Businesses in Nigeria experience massive losses since the removal fuel subsidy and the FX (windows) unification, writes ONYEKACHI PAUL:
A 2023 report by Tradingeconomics shows that Nigeria is currently ranked 131 out of 190 countries in terms of ease of doing business. Ease of doing business is a measure that assesses how conducive an environment is for businesses to operate.
The long-term consequence of a challenging business environment is a mass exodus of manufacturing firms to other regions. Operating costs for businesses in our climate are rising day by day; firms that can’t keep up are forced to either halt production or pivot to other business models.
The recent devaluation of the Nigerian naira cum foreign exchange (windows) market unification by the Central Bank of Nigeria (CBN) had a significant effect on the balance sheets of most multinationals and local businesses.
FMCGs, telcos, report massive losses
The Fast-Moving Consumer Goods (FMCG) sector was the hardest hit by the recent reforms. Just recently, GlaxoSmithKline (GSK) announced its decision to end its 51-year presence in the country. It plans to adopt a third-party distribution model. They cited reasons such as a cost-of-living, crisis, rising OPEX, and a shrinking customer base.
Although, analysts said the exit shouldn’t be blamed on naira devaluation and the fuel subsidy removal alone, rather the parent company’s decision to pivot, but critics have argued that no business would exit an economy that is flourishing.
“Today, I was saddened to hear that GlaxoSmithKline (GSK) is exiting Nigeria after 51 years of operation. Their reason for leaving Nigeria is even more disheartening: they no longer perceive prospects for the country as a business environment that would be anchored on productivity. We have painfully come to that point in our nation’s journey where multinationals are leaving the country, and the local ones are closing down,” Peter Obi, one of the presidential candidates during Nigeria’s 2023 elections, twitted about GSK’s exit.
The count continues. Cadbury Nigeria Plc, in its recently published financials, declared a loss of 20.77 billion naira resulting from the exchange rate devaluation.
Meanwhile, Nestle posted a loss of over 49 billion naira arising from the devaluation as well. Guinness Nigeria Plc incurred losses amounting to 49 billion naira, citing the same reasons. A closer look at some of these firms reveals that they had foreign loans that had to be readjusted to reflect the new exchange rate.
Unilever Plc in the early part of the year announced its exit from some customer segments in a bid to prioritize business continuity measures. This meant it would cease the production of popular household brands like Omo, Sunlight, and Lux.
The telecommunication sector was not left out in this turmoil. MTN posted a whopping loss of 131.41 billion naira. Meanwhile, Airtel Nigeria Plc recorded an exchange rate loss of 471 million dollars.
To reverse the trend of the exodus of multinationals, Nigeria must look inward and block the fiscal leakages and loopholes in our system.
Economic reforms take time to bear dividends; we hope for the best.
Taiwo Oyedele speaks
Mr. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms’ speech during the Committee’s inauguration by President Tinubu on August 8, 2023 speaks to this:
“We must be committed to establishing a conducive policy environment to attract global businesses and position our nation as a hub for research and development, technology, and innovation.”
He further stated: “The pathway for shaping the future begins with the choices we make today.”
He advocated the removal of Value Added Tax (VAT) on diesel as a measure to cushion the impact of high energy cost- a key cost item for manufacturing firms, and the cessation of payment of taxes in foreign currencies to stem the pressure on the naira.
Other economists share same view as they stressed current losses are only short-term as the long-term impact of government’s reforms will eventually become beneficial.
Writing on the subject, Trevor Goott, Director of Africa and India, Unlimit, expressed that FX Unification, for instance, will open the door of opportunity for Nigeria.
“The problems of access to dollars at the official rate were many. Appointments had to be booked in advance, a lot of paperwork was required, and the final decision would come weeks or even months later. If you were granted the rate, there was no guarantee that you would even be able to get the full amount requested.
…All of this is now in the past. The main entry barrier, and an obstacle to the Nigerian economy, has been removed. Now, there is one less issue for both businesses and people to deal with — which is encouraging for both Nigerian and foreign businesses who want to start, scale and grow companies in Nigeria” – Trevor Goott.
Experts believe the results of recent interventions by the government will lead to improved business climate in Nigeria.
But the question remains: When?
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