Henkel, a German consumer goods business, opened shop in Nigeria when new Foreign Direct Investors were scarce, and the economy was in recession. Six years later, the company is relishing that bold move in spite of the challenges that come with doing business in Africa’s largest economy.
In this interview, Rajat Kapur, Henkel Nigeria’s Managing Director speaks with BusinessDay’s deputy editor, Lolade Akinmurele, about the business environment, how the company is giving back to the community and areas the incoming administration can focus on to incentivize Foreign Direct Investment.
Excerpts:
Foreign direct investment into Nigeria in the last six years averaged about 200 million dollars per quarter, and this is coming from close to two billion, pre-2014. What attracted you to Nigeria at a time when investors were leaving?
We came in 2016, and you would recall there was a naira devaluation in May of the same year that took the exchange rate from around N200 to N360, before it soared above N400.
Our first year in Nigeria was tough but 2017 was even tougher. However, the three years through 2020 were good. 2021 was again tough and 2022 relatively good, coming after the pandemic. This year, the beginning has been tough.
So if you look at the pattern here, it’s like ups and downs and I think you just have to focus on the end of the horizon – where you want to get – and where we wanted to get was to be bigger in sub-Saharan Africa after setting up the infrastructure on the ground and coming up with our global technologies. I think where we have been very successful is that we’ve been able to set up the infrastructure and we have expanded rapidly. Compared to 2018, the number of salespeople was 40, but in 2023, the number is closer to 500.
That kind of expansion means that I might have a laundry portfolio today, but if I come with several other portfolios, I have the strength, or what is sometimes called muscle power in the FMCG industry, to be proactively competitive and make a big business out of it.
So why other companies are leaving, I cannot comment. We are staying because our focus is on the end of the horizon. To leave before fully leveraging the investments we have already made is not realistic.
I think what’s happening more is that companies that have come here and lost their competitive advantage for one reason or the other, and they don’t have the ability to battle it out, are the ones that are basically kind of leaving; maybe because they couldn’t take the right pricing decisions or the infrastructure is not there or they have lost their distribution strength and a lot of other things.
One needs to understand that Nigerians are unique consumers and the distribution dynamics to really stick it out there is important.
I’m not saying I know it all or my team knows it all, we are also continuously adapting to the changes that keep on happening, and I can tell you honestly, change happens very rapidly in the Nigerian environment.
You cannot say I have one plan which I will stick with for the next decade. It’s like I have one plan for this month and let’s review that plan again next month. You need to keep evolving because consumers are very demanding, and they change between brands very fast if they believe the brand they are buying is not delivering. So, you need to be constantly up to the game.
If you look at the publicly listed firms in the FMCG sector, the performance has not been great with a slump in their revenues partly due to the naira scarcity that we saw in the first quarter. I would like you to speak about why this year has got off to a tough start for you and how you’re dealing with the challenges
Again, we come back to what is the Nigerian environment or the business environment for FMCG organizations. We are looking at over 70 percent of the trade happening in open markets, like Benin, Sabon Gari, Mushin, or Idumota. These markets, where the bulk of the consumers buy the products from, are cash-dependent; they don’t have POS or similar channels.
So, for all FMCG companies, when there is a severe cash crunch and you do not have access to cash and the market in itself is based on cash, the first immediate consequence is that this 70 percent of the market will crash.
The balance of the 30 percent of the market which is the modern trade and the neighborhood stores will boom. Why would that happen? You would have seen during the cash crunch that there were huge queues outside modern trade outlets because they are accepting debit cards.
If you need to buy anything, you need to buy from these guys or the neighborhood store who for instance, because he knows me, he’s going to give me some credit and I can do a bank transfer even if I leave the shop, but because 70 percent of the market is going down, it’s going to have an impact.
And this impact is usually temporary, lasting for three to five months depending on how fast the retail channel can come up with alternative means of payment. In Nigeria what we have seen is two things happening at the same time. You’ve seen that the retail channel has moved towards electronic ways of payment and the second thing is the cash crunch was removed by the end of March.
In the second quarter, we hope to come back and normalize. But you are absolutely right about the cash crunch in the open market impacting all FMCG companies. I think most of them recorded their worst-ever quarter in the last decade or so.
What did you consider in deciding to set up your factory in Ibadan?
When we acquired the business, the factory was already in Ibadan. We could have taken the decision to move it out of Ibadan, but honestly, we never felt that need. The first reason for not moving away from Ibadan is that we had a strong ecosystem there which had been built up.
Second, the proximity to Lagos means the factory is still very much accessible. It’s a one and a half hour drive under normal circumstances. Thirdly, the relationship we have with the local community is very good.
So all in all, the Ibadan factory was a choice of acquisition. We have not really encountered major issues operating in Ibadan rather it gives us some positives on the ground.
