• Friday, June 14, 2024
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BusinessDay

Shoprite’s exit, like 10 others, signals more job crisis for Nigerians

Shoprite

With at least 20,000 jobs at risk, Shoprite’s decision to join 10 other major multinationals tip toeing out of Africa’s largest market after 16 years is a clear signal of how bad Nigeria’s unemployment rate will be in the coming months ahead.

The decision comes at a time Nigeria’s economy is struggling as jobless rate has more than quadrupled over the last five years while the minority who have the spending power to shop at Shoprite have seen their finances take a battering because of orthodox government policies and impact of the coronavirus pandemic.

Shoprite’s decision to leave Nigeria means over 3,000 direct jobs and over 17,000 indirect jobs are at risk, a development that means doom to the country’s misery index, which has deteriorated beyond crisis levels, and ought to be the government’s top concern as it has social implications.

For Africa’s largest grocery retailer Shoprite, established 40 years ago with over 500 stores across the continent, Nigeria has neither favourable business climate, nor high purchasing power to sustain their business operations so much that they can no longer cover Shoprite’s cost of doing business.

“Shoprite sees Nigeria’s economy as a sinking ship,” Remi Adekoya, a Polish-Nigerian writer and commentator on politics and current affairs, focusing on Europe and West Africa tweeted on Wednesday.

The company first announced in August 2020 that it was discontinuing operations in Nigeria, citing a revaluation of its operating model.

The planned exit of Shoprite and other major multinationals means more existential risks for millions of jobless young Nigerians, who are victims of an economic crisis that is driving up poverty and sowing insecurity across Africa’s most populous country, which has just barely emerged from its second recession in five years.

About 19million Nigerians entered the labour force in the past five years or 300,000 every month, according to World Bank estimates, but just 3.5million jobs were created during the period, meaning 80 per cent of new workers ended up unemployed.

“Defensive we-don’t-cares attitude can’t change that reality, only sound economic policy,” Adekoya tweeted.

Nigerian Economic Summit Group (NESG), an independent, non-partisan, non-sectarian organisation, says Nigeria needs a high, robust and sustained economic growth that delivers a significant reduction in unemployment and poverty.

The group noted that “to address the challenge of unemployment, Nigeria’s private sector has to be the engine room while the government sets the agenda and addresses key bottlenecks facing the business environment.”

“The devastating impacts of the twin phenomenon of poverty and unemployment are being felt across several parts of the country as manifested in the level of insecurity – kidnappings, theft, and other social vices,” NESG noted.

BusinessDay analysis took a closer look at international companies who have completely shut down their operations in Nigeria and their reasons for leaving.

Mr Price

Mr Price Group, a South African clothing and homeware retailer, announced plans to exit Nigeria in June 2020. Mark Blair, chief executive of the company, told analysts at the group’s full-year results presentation in June that the company would now focus on its home market.

“Quite frankly I’m not prepared to invest any further whether it’s an investment in time or in money into a country that is volatile as it is,” Reuters quoted Blair to have said.

“In the early days, we were making money but now we just came up against too many roadblocks, whether it’s getting the money out, etc.”

“We are really going to focus on South Africa in a more concentrated way,” Mark Stirton, the company’s chief financial officer, said.

OPay

After a profitable 2019 for the Norway-based Chinese-backed OPay, the company announced that several of its subsidiaries will be exiting Nigeria or temporarily stopping operations.

In 2018, Chinese investors backed the start-up with $180 million to take over the mobile money space in Nigeria.

“We can confirm that some of our business units, including the ride hailing services, ORide, OCar as well as our logistics service OExpress will be put on pause. This is largely due to the harsh business conditions which have affected many Nigerian companies, including ours, during this COVID-19 pandemic, the lockdown and government ban,” the company announced in July 2020.

Recall in January 2020, Lagos State Governor Babajide Sanwo-Olu announced a ban on motorcycle and tricycle operations in sub-Saharan Africa’s largest city. Ride hailing services, a sector where OPay had begun to dominate, were affected by the ban.

