ABUJA (Sundiata Post) – Unless audacious steps are taken to fix the ailing Nigerian economy and halt the exodus of multinational firms, the country, literally on ventilators, may eventually collapse, experts warned at the weekend.
The warning comes as the federal government, banking on the exaggerated capacity of local firms to fill the void, maintains an offish posturing over the matter.
Giant players in the oil & gas, pharmaceutical and manufacturing (Fast Moving Consumer Goods) sectors have shut the door on Nigeria over a myriad of challenges they can no longer contend with.
The horror heightened at the weekend when Unilever Nigeria announced the stoppage of production and sales of home care and skin cleaning products. The announcement came 10 months after the company announced plans to exit both markets.
‘‘Subsequent to the company’s exit from the home care and skin cleaning categories, the factory buildings have been leased to a third party for a duration of 10 years, with annual rental payments,’’ the company said.
Prior to the latest exit of Unilever, other multinationals which included; Procter and Gamble, GSK, Pernord Ricord, had exited the country over varying reasons such as; energy crises, insecurity, multiple taxation, foreign exchange shortages, inconsistency in government policies among others.
According to the Nigeria Employees Consultative Association (NECA), about 22 multinational firms left Nigeria between 2021 and 2023, accounting for about 20,000 job losses and swelling unemployment rate to 33.3 per cent.
The implication on the economy, according to industry observers, is devastating as many more Nigerians have been pushed into the poverty pit just as the government’s revenue has shrunk.
More worrisome is a recent report by a financial solutions firm, Cardinal Stone, titled ‘Strategic Resilience: Sailing Through Business Disruptions’ noted that high operating costs would persist for firms operating in the FMCG sub-sector.
The report added that multinational firms in the FMCG sub-sector may exit the country this year if the operating environment does not improve.
According to the report, the FMCG sector remains heavily exposed to changes in commodity prices, exchange rates, import and clearing duties, and freight costs.
It noted that FMCGs might not benefit from the moderation in global commodity prices because of the significant depreciation of naira, which weakened from N422.00/$ in June 2023 to N951.94/$ in December 2023, after the Central Bank of Nigeria floated the country’s exchange rate.
“The alternative path may eventually degenerate to exit from the operating environment or high-cost segments, similar to the cases with Procter and Gamble, GSK, Pernord Ricord, and more recently Unilever.”
It added that weaker currency could spike diesel costs, as was the case in the first half of 2023, which saw diesel prices soar to a new high of N1,004.98 per litre in the second half of 2023.
This development is a further setback to the Federal Government’s N3 trillion company income tax revenue projected for 2024 as contained in the Medium Term Expenditure framework.
At the oil and gas sector, the latest exiting firm is Global oil giant, Shell that has divested its onshore operations which was acquired by a consortium of five firms, though there are concerns over their capacity to add value to whatever it is they acquired from Shell.
But the Minister of State, Petroleum Resources (Oil), Heineken Lokpobiri, has asked troubled Nigerians not to panick as Shell’s exit creates a golden opportunity for local players to grow.
Commenting on the development, Former Chairman of the Manufacturers Association of Nigeria (MAN), Mr. Frank Onyebu, said it was no longer a secret that a number of multinational corporations have left the shores of Nigeria in the recent past.
However, he said the bad news was that more of these companies are in the process of taking similar actions.
He added that the inflow of foreign direct investment into the country has declined dramatically over the past years, meaning that the net FDI flow is negative.
‘‘Many factors are responsible for this exodus of foreign investment in the country, including inconsistency in government policies, unstable monetary and fiscal policies, infrastructural deficiencies, multiple taxation, unprecedented insecurity, forex illiquidity, and other structural challenges. These factors have effectively made our business environment rather unfriendly, and therefore uncompetitive.
According to him, the multinational corporations are aware of choices of better business environment in other countries and are bound to make decisions that are best suited for their businesses, saying they would not remain in this country if it’s more profitable for them to relocate to another country.
