Market News

Nigeria has seen a surge in company closures and relocations, driven by economic difficulties, currency fluctuations, and escalating operational expenses in recent years, JOSEPHINE OGUNDEJI, writes

Nigeria’s business environment has been marred by a worrying trend in recent years, as both multinationals and local enterprises have been forced to either shut down or relocate their operations.

Most of them cite harsh economic conditions, unpredictable currency fluctuations, and soaring operational costs as key factors driving their decisions, a development that has been described as worrisome by the Organised Private Sector.

An earlier report by the Nigerian Investment Promotion Commission stated that between 2015 and 2022 over 50 multinational corporations and local enterprises shut down or relocated their operations out of Nigeria.

The latest company to announce its departure from Nigeria is South African grocery retailer Pick n Pay, which confirmed recently that it would exit the market by selling its 51 per cent stake in a joint venture.

Its Chief Executive Officer, Sean Summers, stated that this decision aligns with the company’s broader restructuring plan outside its home market.

Pick n Pay, which initially entered Nigeria through a 2016 partnership with A.G. Leventis (Nigeria), opened its first store in 2021 and went on to operate two locations.

From 2020 to mid-2024, Nigeria saw a troubling trend of companies exiting the market due to ongoing economic instability, operational challenges, and other unfavorable business conditions.

In 2020, over 10 companies shut down or scaled back their operations, including notable names like Standard Biscuits Nigeria Ltd, NASCO Fiber Product Ltd, Union Trading Company Nigeria PLC, and Deli Foods Nigeria Ltd. These closures signaled the beginning of a larger exodus driven by increasing economic uncertainty.

The trend escalated in 2021, with more than 20 companies leaving Nigeria. Among them were Tower Aluminium Nigeria PLC, Framan Industries Ltd, Stone Industries Ltd, Mufex Nigeria Company Ltd, and Surest Foam Ltd. This wave of departures underscored the growing concerns about profitability and the sustainability of operations in a volatile economic environment.

By 2022, the situation showed no signs of improvement, with over 15 prominent brands ceasing operations in the country. Companies like Universal Rubber Company Ltd, Mother’s Pride Ventures Ltd, Errand Products Nigeria Ltd, and Gorgeous Metal Makers Ltd were among those that exited, further signaling the challenges facing both local and multinational firms in Nigeria.

The exodus continued into 2023, with more than 10 major companies pulling out of Nigeria due to profitability concerns and difficult business conditions. Some of the most notable departures that year included Unilever Nigeria PLC, Procter & Gamble Nigeria, GlaxoSmithKline Consumer Nigeria Ltd, ShopRite Nigeria, Sanofi-Aventis Nigeria Ltd, Equinox Nigeria, and food delivery giants Bolt Food & Jumia Food Nigeria.

In the first 10 months of 2024, the pattern persisted as at least five significant companies exited Nigeria, highlighting the continuing tough business climate.

Companies such as Microsoft Nigeria, Total Energies Nigeria (impacted by divestment strategies), PZ Cussons Nigeria PLC, Kimberly-Clark Nigeria, and Diageo PLC pulled out, further illustrating the deepening struggles businesses face in Nigeria.

According to an economist and former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, Vincent Nwani, the top reasons for the exit of multinationals from Nigeria were the foreign exchange scarcity, naira decline, poor infrastructure, power supply issues, and exorbitant energy costs.

In addition to this, some other challenges include unstable government policies, insecurity, and increasing interest rates.

He said, “The exodus of multinationals from the Nigerian economy has cost the country a N94tn loss of output in five years.

“If things continue this way and I don’t see anything being done to cause insecurity to stop, illegal taxation, corruption, and uncertainty of foreign exchange rendering companies unable to hedge risk, then I see at least 10 more notable names (of multinationals) that will go. We already have five by the end of May.”

Nwani told The PUNCH he arrived at his data by considering the valuation of multinationals and by calculating their value addition by five to 10 times.

The economist explained that he checked the contribution of all multinationals leaving the Nigerian economy by analysing how many Nigerians such multinationals employed, the salary they paid their workers, and their turnover.

In a similar vein, a Babcock University Professor of Economics, Olusegun Ajibola, told The PUNCH that the exit of multinationals happened chiefly because the investment attracted by the foreign companies in their original currencies eventually dropped in value due to the increase of the exchange rate against the Naira.

Ajibola drew an analogy of a multinational whose investment inflow of about $1m gets converted to the existing naira rate and after a financial year, converts profit to original currency for repatriation purposes only to discover it was not worth the same as before because the naira exchange rate plummeted.

The don said it was most likely for a multinational in such a situation as his analogy to not spend further resources to do business in a country with an exchange rate challenge as Nigeria had and would rather sell off its stakes to other businesses.

Ajibola noted, “While some multinationals are leaving Nigeria, other companies are coming in.”

“Nigeria presents a very beautiful outlook for international investors. We have always had a robust market, irrespective of some of our local challenges in infrastructure, security, and others.”

