official naira rate at the time,” he said.
He stated that as a result, there has been a steady exodus of multinational companies and the collapse of several local companies, resulting in significant job losses and economic damage.
Oye, therefore, urged the government to urgently review the short-term impact of its economic policies as it relates to commitments already concluded for remittances/raw materials by the affected companies/businesses to reverse the trend of companies leaving Nigeria.
He also pushed for the prioritisation of investment in infrastructure and power supply and the provision of tax incentives to encourage businesses to invest and remain in Nigeria.
More manufacturers’ exit likely, MAN warns
Bad as the gale of mass exodus of companies from Nigeria is, the Manufacturers Association of Nigeria (MAN) has warned that more manufacturers and businesses are likely to leave the country after P and G’s exit unless the government addresses the challenges confronting manufacturers in the country.
The Director-General of MAN, Segun Ajayi-Kadir gave this depressing prediction when he appeared on Channels Television’s Sunrise Daily. On the programme, which was monitored by The Nation, he expressed sadness over P&G’s exit from Nigeria and called for proactive steps to remove bottlenecks in the sector’s performance and sustainability.
Ajayi-Kadir’s words: “Obviously, we received it (P and G exit) with sadness, but it is not totally unexpected and more may happen because there is no doubt that we operate in an environment that is challenged. Manufacturing in any economy is a strategic choice; the government has to make up its mind whether it wants its country to be an industrialised one.”
He said once that decision is taken “you have to do all that is needed to remove the binding constraints that limit the performance of that sector. Nigeria has not done so and that is why you can see there are closures. I think it is news because it is P and G, it is news because it is GSK, it is news because they have been in the country for a very long time, but several others have died quietly and for reasons that are avoidable.”
Ajayi-Kadir, however, said there is a lesson to be learnt from the multinationals’ departure from Nigeria. According to him, the development presents a chance to support domestic producers more than international investors because they are more resilient and likely to remain against all odds.
The MAN D-G said: “The big ones that are exiting are those multinationals and I think this will send a clear signal to the government that regrettable as it is, it should guide future actions. We need to be strategic in what we promote. So, what this means is that if you have a challenged local manufacturer, he is not likely to go anywhere.
“That is why we are saying that foreign direct investment is excellent, it has led to phenomenal improvement in the performance of the manufacturing sector for so many economies, but it should come secondary to empowering the local investor, the existing manufacturers because that is what is enduring. Though it is regrettable, it is not unexpected, and I think unless we take clear redefined measures, many more will happen”
Worried by the exit of companies from Nigeria and determined to halt the trend, President Tinubu, a fortnight ago, begged multinational companies operating in Nigeria not to leave the country, saying that his administration was determined to remove all bottlenecks to the smooth running of their businesses.
The President, who spoke to a visiting delegation of the management of Shell Group, led by its Global Integrated Gas and Upstream Director, Ms Zoe Yujnovich, at the State House, Abuja, added that there is no obstacle too big to be removed to make Nigeria a safe-haven for large-scale investments.
“We are very focused on resolving all investment-related issues. No bottleneck is too difficult for us to remove in our determined march toward making Nigeria the African haven for large-scale investment in all key sectors. We need each other,” Tinubu said.
However, the preponderance of opinion by industry operators and members of the business and investment community is that business and investment decisions are not based on sentiment but on bountiful Return on Investment (RoI), which must be encouraged by putting the right systems and structures in place.
According to them, making the business environment conducive and attractive for local and foreign direct investment by improving the security situation in the country and addressing infrastructure, particularly electricity, which accounts for over 40 per cent of manufacturers’ cost of production, for instance, will reverse the trend, not begging.
Will the government working collaboratively with the private sector develop policies to enhance the ease of doing business in the country and hopefully, pull the breaks on the exit of more companies, local and foreign, from the country? Will it address the aforementioned binding constraints forcing companies to see exit from the country as a compelling option?
Will Nigeria, despite its huge market and over 200 million population, continue to watch while neighbouring West African countries, particularly Ghana, become the sub-region’s preferred investment destination? Time, they say, will tell.