Tiger Brand International

South African largest food company, Tiger Brands, pulled out of its struggling Nigeria venture in 2015 following an unfruitful $181.9 million acquisition of 63.35 percent stake in Dangote Flour Mills (DFM), a Nigerian company that produces flour, noodles and pasta.

Tough economic conditions in Nigeria, which include the devaluing of the naira and the fuel crisis in May and June 2015, meant that the company could not meet its customers’ demands on time as their stock which was trading around N9 in 2013 fell to N1.23 by the end of 2015.

“Hindsight is always a perfect science! At the time, it was the right decision but we could not have anticipated the global economic circumstances which would impact the business. The impact of low oil prices and the devaluation of the Naira against the US Dollar, and could not have been foreseen,” then Chief executive officer, Tiger Brands Limited, Peter Matlare explained in 2015.

CEO of Tiger Brands Limited explained that Tiger Brands had made significant investments but the company continued to struggle with losses, which brought the board of Tiger Brands to consider either the two options of either further recapitalisation or find alternative option, the board subsequently settled for alternative options.

By the end of 2015 in order to save over 3,000 jobs that are at risk, Aliko Dangote was forced to buyback the company at a nominal value of N1 by initiating a “repurchase Share Sale Purchase Agreement” for a company he had he initially sold for about $200 million.

“Tiger Brands Limited will sell its shares (3,283,277,052) to Dangote Industries Limited for a nominal amount ($1) in consideration for Dangote Industries Limited injecting N10 billion in January in the form of a convertible (at lender’s option) shareholders’ loan,” the Share Sales Purchase Agreement (SSPA) stated.

The then-outgoing CEO stepped down at the end of 2015 after eight years at the helm after financial results proved the investment was a grave mistake. Also, Tiger brand’s investment in Deli Foods (49 percent), makers of Digestive and Crackers also went awry. They had also written down N3.5 billion.

Brunel Services plc.

In 2015, a Dutch stock exchange-listed staffing agency Brunel international pulled out of Nigeria because of the “continuing feeling of corruption and bribery,” its chief executive, Jan Arie van Barneveld, was quoted to have said.

“The security risk and bureaucracy make it almost impossible to guarantee the quality of our services and the safety of our workers in Nigeria in the future,” Van Barneveld was quoted to have said by DutchNews.

The decision to shut down in Nigeria was a huge blow to Nigeria’s increasing unemployment figures, as the personnel service provider Brunel is headquartered in Amsterdam and has offices in more than 40 countries worldwide; “In Nigeria, we had the feeling that we were being constantly cheated and bribed,” said van Barneveld in his newspaper interview,” chief executive of Brunel services said.

Truworths International

Truworths International Limited closed its two remaining Nigerian stores in February 2016, as stringent regulation of stock imports, foreign exchange controls and rising costs made it too difficult for the South African retailer to operate in Africa’s biggest economy.

“The clothing company struggled to get stock into Nigeria and cash out of the country,” CEO Michael Mark was quoted to have said at that time. “Truworths’ dollar rental bill also soared as the rand weakened against the US currency,” Mark, CEO of Truworths International, said.

According to the CEO, the regulations were always making it extraordinarily difficult to get stock into the stores as the company struggles consistently to get money out.

“Obviously everyone gets excited about Nigeria because of its size, but I think they’ve taken an incredible strain with internal problems in the country politically and then there are the issues with their oil,” Mark said.

Further investigation showed the problem is just Nigeria as Truworths continued expansion in other African countries like Kenya, Botswana and Ghana; “The stores in countries bordering South Africa are doing well and in Ghana its O.K.,” Mark said. “It’s just Nigeria that’s not profitable and we would go back there if everything changes. This is not a permanent thing, we will see what happens.”

Iberia Airline

Spanish national carrier, Iberia Airline, withdrew its services from Nigeria in 2016. As sources claimed the decision to withdraw was based on the huge financial difficulties the airline faced based on the Central Bank of Nigeria’s forex policy that prevented airlines from repatriating proceeds made in Nigeria to its parent countries.

Iberia Airline left in May 2016, citing “very difficult operating circumstances and dwindling passenger numbers.”

