• Tuesday, May 28, 2024
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P&G Nigeria exit ends 5000 jobs

Nigeria’s market shake-up: P&G’s woes and lessons for success

The exit of Procter & Gamble (P&G), a multinational consumer goods company in Nigeria, could result in a loss of over 5,000 jobs and a major decline in foreign investments into Africa’s most populous nation.

This comes after GlaxoSmithKline Consumer Nigeria, another multinational announced plans in August to exit the country after 51 years of operations.

“The impact of the market on the company’s overall net worth is due to two key factors – intensified competition within the industry and a declining consumer purchasing power,” Muda Yusuf, chief operating officer of the Centre for the Promotion of Private Enterprise (CPPE), told BusinessDay on Wednesday.

He added that the recent devaluation of the naira poses significant challenges for any business with substantial foreign exchange exposure, highlighting the current reality of the Nigerian market.

“Businesses with foreign exchange exposure are struggling.”

Kalu Aja, a certified finance coach, said on X that if this reality continues, there will be no Small and Medium Scale Enterprises (SMEs) left in Nigeria.

“As I keep saying, imports into Nigeria are cheaper. The economic implications are worse than an atomic bomb.”

Read also: Explainer: Five ways P&G’s exit will affect Nigerians

On Wednesday, P&G which has been operating in the country for more than 30 years, said it plans to transit the Nigerian operations to an import-only model, effectively dissolving its on-ground presence in the country based on unfavourable macroeconomic conditions.

“We’ve announced that we will turn Nigeria into an import-only market, effectively dissolving our footprint on the ground in Nigeria and reverting to an import-only model,” Andre Schulten, chief financial officer at P&G said.

He added that the other reality that arises in some of these markets is that it gets increasingly difficult to operate and create U.S. dollar value. “So, when you think about places like Nigeria and Argentina, it is difficult for us to operate because of the macroeconomic environment.”

The firm, makers of Always, Ariel soap, and Oral B toothpaste has invested millions of dollars in the manufacturing sector. The biggest of such investment was the completion of the ultra-modern $300 million plant at Agbara, Ogun State in 2017.

During the 2017 plant launch, it provided over 5,000 jobs directly and indirectly through its offices, suppliers and distributors and created over 200 SME jobs.

However, one year later, it shut down the plant, citing restructuring of operations as its main reason. The plant was arguably the largest single investment by a non-oil firm in Nigeria and was expected to boost job creation and help improve the socio-economic state of its host community.

Schulten of P&G noted that Nigeria is a $50 million net sales business compared to its overall portfolio worth $85 billion, the company does not anticipate any material impact on the group’s balance sheet from a sales or profitability standpoint.

This development saddened a source familiar with the company. The source said another tragic example of opportunities has been missed.

“Approximately 14 years ago, or possibly earlier, the company had actively sought engagement with NNPC on Nigeria’s gas master plan during Jonathan and Deziani’s tenure as petroleum minister.”

The source added that P&G aimed to co-invest $2 billion with their raw material suppliers, gas converters. “The goal was to produce essential materials for their manufacturing plants, leading to the creation of numerous well-paying jobs. The plan envisioned exporting these raw materials to P&G plants in Africa and selected parts of the Middle East, however, it never saw daylight.”

According to Eke Urum, founder of RiseVest, the exit is an effect of embracing exchange rate reality.

“It’s going to be a rough two years but local manufacturing is cooking. It’s too small for P&G (their Nigerian business is $50 million out of $85 billion). But for local guys this is meaningful,” he said on X.

Read also: CBN assures support as P&G invests $35m into local production of toothpaste

A founder of an agribusiness, said “Are these conglomerates seeing what we’re unable to see yet? I was shocked by the revelation of P&G Nigeria being a $50 million net sales business in a $85 billion total portfolio. That means that it never mattered in that portfolio.”

The agropreneur noted that while this news is quite tragic, “could it be a proxy for kind of discussions that may be going on in many other boardrooms in Nigeria, currently?,”

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 as a result of 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 most populous nation.

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.

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 in a bid to cut costs to concentrate on higher growth opportunities.

Data from the Manufacturers Association of Nigeria (MAN) showed that the number of jobs lost in the manufacturing sector rose to the highest in three years for the first half of 2023.

In MAN’s latest half-yearly review report, the number increased by 108.7 percent to 3,567 in the first half of 2023 from 1,709 in the same period of 2022.

The number of jobs created in the sector declined by 32.8 percent to 6,428 from 9,559 in H1 2022.

“The decline in the number of jobs created in the sector during the period further highlighted the unfriendly business environment resulting from the hasty policies and residual effect of the currency redesign policy that led to naira crunch,” MAN said.

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.

Rising inflationary pressures have weakened the purchasing power of consumers, 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 plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 percent against the dollar in June.

According to the National Bureau of Statistics, 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 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.

Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.

BusinessDay reported last month that six out of 10 FMCG 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 rates and naira devaluation.

Nestle, Cadbury, Dangote Sugar Refinery, Nigerian Breweries, International Breweries and Champion Breweries suffered a combined loss of N166.3 billion.

In the same period last year, five of them reported a total profit of N83.9 billion, while International Breweries posted a loss of N2.81 billion.

The other four fared better. Guinness Nigeria’s profit declined to N2.59 billion from N2.75 billion. BUA Foods and NASCON Allied Industries saw their profits rise by 53.5 percent and 281.9 percent respectively. Unilever reported a profit of N1.67 billion, compared with a loss of N348 million a year earlier.

The sudden rise in the price of petrol and abolition of the official naira rate has caused a significant backlash, eroding the already earned income and trading capital of several multinational companies that had established their previous earnings based on the official naira rate at the time, according to Dele Oye, national president of Nigerian Association of Chambers of Commerce Industry Mines and Agriculture.

“While the current administration has commendably set Nigeria on a long-term path to economic progression, it has been noted that some of the immediate positive economic policies of President Bola Tinubu have had adverse certain sectors of the country,” he said.

Yusuf of CPPE added that for manufacturers to overcome these challenges, they need to increase local input through backward integration and the government needs to stabilise the foreign exchange market.