Harsh economic landscape: Multinationals exit Nigeria

The harsh economic environment has made it difficult for foreign companies to stay and operate in Nigeria. It has become a trend as multinationals are exiting the country. 

The Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprises, Dr. Muda Yusuf told PEBNEWS Correspondent via phone that: "The exit of multinational companies from Nigeria is regrettable. For most of them, the issues were about the volatile macroeconomic environment and to a lesser extent, the challenge of insecurity.  

According to him, the biggest shock to most of them was the naira exchange rate depreciation and the corresponding exchange rate losses. 

The Nigerian business environment has become tough and worsened by the removal of petrol subsidy and naira devaluation. Dr. Yusuf said: "The multinationals also had huge forex exposure in debt financing.  Most of their financing was in foreign currency. Again, because of the drastic naira depreciation, many of them were thrown into a loss position". 

It was gathered that as a result of this challenges, five multinationals had exited the country in the last ten months. They are Procter & Gamble (P&G), GlaxoSmithKline (GSK) Nigeria, Equinor, Sanofi and Bolt Food. 

It was learnt, a few days ago, Kimberley-Clark, an American Multinational Personal Care Corporation announced its plans to exit Nigeria after almost 15 years of operations. 

The company commenced operations in Nigeria in 2012 but halted activities after five years in 2019 due to unfavourable economic conditions and later resumed operations in 2021. The company  produces Huggies diapers, sanitary pads, etc. 

The CEO, CPPE  who said  competition in Consumer market was a challenge for them added: "The heightened competition in the consumer goods space in which the multinationals were major players.  Most of them progressively lost their market share to the raging competition and disruptions in the consumer market segment of the economy. Many of the multinationals lacked the business model flexibility which the changing market dynamics demands."According to the Chief Executive Officer of one of multinationals that left, the company took the decision to exit the Nigerian market three years ago. The company had been scaling down progressively since then.

Similarly, Partner, PriceWaterHouseCoopers,(PwC) Kenneth Erikume who spoke to PEBNEWS Correspondent via phone  expressed his views on the consumer space and the economic impact of multinationals leaving Nigeria. He said: "the cost of goods and services have gone up. many of this multinationals, especially the manufacturing sector rely on the ability of consumers to purchase goods and services, so when you have a sort of cost push inflation and wages and salaries are not going up it's also difficult to borrow". 

Erikume explained further: "interest rate has hit the roof, it becomes difficult for households to purchase foods and services, so while they were purchasing, may be 10 items before, they probably turn it down to 7. 

Many of these multinationals also  broke up their goods and services into smaller modules which they call sachetization where you have milk in a tin because in one go, a household or person can't buy that tin because of the cost, they then drop the size into sachets". 

He added that the challenges foreign businesses are facing as a result of reduction in size. "In the alcohol sector, the Government has pushed  back against sachetization, so, the foreign companies will therefore find it difficult  to continue  to sustain  their business and some of them are leaving". 

Foreign companies leaving Nigeria has a profound economic impact.  He said:" the impact of them leaving is that, it's like a vicious cycle because when this multinationals leave, they will strip out their assets, dispose of their assets and repatriate their funds and then ask employees to leave. It leads to capital flight and significant   unemployment. The Government  will have to grapple with more people that are not gainfully employed  in a very complicated market or economy already". 

On what the Nigerian government must do to create a favourable business  environment to encourage multinationals to stay and  invest. He said: "The big goal for multinationals is certainty around their investments. Policy and regulatory certainty. So, they want to know that the business landscape is predictable". 

On the sidelines, he made reference to the sole reason the Chief Executive Officer of TotalEnergies, Patrick Pouyanne took energy projects worth 6 billion dollars to Angola instead of  Nigeria . 

Recall that, last month, Pouyanne, disclosed this when he  spoke with panellists of the Africa CEO in Kigali, Rwanda, that inconsistency in policy making  decisions in Nigeria  led to the diversion of the project from Nigeria to Angola, a country with a more stable policy framework.

According to him, economic certainty has to do with cost of money, looking at the exchange rates,foreign exchange rates, interest rates and all that. Multinationals want to be sure that  when they generate,because  many of their goods are sold in naira in the domestic economy, they want to be sure that when they convert it ,they will get good foreign exchange to repatriate and that the exchange lost will not be too significant. 

Economists want  the Government to look critically at the issue of FX  liquidity, interest rates uncertainty around custom duties, therefore want the Government to make it more stable so that people can predict and also reduce multiple taxation. 

Economic experts say this exit trend could hinder foreign investments' inflow  thereby affecting the country’s $1 trillion economy target by 2030.