In the second half of 2023, at least five multinationals have announced plans to exit Nigeria, a situation that could reduce foreign investment inflows thereby affecting the country’s $1 trillion economy target by 2030.
The exit of these companies comes at a time when foreign investment inflows in Africa’s biggest economy are at their lowest in 27 months.
According to data from the National Bureau of Statistics (NBS), 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.
“You can’t grow a one trillion-dollar economy without a good and strong manufacturing sector. When you don’t have this, it is just a pipe dream to achieve that economy,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said.
He said when Procter & Gamble (P&G) invested $300 million in a new factory, within a year they closed up, and now they are leaving the country because the currency is not good for them as they have to keep on rising prices.
“So, it is not worth the stress for these multinationals to be here. Countries that are doing above one trillion dollars have a very strong manufacturing sector. And as long as Nigeria does not create that environment for it to happen. It will be impossible to achieve that target,” he added.
Two recessions in the past seven years have affected the country’s ability to grow above $500 billion. The last time Africa’s most populous nation hit above that figure was in 2014, when its gross domestic product (GDP) was worth $574.2 billion in 2014, according to the World Bank. Last year, it grew to $477.4 billion from $440.8 billion in 2021.
“It is very easy to know that the exits will have an impact on the GDP through the operating surplus of firms that contribute to the overall economic growth,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.
He added that if the number of firms exiting the country keeps rising, it will affect foreign investors in the manufacturing industry who are interested in Nigeria. “The job losses that it could create will have a major impact on the overall spending.”
In August, GlaxoSmithKline Consumer Nigeria, a healthcare company, announced it would exit the country after 51 years of operations.
The next month, PZ Cussons Nigeria, a consumer goods company announced plans to delist from the Nigerian Stock Exchange. In October, 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 November, three companies revealed that it was shutting down their food delivery service in the country from December 7, 2023.
Sanofi, a French pharmaceutical said that it has begun to plot its exit from Nigeria and that it had appointed a third-party distributor to solely handle its commercial portfolio of medicines from February 2024.
Equinor, a Norwegian energy company announced the sale of its Nigerian business, including its share in the Agbami oil field, to Nigerian-owned Chappal Energies. The transaction marks the end of Equinor’s three-decade presence in Nigeria.
Then last week, P&G which has been operating in the country for more than 30 years, said it will transit its Nigerian operations to an import-only model.
Although Unilever Nigeria, a consumer goods company is still operating in Nigeria, the company has stopped the production of its legendary OMO, Sunlight and Lux home and skincare brands.
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, said Chinyere Almona, director-general of Lagos Chamber of Commerce and Industry, said.
She added that 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.
Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria (MAN), said on Channels TV that there might be more exits in the manufacturing sector until the Federal Government implemented clearly defined measures to address the issues facing the nation’s manufacturers.
“Obviously, we received it (P&G exit) with sadness but it is not totally unexpected and more may happen because there is no doubt that we operate in an environment that is challenged,” he said.
President Bola Tinubu, who assumed power in May, stoked foreign investors’ interest with some of his actions, including the removal of petrol subsidy and the start of foreign exchange reforms.
But the reforms have led to rising inflationary pressures which have weakened the purchasing power of consumers and eroded savings and incomes, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The official exchange rate increased from N463.38/$ to 864. 29/$ as of Monday. At the parallel market, the naira depreciated to N1,178/$ from 762/$.
The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to an 18-year high of 27.33 percent in October from 26.72 percent in the previous month, according to the NBS.
The country’s surging inflation rate is making many products unaffordable as inventory of unsold finished goods rose by 45.4 percent to N272 billion in the first half of 2023 from N187.1 billion in the same period of last year, according to the MAN.
Read also: Nigeria’s GDP to rise faster on strategic interventions – Comercio Partners
The latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed the headline index dropped to the lowest in eight months of 48.0 in November 2023 from 49.1 in the previous month, marking the second straight month of contraction.
The real growth rate of the manufacturing sector in Q3 was 0.48 percent (year-on-year), higher than the same quarter of 2022 and lower than the preceding quarter by 2.39 percentage points and 1.72 percentage points respectively, data from NBS shows.
BusinessDay reported last month that six out of ten fast-moving consumer goods firms in the country posted losses in the first nine months of this year as their borrowing costs swelled on the back of rising interest and naira devaluation.
Gbolahan Ologunro, portfolio manager at FBNQuest, noted that the recent exit of multinationals will continue to weaken the productivity capacity of the nation which makes the one trillion-dollar goal an uphill task.
Before the exit of the multinationals this year, several manufacturers, especially in the fast-moving consumer goods industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.
Read also: Service sector pushes GDP growth to 2.54% despite subsidy strain
Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries.
According to Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, multinationals are among the companies that contribute largely to the country’s GDP and earnings.
“We cannot be talking of growing our economy when the real investors are leaving. Assuming they are leaving and the indigenous ones are increasing, it would have been a different thing. But that is not the case. You make income as a nation when you have investments and investors,” he said.
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