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

The exit of Procter & Gamble (P&G), a multinational consumer goods company, from Nigeria can have serious implications for Nigerians and the economy as a whole.

This development shows a trend where manufacturers in the fast-moving consumer goods industry are either leaving or reducing operations in Nigeria due to factors such as rising interest rates, high inflation and foreign exchange volatility.

The company which produces Pampers, Ariel, Always sanitary pads, Gillette, Oral B, Vicks, and Safeguard, announced on Wednesday that it would stop production in Africa’s biggest economy and now operate on an import-only business model.

“P&G’s products are no longer being manufactured in Nigeria. This means that the prices of these products will likely increase too. Reports show that the company contributes about $50 million net compared to a global net sale of about $85 billion. That is only 0.06 percent,” Leke Olushuyi, a chartered accountant and business writer said on X.

He added that the company’s exit from Nigeria doesn’t seem to be a big deal when compared to its global portfolio but that its exit is a worrisome indicator for the economy.

“P&G is one of the “big boys” in the consumer goods industry. If the big boys in the manufacturing space are exiting, it means there is fire on the mountain economically speaking.”

Read also: P&G in pact with Federal Ministry to promote healthy lifestyles among women

Gbolahan Ologunro, portfolio manager at FBNQuest, said the country would begin to see the layoff of workers and a potential loss in government revenue from company income taxes.

“The country might also lose out on some social benefits that the company does through Corporate Social Responsibility to improve the lives of people.”

Here are five ways P&G’s exit will affect Nigerians

Loss of jobs

Nigeria with more than 200 million people, had an all-time high unemployment rate of 33.3 percent in the fourth quarter of 2020 but it fell to 4.1 percent in Q1 2023 following the new methodology adopted by the National Bureau of Statistics

The exit of P&G’s will result in a loss of over 5,000 jobs which will increase the unemployment rate in the country.

According to the latest half-year survey from the Manufacturers Association of Nigeria (MAN), the number of jobs lost in the manufacturing sector rose to the highest in three years for the first half of 2023.

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.

Decline in foreign investments

With a market size of $50 million, P&G was a significant investor in the Nigerian economy. Its withdrawal suggests a loss of faith in the country’s business environment, a signal that could deter other foreign investors.

This could have lasting negative consequences for Nigeria’s economic growth and development.

Data from the National Bureau of Statistics shows that foreign investment inflow into the economy dipped by 33 percent to $1. 03 billion in the second quarter of 2023 as against the $1.54 billion recorded in Q2 2022, also a nine percent decline when compared to $1.13 billion recorded in Q1

The International Monetary Fund identified central bank intervention in Nigeria’s foreign exchange market as a key obstacle to capital inflows.

Read also: P&G in partnership with Lagos to promote oral health education

Further increase in inflationary pressures

P&G’s products are widely used by consumers, making them a staple in many households. The company’s exit will likely lead to shortages and increased prices of these products, particularly in areas with limited access to alternative brands.

The forms implemented by the Tinubu administration, including the removal of the petrol subsidy and naira devaluation, have elevated inflation to its highest level in 18 years.

According to the NBS, the country’s inflation rate rose to 27.33 percent in October from 26.72 percent in the preceding month.

Rising inflationary pressures affected business activities in the country as it contracted for the second straight month in November. Data from the Purchasing Managers’ Index by Stanbic IBTC Bank showed the headline index dropped to 48.0 in November from 49.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration. This is the fourth time that the country’s business activity has shrunk for the year.

“Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges,” the report said.

It said purchase prices rose faster in almost two years amid exchange rate weakness and higher costs for fuel and materials.

The surge in inflation has eroded consumers’ purchasing power, adding strain to businesses grappling with elevated operating costs.

Instability in foreign exchange

The foreign exchange reform in June, which allows the naira to trade more freely, has led to the currency depreciating to N951.2 per dollar on Thursday from 463.33/$1 as of May 25 at the official market.

Read also: P&G Nigeria exit ends 5000 jobs

At the parallel market, the naira fell to 1,164/$1 from N762/$ on May 25.

The naira devaluation has impacted the business landscape, leading to losses for many companies with foreign exchange exposures.

Six FMCG companies reported the highest foreign exchange loss, reaching N269.5 billion in the first nine months of 2023, an increase from N13.56 billion in the same period of 2022, according to their latest financial statements.

Reduction in government revenue

Nigeria’s projected non-oil tax revenue of N3.52 trillion may be under significant threat as corporate tax in Africa’s most populous nation may become unstable.

Temitope Ayeni, an analyst in the consumer goods sector, said Nigerian consumer goods firms found it difficult to earn profit or pay tax from their primary business operations in Q1 due to growing inflation, declining consumer purchasing power and the devaluation of the naira.