Why P&G shut $300m plant one year after launch by VP

The harsh economic environment emerging in the country is currently affecting a crop of multinational companies operating in Nigeria, especially in Agbara industrial estate as Procter and Gamble Nigeria Plc has shut its $300 million manufacturing plant in Ogun State, the single largest non – oil investment from the United States.

According to the BusinessDay findings, the plant was reportedly shut due to a combination of high cost of production accumulated from the import duties payable on 75 percent of imported raw materials, uncompromised stance and failure of the firm to bribe Customs officers and other revenue agencies in a bid to stay in the business and high cost of power generation, which prompted non-profitable operations for the company.

The new line of the plant was recently inaugurated by Yemi Osinbajo, current Nigerian Vice President in 2017.

BusinessDay learnt that Procter and Gamble Nigeria only attains 100 percent local sourcing of products packaging, but is still largely dependent on imported raw materials used in production and it always complained that local sourcing of raw materials was unsustainable going by low quality of local production inputs.
The firm therefore, preferred importation from its sister and parent companies abroad which cost it a lot of foreign exchange which total sales could not match, hence, it was running at a huge loss which accounted for the management decision to downsize its workforce, redeploy some staff to other plants outside Nigeria and finally shut down its Agbara production lines.

The fast moving consumer goods firm, according to investigation, used to import more than 75 percent of raw materials used to produce Always sanitary pads, Pampers (baby diapers), Gillette shaving sticks, Ariel detergent, Oral B toothpaste, among other products.

Although, BusinessDay could not speak officially with any management staff of the firm as of press time on Wednesday, a casual worker who used to work at the haulage section of the firm declared that they were not loading and off-loading as they used to do on a daily basis and some of the main staff members he knew had already been given disengagement letters which signified that all was not well.

The casual worker, who did not want to mention his name, said, “In the last few days now, nothing has been happening in P&G Agbara. What we were told was that there would be a brief reorganization of staff and departments and people should go temporarily and they would call some of us back when everything is sorted out.”

P&G’s hard operating condition is reflective of the general condition of the consumer goods sector in Nigeria, as most of the companies in the sector have seen rising cost of goods sold (COGS) while operating expenses and inventory turnover have performed feebly in recent times.

COGS for Guinness saw a significant increase of 33 percent from N17.5 billion in Q1 2017 to N23.33 billion in Q1 2018.

For Nestle Nigeria, COGS increased by 10 percent to N41.7billion in Q1 2018 from N37.67 billion in Q1 2017. The company’s operating expenses equally increased by 9.4 percent from N10.3 billion to N11.24 billion in Q1 2017 and Q1 2018 respectively.

Cadbury Nigeria and Unilever Nigeria also saw COGS increased by 2 percent, and 17.6 percent respectively.

Unilever’s operating cost also grew by 1.98 percent from N3.54 billion in Q1, 2017 to N3.61 billion in Q1, 2018 for the same period.

For Flour Mills, lower than expected full year (2017/18) top line was majorly affected by the 14.4 percent decline in revenue the company posted in Q4 2017 (Year on Year) and 10.8 percent (Quarter on Quarter) to N115.2 billion, the lowest in the past eight (8) quarters for the company.

A financial analyst BusinessDay spoke with noted that the problem for these companies are due to the weak demand side generally.

He said “an economy whose growth in not reflecting in the pockets of the people can’t encourage increased demand which as you know results to increase in production.”

Nigeria’s Vice President Osinbajo had during the commissioning of the plant hailed the investment as being in tandem with the drive of the current administration for domestic production and human capital development.

The plant is 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.

The Managing Director, P&G Nigeria, George Nassar, had said during the commissioning of the state-of-the-art facility that “P&G’s growth and expansion plans for Nigeria are long-term. This investment is a testament to the industrial and infrastructural advancement that P&G is bringing to Nigeria.”
This has become apparently short-lived.