South African retail chain, Shoprite, has confirmed plans of discontinuing its operations in Nigeria, a move industry analysts say has exposed Nigeria ‘s weak economic resilience amid the coronavirus pandemic impact, the cost of running business in Nigeria and concerns of multiple exchange rate in the country.
The retail giant, which entered the Nigerian market in 2005, said it will consider to “sell all, or a majority stake” of its retail operations in the West African country.
Tope Fasua, an economist, reacting to the development, told BusinessDay that the larger implication is that our middle class is collapsing, adding, “we could attribute that to Covid-19 and people have lost their jobs in millions.
“Shoprite departure is a test to the resilience of our economy to whether the storm has hit everybody already on the global stage. If the Shoprite should be doing well in South Africa, according to the released data, does that not tell you something? It shows that our purchasing capital and income inequality call for serious concern.”
He stated further,”what that means is that the few people at the top could go abroad and buy things abroad and the poor ones remain here. There could be some money in this economy but it is not enough.”
Speaking on multiple exchage rate concerns,he said that shoprite business model is such that they import in dollars and sell in naira. The official and unofficial rate concerns also help them to lose money on exchange rate valuations. “On inequality concerns, we need to collapse this entity and restart. Middle class is not existing anymore,” he said.
Shoprite said restriction of movement because of coronavirus had impacted its operations in 14 African countries where sales declined by 1.4 percent, but its South African operations witnessed “significant growth”.
The retailer has also been battling currency-induced inflation surge, especially in Nigeria where it was hit hardest.
The South African retailer has struggled in Nigeria, Africa’s largest economy, and if it leaves, Shoprite will join clothing outlets – Mr Price and Woolworths who exited the country after failing to get a foothold.
Celestine Okeke,Lead Partner, Small and Medium Enterprise Development Initiative, reacting to the development, said the implications of their exit could be more than envisaged, adding that further studies could see other retail business slowing down.
‘It seems we don’t know the implication of Shoprite closing down in Nigeria. In Kubwa, a satellite town in the federal capital territory, Infinite Max, a grocery retail outlet has closed down. People should not look at Shoprite because it is a foreign company, there are also some local ones that are closing down.
“If you look at the operating cost of being on for 24 hours, exchange rate differential and other concerns are eating deeper into their profit margin. These are some issues.
“The profitability issue is a major concern and what determines profitability is the state of the economy. Inflation eats into disposable income and people are also cutting their scale of preference. The purchasing power for Nigeria is reducing, and also bear in mind that the people are already spending 50 percent of their income on food,” she said.