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Over 6,000 jobs lost to foreign firms’ exit, MAN fumes
It is anticipated that five well-known companies will close their production facilities in Nigeria, resulting in the loss of at least 6,000 jobs.
Procter & Gamble, an American multinational consumer goods company, had announced plans to end its on-the-ground operations in Nigeria and turn the nation into an import-focused market, according to a report.
The massive American manufacturing company, based in Cincinnati, Ohio, has decided to exit Nigeria in 2023 due to financial concerns, joining an increasing number of multinational corporations making similar decisions.
In 2023, Unilever Nig (the division responsible for home care and skin cleansing), Sanofi, Bolt Foods, and GlaxoSmithKline were among the other multinational companies that departed Nigeria.
The companies hinted at their plan to pursue an import-based model that would guarantee business sustainability in their separate statements, despite the difficult decision to leave Nigeria.
A preliminary investigations suggest that 6,000 direct and indirect jobs may have been lost as a result of the five companies' departure.
Out of the five brands, P&G is the largest and departs Nigeria with a $85 billion portfolio, of which $50 million comes from net sales in Nigeria. The company's departure also indicates that the economy has lost about 5,000 jobs.
But GSK left Nigeria with a N22 billion market value. About 160 employees would be most affected by this change in business strategy in Nigeria, the company stated, despite having over 400 highly technical workers, including dentists, doctors, chemists, microbiologists, biochemists, and more than 1000 other staff members.
Leaving Nigeria with a N50 billion skin cleansing and home care division is Unilever Nigeria's contribution. As of2021, the company employed 755 individuals.
Francis Meshioye, the President of the Manufacturers Association of Nigeria, stated in a June interview, that some foreign manufacturing companies were considering leaving Nigeria due to the country's power outage and the volatility of the foreign exchange rate prior to its recent unification.
Meshioye stated, "For example, the contraction of Nigerian businesses indicates that the country's business environment is not favourable. Due to this power problem and other factors, some manufacturers—especially foreign businessmen—have decided to relocate from Nigeria to other nations.
Therefore, anything that lowers this energy cost will be highly advantageous for manufacturers as well as the general public. As a result, power is expensive for us and a significant cost factor. However, it might also lead to other things.
Profits decline
Even though a lot of the large companies that left Nigeria in 2023 claimed that their departure was due to business strategy, a review of their financial statements shows that some are experiencing declining profits, and others have recently reported large losses.
For instance, Unilever Nigeria claimed that the reason for its withdrawal from the Nigerian home care and skin cleansing markets was "to find a more sustainable and profitable business model."
A thorough examination of the business's finances, however, revealed a N1.09 billion profit after taxes loss in the third quarter of 2023.
Additionally, the business reported a N389.30 million profit before taxes in its nine-month interim report. However, the company's bottom line performance was negatively impacted by a N1.48 billion corporate income tax obligation.
Similarly, GSK saw a decline in half-year revenue to N7.75 billion from N14.8 billion prior to announcing its exit.
Additionally, the multinational French pharmaceutical company Sanofi stated in its announcement of its withdrawal from Nigeria last month that it was making this strategic move "to better serve our patients and the Nigerian health system as well as to continually improve access to our medicines."
The company's financials, however, show that it had difficulty maintaining profitability in Nigeria.
Ventures Africa reports that May & Baker Nigeria announced in 2019 that it had entered into a contract manufacturing agreement to produce four Sanofi brands. The goal of this agreement was to increase regional output.
It allowed May & Baker to use Sanofi's facilities to produce suspensions, tablets, anti-malarial medications, and anti-infective medications. Then, in the first nine months of 2019, May & Baker's revenue dropped by 9.57% to N5.9 billion. A significant drop in sales caused a 9.36% drop in gross profits as well.
First and foremost among the factors that have affected foreign companies' decision to leave Nigeria is the extreme lack of foreign exchange. In announcing the company's decision to exit Nigeria, P&G's Chief Financial Officer, Andre Schulten, noted that the country's macroeconomic conditions were the driving force behind the company's most recent strategic choice and that it was challenging to conduct business there as a dollar-denominated organisation.
In an interview with The PUNCH, Francis Meshioye, President of the Manufacturers Association of Nigeria, attributed the recent surge in Nigerian exits to the "tough business climate."
He issued a warning, saying that if the government did not increase its interaction with manufacturers, investors would probably continue to be hesitant to put their money into business environments that did not ensure a profit.
Yes, Meshioye replied. The challenging business environment is to blame. The government should take this as a sign that not everyone is resilient to unrest. Money goes to the places where it will accomplish its goal.
"FDI is not an altruistic endeavour; these businesses have a purpose. At the end of the day, they hope to get their investment's dividend. They will therefore naturally want to go where they can get returns on their investments if the dividend is not forthcoming.
"The government should talk to the manufacturers now; they ought to be aware of our situation. It is crucial to have a strategic relationship with manufacturers.
When asked if the trend of multinational corporations closing their operations in Nigeria would likely continue, the president of MAN responded that it was unlikely that anything would change because investors are apprehensive about the risks associated with making investments in unstable economic environments.
The Lagos Chamber of Commerce expressed concern in a statement provided to The PUNCH that over the past few months, there has been a consistent rise in exit plans or a decrease in the multinationals' involvement in the Nigerian market.
Many businesses in the country have been negatively impacted, according to the report, by persistent shortages of foreign exchange, inadequate power supplies, port congestion, multiple taxation, insecurity, and inadequate infrastructure, among other issues.
A portion of the statement said, "The Chamber suggests that the government take action to stabilise and guarantee the availability of foreign exchange for businesses, especially those engaged in operations involving dollars. Additionally, to address the issue of scarcity, the LCCI begs the government to establish a more accommodating and open foreign exchange policy.
"Furthermore, the Chamber calls on the government to interact with international firms and the business community in order to comprehend their issues and obtain opinions on proposed policies in order to work together to create solutions that will stop companies from leaving Nigeria." In order to maintain price stability, the CBN should give the nation's currency stability top priority and implement the appropriate policy mix.
The Nigeria Employers Consultative Association's Director General, Mr. Wale Oyerinde, also responded to the development, saying in a conversation on Thursday that "this is not only worrisome, it calls for urgent and immediate steps to arrest the continuous exit of businesses."
"P&G's decision to join the growing list of companies selling their assets signals an impending economic crisis because it will increase the unemployment rate and have negative effects on job security. The ensuing decline in disposable income for individuals or families will also be detrimental to the country's economic activity.
"I see this as a wake-up call and reminder of the urgency required to stabilise our macro environment so we can be more attractive to capital," stated Niyi Yusuf, the chairman of the Nigerian Economic Summit Group. Other than land, the factors of production—labor, capital, and entrepreneurs—have choices and will gravitate towards the friendliest and most alluring locations.
Nigeria should anticipate more exits because of the difficult business environment, Solomon Aderoju, Chairman of the Nigerian Association of Small and Medium Enterprises, South-West region,
Aderoju claims that P&G is also importing a portion of the raw materials for their manufacturing, which will come at a very high price.
"If nothing is done to make the business environment conducive, Nigeria should expect more exits," he stated. P&G is not the first to depart; others will undoubtedly follow. They have provided explanations, which may include the enormous problems of high inflation, high exchange rates, and insecurity.
SMEs are still unable to access forex as of right now. It is still averaging about N1000 per dollar as I speak with you. You still need to purchase dollars on the black market in order to obtain them, according to Aderoju.
In a special interview