When UK-based GSK sold its drink business in 2013 to Japanese firm, Suntory Beverage & Food, to focus on its healthcare business, GSK’s Nigerian unit had not had the final straw of the iconic Ribena and Lucozade drinks.
Only the year before, annual sales of Ribena and Lucozade were around half a billion pounds and GSK Nigeria wanted to continue the business. The Nigerian company then managed to secure the rights from Suntory to continue manufacturing and distributing the products in Nigeria for 10 years until August 2023.
Not even halfway into the 10-year arrangement, GSK Nigeria sold the business back to Suntory Beverage and Food Nigeria in July 2016, citing the need to focus on its healthcare business just as the parent company had said in 2013.
Why it took GSK Nigeria three years to align with the global business signaled its initial resolve to hold on to the drinks business but the ugly impact of a 54 percent naira devaluation in the same year made it difficult for the company to stay the course.
The firm’s revenues dipped 7 percent in 2016 to N14 billion even though the sale of its drink business helped it on its way to declaring a 172 percent jump in profit after tax to N2.3 billion.
In 2015, before the drink business was sold, the company suffered a 48 percent decline in profit after tax to N965 million.
An acute foreign exchange shortage sparked by lower oil revenues had badly affected multinationals operating in the country including GSK. For some, there wasn’t enough dollars to import raw materials while others were unable to repatriate profits to their parent companies due to the foreign exchange challenge.
Nigeria would suffer its first recession in 25 years in 2016 and company profits would fall to their lowest in more than 10 years.
The FX challenge may have eased in 2017 following the introduction of the Investors and Exporters FX market, where the naira traded at a market rate, but it never really went away and got unbearable in 2022.
“It continues to be very challenging with foreign exchange non-availability affecting the group’s ability to settle foreign currency denominated trade payables with product suppliers,” Edmund Onuzo, GSK Nigeria’s chairman said in the firm’s 2022 annual financial statement.
“As a result it remains difficult to maintain consistent supply to the market,” Onuzo said.
It therefore comes as no surprise that seven years after GSK Nigeria gave up on its Ribena and Lucozade business, the company will draw the curtains on its direct business in Nigeria, bringing an end to a 51-year old business.
GSK UK said last week that it will stop doing business in Nigeria after deciding to shift to a third-party distribution model for its drugs and consumer healthcare goods.
In the shadows of the company’s latest decision is another big devaluation in the naira, this time by over 60 percent, a development that although vital in fixing Nigeria’s broken FX market has led to huge losses for companies with foreign exchange exposure.
Data compiled by BusinessDay showed that some major Nigerian firms reported a cumulative N716.8 billion in FX losses in the second quarter.
The firms include MTN Nigeria, Dangote Cement, Dangote Sugar, Nigerian Breweries, Guinness Nigeria, International Breweries, Unilever Nigeria, Sterling Financial Holdings Company, Jaiz Bank, Neimeth, Airtel Africa, and Seplat Energy.
GSK Nigeria, which has faced increased competition from local companies and imports from India and China, said its half-year sales dropped to N7.75 billion naira from N14.8 billion in the same period a year ago.
In 2022, GSK Nigeria was only able to grow revenues by 13 percent to N25 billion while profit was up 17 percent to N771 million. The growth in both revenues and profit is below average inflation rate of 20 percent for 2022.
Shareholders funds also only managed a 3 percent growth to N9.5 billion and have dropped by 26 percent compared to N13 billion in 2015.
GSK UK had said in 2018 that it would cut back its operations in Africa and adopt a distributor-led model instead of marketing medicines in 29 sub-Saharan African markets.
GSK Nigeria said it is working with advisers to agree next steps and plans to submit a scheme of arrangement to Nigeria’s Securities and Exchange Commission, which if approved will see it return cash to shareholders except its parent GSK.
It also said the Haleon Group has informed it of plans to terminate a distribution agreement and to appoint a third-party distributor in Nigeria, which faces a cost of living crisis, rising business costs and a shrinking consumer base.
“For the above reasons, and having, together with GSK UK, evaluated various other options, the Board of GlaxoSmithKline Consumer Nigeria Plc has concluded that there is no alternative but to cease operations,” GSK Nigeria said in a statement.
Haleon, GSK’s consumer health division which was spun out last year and which manufactures products such as Panadol painkillers and Sensodyne toothpaste, also announced it would shift to a third-party distribution model.
GSK’s eventual exit from Nigeria has been a long time coming and adds the healthcare company to a list of foreign companies that have dumped Nigeria.
The list includes South African retailer Shoprite, Abu-Dhabi based-Telecommunication company Etisalat, UK-based Intercontinental Group among others.
The exit of another multinational makes the job of new Nigerian President Bola Tinubu to lure foreign direct investment even harder.
“The evidence at hand is that Nigeria is extremely harsh to foreign companies and that does the country no favours in its bid to lure new investments and create jobs for its teeming youth population,” a senior business leader told BusinessDay.
Foreign Direct Investment into Nigeria has tumbled in recent years, slipping to a ten-year low in 2022. Total FDI in the first quarter of 2023 was a paltry $48 million, a 69 percent decline from $155 million recorded in the first quarter of 2022.
Nigeria has gone from attracting the highest foreign capital by a mile across West Africa to now jostling for top spot with Ghana, which has an economy that’s around a tenth of Nigeria’s.
Nigeria even saw FDI flows turn negative to -$187 million as a result of equity divestments last year, according to data from UNCTAD.
The woes of several foreign companies begin and end with access to foreign exchange which the companies need either to be able to repatriate dividends to shareholders in their home countries or fund key imports.
Getting dollars has become increasingly difficult in Nigeria where there is a backlog of demand running into $3 billion. It means companies are not able to get all the dollars they need and with local substitutes not always readily available, it affects their business operations.
In March, Unilever’s Nigerian subsidiary said it would stop manufacturing homecare and skin-cleansing products as it sought to make its business “competitive and profitable.”
Unilever booked one of the biggest FX losses this year after a revaluation loss of N14.36 billion in the second quarter of 2023 from N1.06 billion in Q1 2023.
The company said the revaluation loss arose from foreign currency-denominated balances related to trade loans.