Nigeria needs foreign investors more than they need the African nation even though its huge population suggests otherwise.
That’s according to data showing Nigeria’s meagre contribution to the total revenues of multinationals operating within the country.
Data analysed by Abdulrauf Bello, @rufyb on X showed that the revenue generated from the Nigerian market is insignificant compared to the overall global revenue.
Nigerian subsidiaries’ operations of Nestle, Procter & Gamble, Unilever, PZ Cussons, AB-InBev, Henineken, GlaxoSmithKline, Mondelez and Diageo Plc
generated a combined $2.17 billion in revenue, representing only 0.51 percent of the $428.9 billion total cross-border revenues of the companies.
“Nigeria needs the foreign investors more than they need Nigeria. Yes, there is potential in this country, but Nigeria needs their capital big time,” Bello said.
P&G became the latest multinational to announce plans to dissolve its onground presence in Nigeria, following in the steps of GSK, Sanofi, Equinor etc.
The exit of these companies comes at a time when foreign investment inflows in Africa’s biggest economy are at their lowest in over two years.
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.
Despite its status as the ‘Giant of Africa,’ Nigeria is facing a worrying trend as multinational fast-moving consumer goods (FMCG) firms are either leaving the country or scaling back their operations due to factors such as economic instability, high inflation and foreign exchange volatility.
“For a country with that many people and for an organization that large, I’d expect more sales. However, their business model (and underlying cost structure) prevents them from innovating to create the market in Nigeria. And so they can only serve a few,” Efosa Ojomo, director of Global Prosperity at the Clayton Christensen Institute for Disruptive Innovation said on social media platform, X.
Read also: Companies’ exit will hinder FG’s effort to attract foreign investments – NECA
Olumide Adesina, an analyst, said that the recent exit of P&G just tells you how weak disposable income is in Nigeria despite its huge population, coupled with the foreign exchange crisis.
Over the past seven years, several manufacturers, especially in the fast-moving consumer goods industry, have either left the country or stopped production of some of their products due to the difficult operating environment.
Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses and the general profitability of businesses in Africa’s biggest economy.
In March, Unilever, which started operations in the 1920s, announced that it was stopping the production of its legendary OMO, Sunlight and Lux home and skincare brands to cut costs and concentrate on higher growth opportunities.
In November 2023, Sanofi-Aventis Nigeria Limited, a French pharmaceutical company, said it would adopt a third-party model for the distribution of its products in Nigeria.
Similarly, in August, GlaxoSmithKline (GSK) Consumer Nigeria Plc, a British multinational pharmaceutical and biotechnology company announced plans to cease operations, transferring its business activities to a third-party organisation.
Bello said “The remaining multinationals wey dey go soon vex. Contribution from the ‘giant of Africa’ is not so great for it to be giving them all kinds of headaches.”
The Tinubu administration’s reforms including the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, pushed the inflation rate to the highest level in 18 years.
Read also: Nigeria’s economic reforms to accommodate foreign investors – Tinubu
According to the NBS, the country’s inflation rate, a measure of the general price level, rose to 27.33 percent in October from 26.72 percent in the previous month.
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 plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 per cent against the dollar in June.
At the parallel market, the naira fell to 1,164/$1 from N762/$ on May 25.
The naira devaluation has impacted the business landscape, leading to losses for many companies with foreign exchange exposures.
The devaluation of the naira had an impact on the books of Nigeria’s biggest firms as 11 listed firms posted N716.8 billion FX losses in the second-quarter earnings season, according to BusinessDay’s analysis.
Data from the Purchasing Managers’ Index by Stanbic IBTC Bank showed the headline index dropped to 48.0 in November from 49.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration. This is the fourth time that the country’s business activity has shrunk for the year.
“Multiple investors who cherish the rule of law, policy consistency, macroeconomic stability, a level playing field etc 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,” Atedo Peterside, president & founder, of Anap Foundation said on X.