Though the national carrier of Spain attributed the decision to the dwindling passenger traffic on the route, findings by BusinessDay indicated that the problem was largely as a result of the foreign exchange scarcity with many foreign airlines unable to repatriate their funds to their home countries.

United Airline

United Airlines, the Chicago-based American airline, pulled out of Nigeria in 2016 over difficulty in recovering monies made from ticket sales, due to Nigeria’s foreign exchange policy.

According to United Continental Holdings Inc., operator of the airline, the daily route from Houston to Lagos had not met its target for years but was kept alive because of its importance to Texas-based customers.

“Since last fall, we have not been able to repatriate revenue sold locally in Nigerian currency and therefore we had to essentially suspend these sales which makes the route unsustainable as about half of the revenue generated by the route comes from Nigeria point-of-sale,” United spokesman Jonathan Guerin says in a statement to Today in the Sky.

Some of the difficulties may include a restriction by the government on the amount of money that can be moved abroad after the global slump in oil prices depleted the government’s U.S. currency reserves. Virgin, Emirates, British airlines reduced their frequency.

Etisalat

Abu Dhabi’s Etisalat terminated its management agreement with its Nigerian arm as Mubadala Development Company of the United Arab Emirates, the company’s largest shareholder, pulled out its investment and headed out of the country.

Mubadala, an Abu Dhabi Government-owned investment and development company, controls about 70 percent of the shares in Etisalat along with Etisalat UAE mobile, with Emerging Markets Telecommunications Services (EMTS, promoted by Hakeem Bello-Osagie, owning the remaining 30 per cent.

“All UAE shareholders of Etisalat Nigeria have exited the company and have left the board and management,” then chief executive of Etisalat International Hatem Dowidar told Reuters in an interview.

Nigerian regulators intervened to save Etisalat Nigeria from collapse after talks with its lenders to renegotiate a $1.2 billion loan failed.

InterContinental Hotel Group

In early 2018, news broke out that UK based InterContinental Hotels Group (IHG), operator of InterContinental Hotels brand had withdrawn from Nigeria four years after it opened its first site in Nigeria.

Unlike its other hotel business in sub-Saharan Africa such as South Africa, Mauritius and Zambia; its Nigeria business was hit by uncertainties such as West African Ebola health crisis in 2014, the uncertainty of the Nigerian general elections in 2015, the crash in oil price, the eventual Nigerian recession in 2015, as well as the devaluation of the naira and ensuing fiscal crisis.

“The UK company’s 358-room hotel in Lagos, Nigeria’s commercial capital, will no longer operate as an InterContinental-branded property as of January 18,” IHG’s director of African operations Simon Stamper, said in an emailed statement on January 17.

In May 2017, a Nigerian court ordered one of the lenders to the N30 billion ($83m) InterContinental hotel, Skye Bank plc, to take over the property from its owner Milan Group over debts of $29.8 million and N3.8 billion. IHG continued to manage the property, which then went into receivership.

The receiver for InterContinental Hotel in Lagos, Messrs Kunle Ogunba & Associates said in January, “the hotel’s revenue cannot sustain IHG’s charges of almost N40 million monthly without further borrowings as further borrowings based on the peculiar circumstances of the hotel is foolhardy as the hotel is currently indebted to two banks in excess aggregate of over $100 million.”

Over the years, InterContinental Hotels Group PLC has been battling with a backlog of debt. As at June 2017, the group’s long-term debt & capital lease obligation for the quarter that ended in June 2017 was $2,106 Million. These debts have been issued over a period of 3 years.

WoolWorths

In November 2013, barely one and half years after South African retailer Woolworth expanded into Nigeria it called it quits and pulled out its three stores from the west African country citing high rental costs, duties and complex supply chain processes.

The reasons cited by Woolworths were high rental costs, duties and supply chain challenges in Nigeria.

“When an investment no longer generates viable returns, difficult decisions have to be made to contain costs,” CEO of Woolworths Ian Moir said in a statement. “The Woolworths clothing and general merchandise business in Nigeria has not been successful, despite several attempts to improve performance.