The land is there, it’s one of the largest cities, expressway connectivity is quite good, logistics accessibility is there and of course, there are a lot of companies which are already operating there.
Read also: Nigeria’s tax to GDP ratio 10.86% for 2021, not 6% — FIRS
How do you describe your relationship with the host community?
I would say that our relationship with the host community is quite good on the basis of the various initiatives that we have been doing on the ground.
The first initiative is the Researchers’ world. This entails teaching young kids in schools interesting ways to discover Science; both in public and private schools.
As they discover Science, the kids pick up a valuable skill that is in demand by organizations like ours. This creates a pipeline of talent for the future. So we want to kind of have this going on. This is one initiative that builds community relations for us.
The second initiative is peer-to-peer and Nigeria is the first country to benefit.
Peer-to-peer is a unique local initiative that we started in Nigeria. When I came here, one of the things I heard a lot from my friends were concerns about the high unemployment rate in Nigeria.
We decided to do something about it. Back in 2017, we reached out to about six unemployed youths, and we gave them some basic training on how to manage a small business. They were taught mathematics and bookkeeping. After the training, we invested in these six people and then gave them free products to sell, and we set up a mobile shop for them at our cost.
The whole premise was to train them, invest in them and see what happens.
We got very good results from the first experiment. We have 250 unemployed youth who are now working as retail entrepreneurs. They have their own shops, and they are not Henkel employees.
They can do whatever they want, we train them in business, and they take on the business. They earn money by selling the product. I don’t give them any salary and I don’t know anything in the beginning.
When we started this in Nigeria, the biggest question was if you give somebody a mobile phone, a shop, and products worth N100,000, is he going to come back?
To be very honest and transparent, out of the 250 people that we had or even more, I have not had a single case of theft in Nigeria, and whenever I leave Nigeria, my biggest legacy will be trusting unemployed youth and training them.
I think once you establish this, you realize instead of having a scenario where people are job seekers and they are unemployed, you now have 250 job makers who are recruiting people under them to run their businesses.
The first person we trained now has 15 people working for him today. He was unemployed before we trained him. There are so many others that we can talk about; some have five, while others have seven working under them. But these were unemployed people who did not know where the next meal was coming from, and this is something that we tried out, and it has paid off.
From the money that the business brings in, we keep investing in these people.
However, our biggest challenge is to find people who are interested in getting out of unemployment and creating a business for themselves. We even have women who are doing this, and we are doing this in the North, East, South and West.
This helps us build relations in the community and I can honestly tell you I have 250 people on the ground who will never leave Henkel. Not only because of the salary they are earning, but because when nobody was asking them about anything, we were there for them.
This is another initiative that we do and we continue doing over the years. As I said, it’s slow progress. We started with five as we learned how to do good things. Our sales team members were their teachers. We didn’t employ another agency to handle that.
The third thing is that we ask employees every year a couple of times to volunteer their time to go to orphanages or do things with children and this also helps us build the relationship with the communities.
Then in Ibadan, Olubadan expressed his appreciation of our initiatives.
And last but not least, we actively support social projects from the state and federal governments. Whenever there is a crisis on the ground like the pandemic, we give out our products, which are anti-bacterial, for free to nurses, midwives, and state governments for their cleaning to make sure that they keep everything safe.
Doing anything one-off does not build relations with the community but doing things sustainably and responsibly month on month, year on year, then over a period of time, you get two-way trust.
So, I’m very proud to say that the Researcher’s World has been running for two years plus and we have trained about 1000 students so far, and when I say students, you have to think of small kids in lab coats, goggles, and then you will get the right picture.
Also, we have more than 250 street-smart entrepreneurs as we like to call them, we have multiple orphanages and multiple places that we have worked with, and we constantly keep working with them to look at more opportunities.
And these are some of the ways that we have built relations with the hosts which are Nigerians in Ibadan.
Can you also talk more about what you are doing in terms of youth empowerment?
What we do on one side is to cater to young kids and on the other side we connect and partner with the emerging talents in Nigeria, identified via various platforms such as the Nigerian Idol. We allow our media partners to tell us which is the talent and then we partner with them.
We use them as allies or ambassadors in getting our messages out while we help them build their career in the industry, so it becomes a win-win.
So one of our initiatives is targeted at kids, the other targets the unemployed youth and another one focuses on the emerging talent which is where you have Nigerian idol and Big Brother Naija. For these kinds of programs, whoever the talent is, we try to give them a platform to showcase what they have to bring to the people in Nigeria and help them connect and build a brand for themselves.
This is not something that we decided to do this year. We’ve been doing it since 2018. So again, year after year, we try to partner with the right media partners to find the talent which can connect with the youth and get the right messages out.
I also know that you’re big on climate change. What are some of the activities you undertake in that space?
