…as more multinational firms prepare to exit country
- Government must stop trend, say LCCI, NECA
- Give us time, all lingering issues will be resolved soon – FG
BY FESTUS OKOROMADU
The harsh business climate in Nigeria has continued to take its toll on the economy as more multinational firms plan to leave the country, with an expected loss of $335 million (about N310bn) in Foreign Direct Investments.
Procter & Gamble, a major global player in the Fast Moving Consumer Goods segment and Equinor, another global player in the upstream oil sector, are among the latest multinationals set to exit the country.
The estimated N310bn represents the combined assets value of the two business giants.
Their exit comes on the heels of relocation in the second half of this year by two other major multinational companies, GlaxoSmithKline Consumer Nigeria Plc and Sanofi-Aventis Nigeria Limited, a French pharmaceutical company, which pulled out assets, estimated at over $800 million from Nigeria, citing harsh operating environment.
Procter & Gamble, an American multinational consumer goods company, says it has plans to transition from local production to solely importing its products as the firm winds down its on-ground presence in Nigeria.
Equinor is exiting after selling its Nigerian business, including its share in the Agbami Oil Field to Nigerian-owned energy company, Chappal Energies.
Explaining the decision, the Chief Financial Officer of P&G, Andre Schulten, said the decision was a result of “the challenging business environment in Nigeria, as well as the difficulty in creating US dollar value.”
On his part, Equinor’s Senior Vice President for Africa Operations, Nina Koch, in a statement, said, “Nigeria has been an important part of Equinor’s international portfolio over the past 30 years. This transaction realises value and is in line with Equinor’s strategy to optimize its international oil and gas portfolio and focus on core areas.”
The liberalisation of the downstream oil sector and merger of the forex regime by President Bola Tinubu are two measures that have pushed up the cost of living and prices of goods, impacting heavily on the purchasing power of consumers.
There are fears of more companies leaving the country unless drastic measures are taken to lessen the frustrating economic climate.
“Despite being the largest economy in Africa with over 200 million human populations, multinational companies are exiting Nigeria because of recent macroeconomic challenges, especially forex challenges”
At least 5,000 jobs may be affected as Procter & Gamble announced plans to dissolve its on-ground operations in Nigeria and carry out imports only, owing to foreign exchange challenges.
The maker of iconic brands, including Pampers, Gillette, Ariel, Always and Oral-B, which started operations in Nigeria in 1991, and has invested millions of dollars in the manufacturing sector, including completing its ultra-modern $300 million plant at Agbara, Ogun State in 2014, claims it provides over 5,000 jobs directly and indirectly through its offices, suppliers and distributors and has created over 200 SME jobs.
Despite being the largest economy in Africa with over 200 million population, multinational companies are exiting Nigeria, citing recent macroeconomic challenges, especially forex challenges.
The Governor of the Central Bank of Nigeria, Olayemi Cardoso, recently announced that the apex bank had started clearing the forex backlog, said to be about $10 billion.
The genesis
In July 2018, P&G announced the closure of its $300 million consumer goods factory located in Agbara, Ogun State.
Although the company back then attributed the packing up of the Agbara plant to restructuring of its operations, it was obvious that the action was a signal to something bigger.
More so, when the diaper plants in Agbara was reported then as the biggest US non-oil investment in Nigeria, shutting it down barely four years after it was established was a critical decision, which experts said the Nigerian government should have given some serious considerations.
Those familiar with the matter then hinted that the Agbara plant was shut down due to high cost of production.
Interestingly, Agbara, an industrial hub in Ogun State, is notorious for its poor road networks and multiplicity of taxes.
Worse still, there are indications that others such as French pharmaceutical company, Sanofi-Aventis, are set to also exit the country while the likes of Guinness and Unilever have shed some production lines in the country with the aim of importing the same products now manufactured in neighbouring African countries.
Stakeholders express concern
The Director General, Lagos Chamber of Commerce and Industry, Chinyere Almona, expressed worries over the spate of multinational companies exiting the country.
She noted that the decision of a company like P&G, with a global portfolio valued at $85 billion, contributing $50 million in net sales, to exit the country called for concern.
She called on the Federal Government to do everything possible to stop the trend.
Part of the statement reads, “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, and this trend is worrisome. We have seen the likes of Unilever Nigeria, GlaxoSmithKline, and Guinness Nigeria Plc.
“In Nigeria, 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 Chamber recommends that the government should implement measures to stabilize 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 prioritize the stability of the country’s currency and adopt the right policy mix to ensure price stability.”
Reacting to P&G’s decision to quit Nigeria, the Director General, Nigeria Employers’ Consultative Association, Adewale Smatt-Ayorinde, urged the Federal Government to take proactive action to stop businesses organisations from moving out the country.
Describing the decision to leave Nigeria as inimical to the present government’s drive to attract foreign direct investment into the country, he said, “These regrettable departures will persistently undermine the Federal Government’s efforts to attract Foreign Direct Investment, rendering its initiatives ineffective.”
NECA, he said, strongly emphasised the immediate need for decisive measures to halt the ongoing trend of companies divesting from the country.
“We urge a quick and definitive action to arrest the continuous exit and divestment of legitimate organisations in Nigeria. In the last few years, hitherto strong brands, both multinationals and strong local brands have either closed shop or divested fully or partially,” he added.
He noted that Nigeria’s “challenging business landscape, marked by stringent regulatory and legislative activities, insufficient infrastructure, and policy inconsistencies collectively exacerbate the difficulties faced by businesses.”