The departure of multinational companies from a country can lead to a decline in Foreign Direct Investments, which is vital for economic growth, especially in emerging economies like Nigeria which heavily rely on crude oil exports.

OPS worry

The Organised Private Sector has expressed worry over the trend. Addressing challenges of business exits from Nigeria, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, said the association was deeply concerned about the continuous trend of companies, including notable entities like Pick n Pay, exiting Nigeria.

He said, “This situation is largely attributed to ineffective monetary policies from the Central Bank of Nigeria, which has resulted in substantial foreign exchange losses for businesses.

“Compounding this issue are the opaque practices within the oil and gas sector under the Nigerian National Petroleum Company Limited, leading to inflation in gas and petrol prices after the removal of subsidies.”

To reverse this trend and create a more favourable business environment, Oye proposed that the Central Bank of Nigeria must implement transparent and stable policies that would encourage investment and stabilise the naira.

He added, “Under no circumstances should the naira exceed 1,000 to $1. Furthermore, the CBN needs to positively discourage individuals and businesses from holding their monies in foreign currency in domiciliary accounts, a program of continuous appreciation of the naira.

“Collaborating with existing bureau de changes is crucial, as CBN current attempts to restructure or displace these entities have not stemmed the naira’s depreciation; in fact, they have contributed to it.”

The NACCIMA boss advised that NNPC must establish a clearer and more predictable framework for the oil and gas sector to restore investor confidence.

He posited, “It is imperative to resolve the ongoing ambiguities in its relationship with Dangote Refinery, enabling the refinery to sell fuel at lower prices and allowing Nigeria to genuinely benefit from its strategic location and capacity. We need a date for the resumption of the Port-Harcourt refinery.

“NACCIMA is dedicated to promoting non-oil exports and calls upon the government to support genuine stakeholder engagement. This collaboration is essential to creating supportive frameworks that empower exporters to meet the burgeoning demand for Nigerian products, particularly in China and other international markets, as our current exports barely meet 5 percent of the existing demand.”

Oye asserted that there was an urgent need for open dialogue among the government, private sector, and civil society.

He added, “This collaboration is critical for developing tailored solutions to the economic challenges facing our nation.

“Comprehensive reforms are necessary to improve the overall business climate, ensuring sustainable economic growth and attractiveness for both local and foreign investors.”

He urged stakeholders to unite in building a conducive business environment that supports growth and prosperity in Nigeria.

“If the CBN continues its current trajectory of naira depreciation and if we do not address the significant challenges in the relationship between NNPC and Dangote Refinery, there will be further foreign exchange losses from naira depreciation, we risk further corporate closures and exits from Nigeria,” he concluded.

Meanwhile, the National Vice President of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, said companies may decide to relocate from one country to another for varying reasons like high operational costs, high taxes, regulatory challenges, corruption, inadequate infrastructure, and exchange rate volatility among other reasons.

He said, “If we look at all these spelled out reasons, we would agree that all are present in Nigeria. These are the reasons companies are exiting to countries with a more friendly business environment.”

According to him, businesses leaving a country were not a good sign of economic development, but economic backwardness.

He added, “The government has to look at these issues and make the environment more friendly for businesses that want to come and stay in Nigeria. An instance is Nigerian Breweries, this company recorded a huge loss in their last accounting year, and the cost of that loss was a result of exchange rate volatility.

“If such a business does not take into account the number of years spent, and is void of a special attachment to the country, they can as well pull out and go elsewhere to a more stable economy.”

In a similar vein, the National President of the Association of Small Business Owners of Nigeria, Dr Femi Egbesola, said companies were leaving Nigeria for myriads of reasons, ranging from foreign exchange crisis, naira devaluation, poor infrastructure, power supply issues, energy cost, unstable government policies, interest rates, insecurity, high taxes, low profitability, and productivity, among others.

He said, “The way forward is for the government to provide a more conducive business environment, improve infrastructure, bring down inflation and the cost of doing business, fight corruption, and work on insecurity.”

Weighing in, the Director-General of Nigeria Employers’ Consultative Association, NECA, Adewale Oyerinde, disclosed that at least 15 multinationals have either divested or partially closed operations in the country in the last three years.

Oyerinde, in his assessment, stated: “Over 15 organisations, with a combined value-chain staff strength of over 20,000 employees, have either divested or partially closed operations,” lamenting that this has “dire consequences not only for organised businesses but also labour, government revenue and the households; massive job losses across sectors, which would continue to create insecurity challenges”.

Oyerinde added, “When NECA examined the exit of prominent companies like GSK, Sanofi, Procter & Gamble, Nampak, and others, who had been doing business in Nigeria for decades and were huge employers of labour, it was worried about the ripple effect on the broader business ecosystem.

“Within the value chain, numerous enterprises serve as suppliers to these major corporations, and their sustainability is significantly compromised when the primary businesses they cater to face extinction.

“The survival prospects of these secondary businesses are at stake, and their employees are also at risk, as the departure of the main clients could lead to their demise. The crisis within the value chain deserves more attention than it currently receives.”