No fewer than 6,000 jobs are expected to be lost as five notable companies shut their production factories in Nigeria.
American multinational consumer goods company, Procter & Gamble, announced plans to terminate its on-ground operations in Nigeria, transforming the country into an import-focused market.
The manufacturing giant, headquartered in Cincinnati, Ohio, United States of America, joins a growing list of multinationals to dump Nigeria in 2023 owing to reasons that have revolved around business profitability.
Other multinational firms that have also left Nigeria in 2023 include Unilever Nig (home care and skin cleansing division), GlaxoSmithKline, Sanofi and Bolt Foods.
The companies, in separate statements, alluded the painful decision to leave Nigeria to their plan to pursue an import-based model that would ensure business sustainability.
Preliminary checks by The PUNCH indicate that the departure of the five companies means approximately 6,000 direct and indirect jobs may have been lost.
P&G, the biggest of all five names, leaves Nigeria with a portfolio valued at $85bn with Nigeria contributing $50mn net sales. The company’s exit also means that approximately 5,000 jobs have been taken away from the economy.
GSK, on the other hand, left Nigeria with a market cap of N22bn. Even though the company had over 400 highly technical workers like pharmacists, microbiologists, biochemists, chemists, dentists, doctors etc, and more than 1000 other staff, it said around 160 employees would bear the brunt of this shift in business strategy in Nigeria.
Unilever Nigeria, on its part, leaves Nigeria with a home care and skin cleansing division worth N50bn. A total of 755 people worked for the company as of 2021.
In June, while speaking exclusively with The PUNCH, the President of the Manufacturers Association of Nigeria, Francis Meshioye, had said that some international manufacturing firms were planning to exit Nigeria as a result of the power crisis, coupled with the unpredictability of the country’s foreign exchange rate before it was recently unified.
Meshioye said, “The downsising of businesses in Nigeria, for instance, shows that businesses are not doing very well. So this power issue and other things have made some manufacturers, particularly international businessmen relocate from Nigeria to other countries.
“Therefore anything to reduce this energy cost will be very beneficial both to manufacturers and the masses in general. So it (power) is a high cost to us and a major driver in terms of cost. At the same time, it could lead to other things.”
Profits shrink
While many of the big firms that left Nigeria in 2023 have attributed their decision to business strategy, an analysis of the companies’ financials indicates shrinking profits while others have posted significant losses in recent memory.
For example, when Unilever Nigeria announced its exit from the home care and skin cleansing markets in Nigeria, the company said it did so “to find a more sustainable and profitable business model.”
However, a deep dive into the company’s financials showed a N1.09bn profit after tax loss in the third quarter of 2023.
Also, the company’s nine-month interim report showed a N389.30m profit before tax; however, a corporate income tax obligation of N1.48bn dragged the company’s bottom-line performance into negative territory.
Similarly, GSK, before announcing its exit saw its half-year revenue decrease to N7.75bn from N14.8bn.
Also, Sanofi, a French pharmaceutical multinational, which announced its exit from Nigeria last month, said “This strategic move is driven by our commitment to continually improve access to our medicines and to better serve our patients and the Nigerian health system.”
However, the company’s financials indicate that it had struggled to keep up profitability in Nigeria.
According to Ventures Africa, in 2019, May & Baker Nigeria announced a contract manufacturing agreement to produce four brands from Sanofi. This deal was an effort to boost local production.
It enabled May & Baker to use Sanofi’s facilities to manufacture flagyl tablets, suspensions, anti-infective medicines and anti-malaria drugs. By then, May & Baker’s revenue slowed by 9.57 per cent to N5.9 billion in the first nine months of 2019. Gross profits also fell by 9.36 per cent due to a sharp decline in sales.
At the top of the list of factors that have influenced the exit of international firms from Nigeria is the acute scarcity of foreign exchange. While announcing the decision to leave Nigeria, the Chief Financial Officer of P&G, Andre Schulten, said it was difficult to do business in Nigeria as a dollar-denominated organisation and the macroeconomic reality in Nigeria is responsible for its latest strategic decision.
