Nigeria, Africa’s largest economy, is facing a wave of corporate exits as several multinational companies have announced plans to leave the country or scale back their operations in the second half of 2023.
The exodus of these firms comes at a time when foreign investment inflows in Nigeria are at their lowest in 27 months, according to data from the National Bureau of Statistics (NBS). The NBS reported that investments declined by 33 percent to $1.03 billion in the second quarter of 2023 from $1.54 billion recorded in the same period in 2022.
The United Nations Conferences on Trade and Development also revealed that foreign direct investment inflows into the country turned negative (-$187 million) last year for the first time in at least 33 years.
The departure of these companies could further reduce foreign investment inflows and affect the country’s ambitious goal of achieving a $1 trillion economy by 2030. The last time Nigeria’s gross domestic product (GDP) surpassed $500 billion was in 2014, when it was worth $574.2 billion, according to the World Bank. Last year, it grew to $477.4 billion from $440.8 billion in 2021.
Some of the multinationals that have announced their exit or downsizing plans in the past six months include:
- GlaxoSmithKline Consumer Nigeria, a healthcare company, which said it would exit the country after 51 years of operations in August.
- PZ Cussons Nigeria, a consumer goods company, announced plans to delist from the Nigerian Stock Exchange in September.
- Guinness Nigeria, an alcoholic beverage maker, said it would stop the importation and distribution of certain Diageo international premium spirits effective from April 2024 in October.
- Sanofi, a French pharmaceutical company, said it had appointed a third-party distributor to handle its commercial portfolio of medicines from February 2024 in November.
- Equinor, a Norwegian energy company, which announced the sale of its Nigerian business, including its share in the Agbami oil field, to Nigerian-owned Chappal Energies in November.
- Procter & Gamble, a consumer goods giant, which said it would transit its Nigerian operations to an import-only model in December after operating in the country for more than 30 years.
The reasons for these corporate exits vary from company to company, but some of the common challenges they face in Nigeria include:
- Foreign exchange scarcity and volatility, make it difficult and costly to source dollars for imports and repatriate profits.
- High inflation and devaluation, erode the purchasing power of consumers and increase the operating costs of businesses.
- Poor infrastructure and power supply, hamper the efficiency and productivity of manufacturing and distribution activities.
- Multiple taxation and regulatory hurdles, create uncertainty and increase the cost of doing business.
- Insecurity and social unrest, disrupt the normal functioning of the economy and pose risks to the safety of workers and assets.
These challenges have also affected the performance and profitability of many businesses in the country, especially in the fast-moving consumer goods sector, where six out of ten firms posted losses in the first nine months of this year, BusinessDay reported last month.
The exit of these multinationals will have negative impacts on the Nigerian economy, such as:
- Loss of jobs and income for thousands of Nigerians who work directly or indirectly for these companies.
- Loss of tax revenue and foreign exchange earnings for the government could worsen the fiscal and external imbalances of the country.
- Loss of market share and competitiveness for the local manufacturers, who may face increased competition from imported products or lack of access to quality inputs and technology.
- Loss of confidence and reputation for the country could deter potential investors and partners from entering or expanding in the Nigerian market.
However, some experts and stakeholders have expressed optimism that the exit of these multinationals could also create opportunities for the Nigerian economy, such as:
- Attracting new and innovative players, especially from emerging markets like China, India, and Turkey, who may see Nigeria as a strategic and lucrative market for their products and services.
- Encouraging local entrepreneurship and innovation, especially among the small and medium enterprises, may fill the gaps left by the existing multinationals or create new solutions for Nigerian consumers.
- Enhancing local value addition and diversification, especially in the manufacturing and agricultural sectors, could reduce the dependence on imports and boost the export potential of the country.
- Stimulating policy reforms and incentives, especially from the government, could address the structural and institutional bottlenecks that hinder the growth and development of the private sector in the country.
The Nigerian government, led by President Bola Tinubu, who assumed power in May, has taken some steps to improve the business environment and attract more investments in the country, such as:
- Removing the petrol subsidy and starting the foreign exchange reforms, could reduce the fiscal and external pressures on the country and enhance the efficiency of the markets.
- Launching the Nigeria Investment Promotion Commission (NIPC) One-Stop Investment Centre (OSIC), could simplify the processes and procedures for setting up and operating a business in the country.
- Implementing the African Continental Free Trade Area (AfCFTA) agreement could expand the market access and opportunities for Nigerian businesses in the continent.
The Nigerian private sector, represented by the Lagos Chamber of Commerce and Industry (LCCI) and the Manufacturers Association of Nigeria (MAN), has also called for more collaboration and dialogue with the government and other stakeholders to address the issues facing the nation’s manufacturers and investors.
The exit of these multinationals is a wake-up call for Nigeria to take urgent and decisive actions to fix its economy and restore its attractiveness as a destination for foreign and local investments. While the challenges are daunting, the opportunities are also immense, and Nigeria has the potential and the resources to overcome them and achieve its vision of becoming a $1 trillion economy by 2030.
Source: BusinessDay