The NECA DG observed that the situation whereby regulatory bodies tasked with fostering business growth “persist in prioritising revenue generation at the expense of their core mandate while legislators, in the guise of oversight functions, consistently create impediments for organised businesses, hindering their operations” would frustrate businesses and foster their exit from Nigeria.
He implored President Bola Tinubu, as well as the Minister of Finance and the Coordinating Minister for the Economy, Wale Edun, to prioritise the survival of local businesses as the primary step before actively seeking Foreign Direct Investment.
Speaking from an operator’s perspective, the President of the Chemical and Pharmaceutical Sector of the Manufacturers Association of Nigeria, Rotimi Aluko, said manufacturers were operating under a harsh business environment hence some were forced to shut down their factories and exit the country while others had to slash procurement orders.
Speaking during the group’s Annual General Meeting in Lagos, last week, Aluko said manufacturers had been weathering numerous classes and categories of economic storms that had challenged the real sector of the economy.
Those storms, he said, had crippled the sector and plunged it into a state of near-recession.
“Several manufacturers and numerous businesses had to shut down their facilities while others grappled with slashed procurement orders.
“Anxieties wrought by uncertainties relating to the last general elections, starting from early pre-election activities through the elections proper earlier in the year and the subsisting post-election resolution issues, have also posed another major challenge to economic and manufacturing activities in the form of a major blow to business from which many economic sectors nationwide are still reeling,” he stated.
Aluko lamented that the removal of fuel subsidies and the unification of exchange rates by the new government left a devastating mark on the manufacturing industry.
On his part, an economist and founder of the Stanbic IBTC Bank Plc, Atedo Peterside, said businesses that value rule of law, policy consistency, macroeconomic stability and level playing field would continue to depart from Nigeria.
He added that only investors who know how to “partner” with politicians would stay.
Commenting on the news of P&G’s exit from the country, Peterside wrote on his X (Twitter) handle, “Another way to look at this @ProcterGamble exit story is that multiple investors who cherish the rule of law, policy consistency, macroeconomic stability, a level playing field are running away from Nigeria.
“They are being ‘replaced’ only partially by investors who know how to ‘partner’ with politicians and/or game the system through waivers, exemptions etc.”
Resolving the forex crisis
From all indications, one of the critical factors responsible for the exodus of multinational manufacturing firms from the country is their dependence on foreign exchange. Unfortunately, the present situation where the forex market is unstable, coupled with a backlog of unsettled forex forward contracts, exposes the market to uncertainty.
More so, stakeholders have continued to raise concerns that the government appeared to have reneged on its earlier commitment to inject between $7 billion and $10 billion into the forex market to clear the existing backlogs that impaired investors’ confidence in the economy.
Meanwhile, President Bola Tinubu on Thursday rekindled hope when he gave assurance that every commitment by his administration towards resolving forex backlogs through injection of funds into the market would be fulfilled.
Speaking at the opening of the 2023 Bank Directors’ Summit in Abuja, Tinubu acknowledged that funding of liquidity in the forex market, even though a short-term solution, remained critical for the economy at the moment.
Tinubu, who was represented at the summit by the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, insisted that there was no reason to feel that the indications that were made earlier had changed, adding that “it just takes time.”
He said the government was doing everything in its power to try to attract funds that would shore up liquidity in the forex segment.
Why focus on the manufacturing sector?
“These regrettable departures will persistently undermine the Federal Government’s efforts to attract Foreign Direct Investment, rendering its initiatives ineffective”
Bearing in mind the urgent need to boost and transform the Nigerian economy from import dependence to production oriented, the place of manufacturing as an engine room of industrial transformation cannot be overemphasized.
In addition to the fact that over 130 million Nigerians are said to be living in poverty, the President Tinubu’s administration must as a matter of urgency do whatever it takes to revive the manufacturing sector, which is usually the highest employer of labour to restore the economy, experts have said.
The latest report of the National Bureau of Statistics reveals that the manufacturing sector, otherwise known as the real sector, contributed 8.62 per cent to GDP in the third quarter of 2023.
According to the NBS report, the manufacturing sector comprises 13 activities: Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood Products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic; Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.
On the sector’s contribution to the nominal GDP growth, the NBS said the Manufacturing sector in the third quarter of 2023 was recorded at 36.59 per cent (year-on-year), 34.39 per cent points higher than the figure recorded in the corresponding period of 2022 (2.20 per cent) and 6.69 per cent points higher than the preceding quarter figure of 29.90 per cent. Quarter-on-quarter, the growth of the sector was recorded at 29.49 per cent during the quarter.
“The contribution of Manufacturing to Nominal GDP in the third quarter of 2023 was 16.18 per cent, higher than the figure recorded in the corresponding period of 2022 at 13.75 per cent and higher than the second quarter of 2023 at 14.55 per cent.
“Real GDP growth in the manufacturing sector in the third quarter of 2023 was 0.48 per cent (year-on-year), higher than the same quarter of 2022 and lower than the preceding quarter by 2.39 per cent points and 1.72 per cent points respectively.
“The growth rate of the sector on a quarter-on-quarter basis stood at 7.12 per cent. The real contribution to GDP in the 2023 third quarter was 8.42 per cent, lower than the 8.59 per cent recorded in the third quarter of 2022 and lower than the 8.62 per cent recorded in the second quarter of 2023,” the NBS said.
Indeed, if the administration’s target of transforming Nigeria into a $1 trillion economy must be realized, the growth of the manufacturing sector must be ensured vis-à-vis curbing the exiting of multinational corporations to neighbouring countries. If the trend is allowed to continue, Nigeria will remain an importer, thus throwing away employment as well as wealth creation opportunities, experts maintain.