Schulten said, “The other reality that arises in some of these markets is that it gets increasingly difficult to operate and create U.S dollar value. So, when you think about places like 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.”
MAN, LCCI fear
Speaking with The PUNCH, the President of the Manufacturers Association of Nigeria, Francis Meshioye, blamed the ‘harsh business environment’ as the reason why there has been a stampede for Nigeria’s exits in recent months.
He warned that if the government failed to step up its engagement with manufacturers, the trend would likely continue as investors were wary about plunging money into business climates that did not guarantee return on investments.
Meshioye said, “Yes. it is because of the harsh business environment. This should send signals to the government that it is not everyone that can withstand turmoil. Money goes to where it will achieve its intended motive.
“FDI comes for a purpose, these companies are not charity organisations. They want to reap the dividend of their investments at the end of the day. So, if the dividend is not forthcoming, naturally they will want to go to where they can get returns on their investments.
“This is the right time for the government to engage the manufacturers, they should understand our plight. A strategic engagement with manufacturers is important.”
Asked if the trend of multinationals packing up operations in Nigeria is likely to continue, the MAN president said the status quo was unlikely to change since investors are wary about the risks involved in investing in volatile business environments.
In a statement made available to The PUNCH, the Lagos Chamber of Commerce expressed worry that over the last few months, there has been a consistent increase in exit plans or a reduction in involvement in the Nigerian market by the multinationals.
It said the lingering foreign exchange scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure, among others, have taken a toll on many businesses in the country.
The statement read in part, “The Chamber recommends that the government should implement measures to stabilise and ensure the availability of foreign exchange for businesses, particularly those operating in dollar-denominated environments. The LCCI also implores the government to create a more flexible and transparent foreign exchange policy to address scarcity issues.
“Further, the Chamber urges the government to engage multinational corporations and the business community to understand their challenges and gather input and feedback on policy decisions to collaboratively develop solutions that will forestall the exodus of businesses from Nigeria. The CBN should prioritise the stability of the country’s currency and adopt the right policy mix to ensure price stability.”
Also reacting to the development, the Director General of the Nigeria Employers Consultative Association, Mr Wale Oyerinde, in a chat with The PUNCH on Thursday, said, “This is not only worrisome, it calls for urgent and immediate steps to arrest the continuous exit of businesses.
“With P&G joining the number of the growing divestments, it portends economic crisis as this will escalate the growing rate of unemployment with consequences for security. The attendant dwindling or erosion of individual or family disposable income will also have negative consequences for the economic activities of the nation.”
On his part, the Chairman of the Nigerian Economic Summit Group, Niyi Yusuf, said, “I see this as a wake-up call and reminder of the urgency required to stabilise our macro environment so we can be more attractive to capital. Apart from Land, other factors of production (labour, capital, entrepreneurs) have options and will go to the most welcoming and attractive destinations.”
The Chairman of the Nigerian Association of Small and Medium Enterprises, South-West region, Solomon Aderoju, told The PUNCH in an exclusive interview that Nigeria should expect more exits due to the challenging business climate.
According to Aderoju, P&G is also importing some of the raw material for manufacturing which will be at a very high cost.
He said, “Nigeria should expect more exits if nothing is done to make the business environment conducive. P&G is not the first to leave, more will definitely. They have made reasons, it could be because of high inflation, high exchange rate, and insecurity, the problems are humongous.
“To date, SMEs are still not able to access Forex. As I speak to you, it’s still hovering around N1000 per dollar. The dollar is still not accessible, you have to go to the black market to get it,” Aderoju said.
An economist, Alias Aliyu, in an exclusive interview with The PUNCH, has voiced serious concerns regarding the widening gap between the naira and dollar exchange rates.
Aliyu emphasized the potential for businesses to operate at a loss due to this substantial disparity, stating, ‘There is no way you won’t exonerate the naira and dollar from the conversation because the parity is too much.
If you are not making money as a business, there is no way you will still be in business, and this will affect the Nigerian economy.’