‘‘Nigeria is bound to lose a lot if this trend is not urgently reversed. First, our ability to attract foreign investment, which is already at its all-time low, could be completely decimated. We would also be losing more than N100 billion of potential tax revenue from both potential investors and those that would be exiting. So much is already being lost due to the relocation of these companies, and much more could be lost.
“But by far the most critical is the loss of employment. These companies have had to lay off workers owing to their closure. These laid-off workers have to join the already growing unemployment market. More than 50,000 jobs have been lost in the past five years and much more could be on the line. This would obviously worsen the already bad security situation in the country, since as they say, an idle mind is the devil’s workshop.’’
On the way forward, he said government needs to immediately assemble a team of experts to enact policies that would be endearing not just to foreign investors but also to local investors.
‘‘We need to create and rigidly implement policies that are friendly for investment. We need to do something about multiple taxation. We need to eliminate corruption at all levels. We need to immediately eliminate waste while drastically reducing the cost of governance.’’
Corroborating the views of Onyebu, Founder and CEO, Center for the Promotion of Private Emterprise (CPPE), Mr. Muda Yusuf, said the exit of multinational companies from Nigeria was regrettable, adding that for most of them, the issues were about the volatile macroeconomic environment and to a lesser extent, the challenge of insecurity.
‘‘The biggest shock to most of them was the naira exchange rate depreciation and the corresponding exchange rate losses. The higher the foreign exchange exposure, the more profound the losses.
‘‘For most of them, the shareholdings were in foreign exchange. And the returns would be valued in foreign currency. Naturally with the sharp currency depreciation, the returns on investment for these shareholders shrunk massively. There was a massive erosion of shareholder value.’’
According to him, the multinationals also had huge forex exposure in debt financing because most of their financing was in foreign currency.
‘‘Again, because of the drastic naira depreciation, many of them were thrown into a loss position. The effect on their balance sheets was very profound. Other companies with similar forex exposures suffered similar fate. The effects were not limited to multinationals. The forex liquidity crisis was also a big issue for them.
“The third major factor was the heightened competition in the consumer goods space in which the multinationals were major players. Most of them progressively lost their market share to the raging competition and disruptions in the consumer market segment of the economy. Many of the multinationals lacked the business model flexibility which the changing market dynamics demands. According to the CEO of one of multinationals that left, the company took the decision to exit the Nigerian market three years ago. The company had been scaling down progressively since then.
Additionally, the energy situation resulted in cost escalation, forex liquidity disrupted repatriation of funds and the porous borders created problem of smuggling. These were the real issues. But the crystallisation of the exchange rate risk was the biggest challenge.’’
In his view, Chairman, SMEs Group of the Lagos Chamber of Commerce and Industry (LCCI), Mr.Daniel Dickson-Okezie, lamented that the exit of these firms would translate to a sharp drop in tax revenue which would invariably hurt the economy and its GDP.
Quoting data from the National Bureau of Statistics, Dickson-Okezie, lamented that investment declined by 33 per cent to $1.035 million in the second quarter of 2023 compared to second quarter of 2022 due to the harsh operating environment.
He added that the United Nations Conferences on Trade and Development (UNCTAD) also revealed that foreign direct investment inflows into the country turned negative (-$187 million) last year for the first time in at least 33 years.
To reverse the ugly trend, he said Government must put measures in place to stabilise and ensure availability of forex, reduce the inflationary trend, create tax breaks and holidays for businesses and deal with rising interest rates and give incentives to industries that are thriving such as they gave to Dangote.
‘‘Of course the reason for the flight is not far fetched, the harsh business environment has been attributed to the cause, which manifests in form of forex scarcity, Poor power supply, port congestion, multiple taxation, insecurity, poor infrastructure, among others which have effects on profitability and sustainability.
When a company is not making profit, as a business, there is no way it will still be in business and this will affect the economy.”
