As a vice in Nigeria The president cut the ribbon on Procter & Gamble's diaper production line in 2017, and the US$300 million facility near Lagos was hailed as a symbol of the country's economic ambitions. In December, P&G announced it was withdrawing from the West African state.
It's not just the US consumer goods giants. In recent months, at least three other global conglomerates have announced they are leaving Africa's most populous and second-largest economy. These include GSK, Bayer and Sanofi. Last year, Unilever cut back on some of the products it manufactured domestically. Nestlé posted an operating loss.
At the heart of the outflow is a shortage of dollars needed by international companies to repatriate their profits. The central bank has devalued the naira twice in the past eight months, and businesses are still struggling to clear the backlog of demand for the currency they need to pay debts and import raw materials. The near-total lack of reliable electricity supply and congestion at Nigeria's ports are exacerbating the insecurity.
“It's news because it's P&G. It's news because it's GSK. They're in the news because they've been in this country for a long time, but some people have died quietly,” said Segun, executive director of the Nigeria Manufacturers Association Advocacy Group. Ajay Qadir spoke on local television after P&G's announcement. “If the current situation does not improve, we will definitely see more closures.”
One of the world's largest oil reserves, rich fertile land, and a rapidly growing population were supposed to create a lucrative market for consumer goods producers after the restoration of democracy in 1999. Instead, policy failures, corruption and over-reliance on oil added to the dysfunction. economy. The middle class did not expand as much as expected.
The implications for Nigeria are bleak. The US$394 billion oil-dependent economy is already hobbled by high levels of imports. Corporate exits ($187 million in investments left the country in 2022, compared with about $9 billion in 2011) have added to the pressure on the naira, which has fallen 86% in the past eight years. It will only make things worse and cause more damage. Towards a long-standing diversification effort.
unpopular policy
Since taking office in May, President Bola Tinubu has already introduced unpopular policies needed to revitalize the economy. He must now convince companies that he can stop the exodus of major multinationals from the country.
Presidential Spokesperson Temitope Ajayi said taxes and customs duties have been simplified, a committee has been set up in the vice president's office to cut red tape, and there are plans to improve infrastructure. Tinubu also vowed to end jihadist violence and crime, which has made it virtually impossible for many major companies to transport goods across much of the north.
“They have the potential to make significant changes,” Peter Scrivante, a South Africa-based senior political economist at Oxford Economics, said of governments. “But it will take time. Not years.”
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Many companies can't wait. On February 7, PZ Cussons, a UK-based maker of soaps and other personal care products that counts Nigeria as its largest market, lowered its group-wide profit forecast. Cadbury Nigeria had to convert the loan into equity as it could not find foreign currency to repay the loan from its British parent company.
Nestlé and Unilever still operate in the vast industrial park where P&G's production lines were shut down. But outside the walled complex, 65-year-old Rafael Babalola said he was no longer as busy loading boxes onto trucks for logistics. Depending on the day, the train may leave empty. “Companies aren't producing like they used to,” he says.
Another driver, Adigun Daniel, 63, said that until just a few years ago he was transporting goods at least twice a week to the east and north of Nigeria, an area almost three times the size of Germany, but most of the time He said he was lazy. Other drivers have given up completely and sold their trucks, he added.
Nigeria has suffered its second recession in eight years, as falling oil prices depleted foreign currency coffers and the coronavirus outbreak. With 130 million people out of a 230 million-strong population living in multidimensional poverty and inflation at its highest level in 27 years, more and more Nigerians will be able to afford more than just basic necessities. It's getting less.
“Twenty years ago, 15 years ago, it wasn't a mirage, it was a real business opportunity,” said Adedayo Ademwagun, a Lagos-based analyst at Nigerian political risk firm Songhai Advisory. “But given the complexity of the issues, it starts to become less attractive.”
Other companies that have tried and failed to enter the Nigerian market include South Africa's Shoprite Group, Africa's largest grocer, which the company then envisioned as the linchpin of its pan-African expansion plans. The company closed in 2021, 16 years after opening its first store in the country. It was mostly a disaster. Clothing and food retailer Woolworths Holdings, fashion chain Trueworth International and cereal and food manufacturer Tiger Brands also participated.
There are additional difficulties for manufacturers. It competes with lower-cost rivals such as Turkish diaper maker Hayat Kimiya and a unit of Singapore's Tolaram Group, which makes Indomie noodles, Nigeria's national food. Those companies are also struggling, but there are too many investments to walk away from, said Girish Sharma, CEO of Colgate Tolam, a joint venture in Nigeria. “The current situation is difficult,'' he said, adding that “withdrawal is not an option.''
'extremely difficult'
P&G declined to comment on the plant closure. When the news was announced in December, the company's Chief Financial Officer Andre Schulten said, “It's very difficult to create value as a U.S. dollar-denominated company,” and that “the macroeconomic environment makes it difficult to operate.” Ta. .
The government says Nigerian companies can come in and fill the void left by their exits. But they too are bleeding, with many among the 767 companies that closed in the first quarter of last year alone. But the abandoned P&G factory presented an opportunity for local manufacturer Fouani, which now makes sanitary napkins and diapers in the same complex.
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Commenting on the group of Nigerian manufacturers, Ajay Kadir said Nigerian companies should be prioritized, adding that he wanted lower taxes and more credit facilities. “FDI is great, but empowering local manufacturers should be secondary,” he said. “It’s time to be confident that they will be with you come rain or shine.”
Tinubu has taken steps that economists and investors in Nigeria's capital markets say are long overdue, but these steps have created misery for ordinary people and undermined his government's popularity. ing.
Some, like Tolaram's Sharma, believe in Tinubu even though they are yet to see the benefits of what he is doing. “He has a tough job,” Sharma said. “He's going to do something to rebuild the economy. There's a lot happening as we speak.” Emere Onu and Anthony Sugazin, Ashley Furlong, Ruth Olurunbi, Anthony Osae-Brown, Yvonne Mhango, Janice Kew, Leslie Patton, Monique Vanek, Nduka Olujinmo, Tim Roe, Dasha Afa Nasieva, (c) 2024 Bloomberg LP