The multinational exodus from Nigeria: A balanced perspective

Since March 2023, eleven multinational corporations have announced their departure from Nigeria, raising concerns about the nation’s economic stability. However, this wave of exits should not be viewed as a harbinger of doom. While Nigeria has seen a $58 billion reduction in output value over the past five years due to these exits, as noted by economist Dr Vincent Nwani, a deeper analysis reveals a more nuanced picture.

Many of the departing multinationals have been losing market share and can no longer compete against lower-cost rivals. The business model for most multinationals in Nigeria has been to maximise profits, limit tax liabilities, and repatriate as much of their earnings as possible. This model does not incentivize investments in local resilience and often takes customers for granted. It also does not enable engaged capital inflow into the Nigerian economy, which is in dire need of it. The idea that international brands alone will carry the day with consumers is flawed and has, in some cases, led to multinationals cutting corners and dumping substandard products that they cannot sell in high-income countries.

This approach falters during economic downturns. Multinationals, constrained by faraway headquarters that view Nigeria as a backwater, struggle to nimbly adjust their offerings to match competitive prices, better quality, and changing consumer tastes. Consequently, it is not surprising that predominantly Western multinationals have been losing market share to non-Western firms like Fidson Healthcare, Hayat Kimya AS, and units of Tolaram Group Inc., which employ superior non-market strategies and have a more nuanced understanding of their consumers.

Procter & Gamble (P&G) exemplifies this trend. In 2018, P&G shut down its Agbara plant for sanitary towels and diapers after fierce competition from Turkish giant Hayat Kimya, which entered the market in 2015 and saw an 844% growth within a year of opening its plant in 2017. P&G’s exit underscores the intense market dynamics rather than any fundamental issues with the Nigerian economy.

GlaxoSmithKline (GSK) also announced plans to restructure and divest from manufacturing in Nigeria back in 2019, partnering with Fidson for local operations. GSK ceased direct manufacturing in Nigeria with the closure of its Agbara plant in 2021 and is now focusing on third-party distribution across emerging markets. This shift reflects a broader industry trend towards optimising distribution rather than maintaining local manufacturing facilities.

In the pharmaceutical sector, Sanofi-Aventis transferred exclusive distribution rights for its general medicines segment to CFAO, a French conglomerate, without having manufactured locally. This strategy is consistent with Sanofi’s approach in over 20 other African countries, suggesting a strategic shift rather than a specific retreat from Nigeria.

Equinor’s exit from Nigeria was driven by a decline in production from its assets. Between 2019 and 2020, production at the Agbami field fell from 36,000 barrels of oil equivalent per day (boepd) to 29,000 boepd. The plan to sell was already in motion by January 2023 and finally came to fruition with a sell announcement in November 2023, reflecting broader challenges in Nigeria’s oil sector. Nevertheless, there is optimism as other international oil companies (IOCs) continue to make final investment decisions, indicating ongoing interest in the Nigerian oil industry.

The tech and service sectors have also been impacted. Bolt exited the food delivery market due to poor performance. Despite market growth in 2023, Bolt struggled to gain significant market share, controlling only 5 percent despite heavy investments. Similarly, Jumia Food withdrew from the market due to stiff competition from well-funded rivals like Glovo, Uber Eats, and Chow Deck. According to Jumia’s CEO, the low barriers to entry make food delivery an unattractive business globally, not just in Nigeria.

In conclusion, while the departure of these multinational corporations represents significant shifts, it does not indicate an impending economic collapse. These exits are driven by strategic business decisions influenced by global trends, competitive pressures, and sector-specific challenges. Nigeria’s economy, with its resilience and potential for growth, remains an important market for many industries. The focus should be on addressing underlying issues and creating a conducive environment for both local and international businesses to thrive.

Fahad Garba Aliyu is the Managing Partner at Ignite Capital Ltd and he can be reached at [email protected]