Shoprite hit by difficult operating environment, regulatory harassment

Questions are being raised again about the viability of Nigeria as an investment destination as a harsh business environment, mostly government-made, is threatening to drive out Shoprite, a South African retailer that is creating jobs and boosting the sales of made-in-Nigeria products.
The concerns about Shoprite’s struggles is heightened by the exit from Nigeria of OLX, the buying and selling website. OLX, which has been operating in the country since 2012, had an online classified site, which offered Nigerians a platform to buy and sell second-hand items. The site had more than a million second-hand items posted on it in 2016, but still struggled to remain profitable in the country’s difficult operating environment forcing it to pull.
Similarly, Shoprite has created much excitement in the Nigerian retail market space since it opened its first store in the country in 2005, but the retailer is already downsizing some of its stores across the country as a preparation to possibly quit if government at various levels fail to act fast, BusinessDay gathers.
Apart from constant harassment by state, local and Federal Government officials in the name of bogus and multiple taxes and levies, the Standards Organisation of Nigeria (SON) is forcing businesses, including Shoprite, to pay N3 on each product as Product Authentication Mark (PAM), even though most of the products have SONCAP and MANCAP certifications already.
The company has also faced some legal issues. Three weeks ago, a Lagos State High Court in Ikeja ordered Shoprite Checkers Limited operator of Shoprite outlets in the country, to pay $10 million to A.I.C Limited for ‘breach of contract’. It is not clear if Shoprite is appealing the decision as they declined comment for this story. Shoprite, which operates in 14 countries outside of South Africa, made a profit after tax of R3.9 billion or N93.5 billion in full year 2016 on total sales of R71.29 billion or N1.7 trillion. It did disclose specific sales and profits for its Nigerian operations even it stated that revenues jumped 60 percent in the country.
However, BusinessDay gathered from top business sources that Shoprite is incurring losses in Nigeria and may pull out of the country like it did in Tanzania and Egypt if the operating environment does not improve.
‘Shoprite is a case of government not being interested in making the environment friendly. What the government continuously does is to think of how to raise revenue from N50 trillion this quarter to N100 trillion the next quarter,’ said Oladapo Abiodun, chairman of SME Group at the Lagos Chamber of Commerce and Industry (LCCI).
‘Instead of using fiscal and monetary policies to support businesses; local, state and federal government return with the same type of taxes. If you are into food business, for instance, NAFDAC certifies you to produce and SON comes again to repeat the same process. Why not merge the two?’ Adiodun asked.
Osita Aboloma, director-general of SON, has defended PAM in an interactive session with the business community at various times, saying it is optional. However, SON is pushing on with PAM and there is no evidence that non-compliance will not be punished.
“When you consider the cost implication of PAM per product on already very high cost of production, you will see that such additional cost will translate into high prices of Nigerian made products and high inventory of unsold goods. For instance, an additional N3 on products can raise the domestic prices by as much as 15 percent which will certainly further dip the competitiveness of our products,” Frank Jacobs, president of Manufacturers Association of Nigeria (MAN), said.
The National Association of Super Market Operators of Nigeria (NASON) criticised PAM as double taxation, which would not only hurt margins of business but will impact jobs and the economy. Nigeria desperately needs investors, local and foreign, to boost its recovering economy and create jobs for the unemployed.
The National Bureau of Statistics said in the third quarter of 2017 that 16 million Nigerians were unemployed within the period.
This is mainly attributed to poor business environment resulting from taxes, levies, and lack of energy and poor road network facing businesses. Taxes in Nigeria negate Adam Smith’s canon of certainty, say analysts.
Matna Starch, which used to supply starch to multinationals such as Nestle, left Ondo State owing to multiple taxation by government agencies, including the Nigeria police.
PZ Wilmar in Cross River is facing this same challenge with local and state governments repeating taxes imposed by the Federal Government already. The villagers are even threatening to impose levy on each truck ferrying fertilizer to Wilmar’s plantations in Biase, Calaro and other estates.
BusinessDay gathered that four years ago in Cross River State, there were over 30 firms in quarrying business but the number is less than 10 today. The firms left owing to harassment by government for frivolous taxes and community demands.
‘The impact of such a reckless abuse of opportunity is that you will continue to lose existing investors and getting new ones will become so hard,’ Ike Ibeabuchi, managing director of MD Services Limited.
Muda Yusuf, director-general of LCCI, told BusinessDay that “If you want investors to come, create the right environment. Have friendly policies.”

 

ODINAKA ANUDU