Henkel is one of the few companies listed on the energy index on a global level. We want to contribute to improving the efficient use of energy with innovations that cut energy consumption and the related CO2 footprint. Our ambition is achieving climate positive operations for all our Henkel sites by 2030.
So far, we have reduced our CO2 emissions per ton of product globally by more than 50 percent (compared to base year 2010), one step into the right direction.
The second thing is external. Here, we partner with agencies and for example, we do big tree Plantation drives with the Nigeria-German Chamber of Commerce.
The external phases help the environment recover and the internal phases reduce your carbon footprint to contribute to our high aspiration of achieving a “Transformational Impact for the Good of Generations”.
What’s your current market share?
Market share is very difficult to state in Nigeria, but our estimates suggest we are amongst the top percentile in our niche. The goal is to be at about 20% minimum in the future.
How we want to get there is a key topic. One is to offer the right kind of products to the consumers.
For example, take the topic of Ankara, which is quite unique to Nigeria and West Africa. It’s neither a European concept nor an Asian concept.
You need to develop specific products that are suitable and provide perfect care for the Ankara fabric. At the global level, we have the technology to provide the best care for Ankara and we have infused that into our product. It’s only a matter of time before customers can tell the difference between a soap that cares for their Ankara fabric better and one that doesn’t.
We are bringing technology which showcases to the Nigerian consumer that he or she can ask for more. You can demand more at the same price.
For example, take the latest product that we launched. It is a unique product because not only does it have the best stain removal, you get a refreshing fragrance.
With this product, you can wash your clothes and dry them indoors without worry they won’t smell fresh. So you won’t have to dry the clothes outdoors to prevent them from smelling. We may not understand how much of a problem this solves but the women may have a better idea.
What we have done is introduce a technology that ensures that whether you wash and dry it outdoors or not, the cloth smells fresh. We are trying to tell the housewife to demand more. It’s not about a good fragrance only. It’s about a good fragrance that works.
Our product also caters to eliminating bacteria that may be on the cloth which ensures you don’t get skin irritation. This is a problem some people face.
We simply said okay, here is a product which will take care of that bacteria.
And then we went to the medical association, presented all our findings and got the endorsement.
We now have the only product which offers all these benefits in one.We now have the only product which offers all these benefits in one.
So, it’s a one-stop solution for the household. But again, it takes time before a housekeeper or even a housewife can demand that they deserve the best product. You have to demonstrate to them that they need the best cleaning.
So it’s about bringing the latest technologies and innovations to serve our customers. And of course, as I said before, we have now built an infrastructure that will enable us to keep introducing more technology and innovation.
One of the biggest challenges that Nigeria faces is the significant exodus of talent to other countries. How has it been for you? And how do you work to mitigate the challenge it poses at your business?
It’s a real problem because in the end if you spend time and money training somebody and then they get a job elsewhere, it’s a problem. But for us at Henkel, it’s not a very big problem.
There are actually so many people willing to work in Nigeria.
I’ve started telling my team to look for the person who really wants it and then you will find somebody who’s going to stick with you and be loyal. I will not give names but for example, this person is now a very senior manager in the organization. In 2016, when I came in, he was a sales representative but today he’s one of the most senior managers on the ground. This happened by developing him over the last seven years and constantly promoting him on the back of his performance.
And there are so many other examples like this. He’s never going to leave Henkel for 10-40 percent more because from where he started seven years ago and now, is like a 300-400% increment.
He’s going to trust his future in our hands because we have proven that we care about him.
The real question is how can you get people to stick for some time so that they realize the overall benefit of staying here and forging a career.
The only difference I see between the people who leave us and those who stay is how long they have spent with the organization and what kind of development they have seen.
What excites you the most about the future of Henkel in Nigeria?
It is such a robust future. There’s the population outlook for Nigeria which tells me consumption will continue to rise well into the future. The political environment is stable and the Nigerian economy, the largest in Africa, will expand even more and is forecast to be one of the leading economies by 2035.
So if Nigeria is slated to grow rapidly, imagine what that growth will mean for Henkel Nigeria.
The next chapter for Henkel Nigeria entails expanding into new product lines and that gives me a lot of excitement.
If you were to outline three priority areas for the incoming administration, what will you say?
I will say that the incoming administration needs to work on reducing the gap between the official CBN rate and the parallel market rate. If that were addressed, I think 50-60 percent of the problems several businesses face today in Nigeria will go away.
The second area of priority that I would talk about would be the enforcement of similar or the same rules for every economic player on the ground, and it doesn’t matter what the rule is. Just create a level playing field for everyone so as to build the confidence that investments will be protected and stimulate growth.
I can win or lose against any player in the country when it is a fair game but when the level playing field does not exist then you have a major problem.
The third is to ensure regular transparent dialogue between policy makers, society, and businesses, through associations and other platforms. The kind of dialogue that promotes accountability and fosters cooperation for the good of the economic development of the country.
