By: Joan Aimuengheuwa and Tobi Adetunji
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The issue of multinational corporations exiting Nigeria has become a recurring headline reaching a bothersome threshold.
Nigeria, one of the indisputable economic giants of Africa, is on the verge of losing its crown as Multinational corporations (MNCs) – the very indispensable factors of foreign direct investment (FDI) – are abandoning ship at an alarming rate.
In 2020 alone, over 10 companies shut down operations, including well-known names like Standard Biscuits Ltd, NASCO Fiber Products Ltd, and Union Trading Company (UTC) Nigeria PLC.
2021 witnessed an even greater exodus, with more than 20 companies leaving Nigeria. This list includes Tower Aluminum Nigeria PLC, Stone Industries Ltd, Mufex Nigeria Ltd, and Framan Industries Ltd.
The trend continued in 2022, with over 15 major brands exiting the market, such as Universal Rubber Company Ltd, Mother’s Pride Ventures Ltd, and Errand Products Ltd.
The year 2023 saw a further 10 major multinational corporations depart, including Equinor Nigeria Ltd, GlaxoSmithKline Nigeria Plc, and Bolt Food & Jumia Food Nigeria. The first half of 2024 alone has already recorded the departure of five major companies including Microsoft, Diageo PLC, PZ Cussons PLC and Kimberly-Clerk.
The cumulative lost output due to these multinational exits is estimated to be N95 trillion since 2020. This data comes from research conducted by Dr Vincent Nwani.
It’s easy to point fingers at foreign exchange scarcity, naira decline, poor infrastructure, power supply issues and exorbitant energy costs. However, going deeper beyond the surface, we see a subversive aspect which is the rise of the “frenemy” economy, regulatory issues and many more.
The Frenemy Economy
The “frenemy” economy theory proposes that Nigeria’s economic challenges are not solely driven by internal factors, but also by the calculated moves of a rising global power.
The aggressive “go-global” strategy prioritizes establishing a foothold in strategic African markets.
Here’s how it plays out:
- Predatory Pricing: Manufacturers, often backed by state subsidies, can undercut established Multinational Corporations on price. This tactic, known as “dumping,” floods Nigerian markets with cheaper goods, squeezing profit margins for Western companies.
- Infrastructure Investment with Strings Attached: Heavy investments in infrastructure projects across Africa, with hidden agendas. Such firms may be prioritized for contracts, creating an uneven playing field for foreign competitors.
- Paralyzed Local Competition: The influx of competitive goods and services leads to suppressed local competition and also limits technology transfer and knowledge sharing.
Some of these companies struggled against cheaper imports in the home care and hygiene sectors, and even the beverage sector where we have cheaper beer brands. Few exited specific segments, while others shifted to an import-only model, essentially surrendering local production to competitors.
The frenemy economy theory is controversial. While some see these products as a predatory factor, others view them as a much-needed source of investment and infrastructure development. The truth is likely somewhere in between.
Regulatory Issues and Policy Inconsistency
Nigeria’s regulatory environment is very unpredictable, with frequent changes in policies that catch businesses off guard. Companies like Unilever and GSK didn’t just face operational challenges; they also encountered a lack of clear, consistent regulatory frameworks.
For instance, sudden shifts in import tariffs or changes in tax laws can drastically alter the business industry overnight, making long-term planning virtually impossible. When businesses cannot predict the regulatory environment, it undermines confidence and hampers investment.
While multiple taxation is often pointed to, the real impact goes beyond financial strain. It creates an environment of pervasive uncertainty and breeds corruption. Companies often find themselves negotiating with various levels of government, each demanding its cut.
This inflates costs and also encourages a culture of bribery and under-the-table deals, affecting the sincere foundation of business operations.
Insecurity: The Silent Killer of Business Confidence
Insecurity in Nigeria is not just a physical threat; it’s a huge business risk. Companies are not just losing money to theft or damage; they’re losing investor confidence. The perception of Nigeria as a high-risk environment deters potential investors and partners, shrinking the market and limiting growth opportunities.
The Rise of Local Competitors
While multinational exits garner headlines, they also clear the way for local companies to step up. Nigerian businesses, though often undercapitalized, are more adaptable to the local market’s nuances. They understand the cultural context better and can operate more flexibly within the challenging environment.
Bolt Food’s exit in December 2023 was seen as a blow to the delivery market. However, it has opened opportunities for local startups to fill the gap. These indigenous companies, though smaller, are better positioned to scale local challenges and attend to Nigerian consumers more effectively.
Our thoughts!!!!!!
“The beauty of Israel is slain upon thy high places: how are the mighty fallen? Tell it not in Gath, Publish it not in the streets of Askelon; lest the daughters of the Philistines rejoice, lest the daughters of the circumcized triumph.”
The passage above aptly describes the current state of our nation, where over 800 multinational corporations have fled, each citing various reasons for their departure.
The reasons for this mass exodus, along with justifications from those responsible for leading Africa’s most populous country, may vary. However, the undeniable economic and social damage will manifest in increasing unemployment rates, potentially leading to further social unrest.
Nigeria’s beauty appears to be fading as multinational corporations, some of which have operated here for decades, are leaving. The news has spread far and wide, causing celebration among our competitors.
Yet, all is not lost. We must take prompt actions and calculated steps to rescue our economy and stop the continuous departure of major multinational corporations. Simultaneously, we should focus on developing domestic companies.
We opine that every change is triggered, worked at, planned and consistently nurtured to arrive at a desired end. No one gets anywhere of worth, without focus. As a country, therefore, we must be ready to do the needful and arrest the flight of multinational corporations in Nigeria.
To address this critical, yet surmountable challenge, we propose the following solutions:
Ensuring Stability and Availability of Foreign Exchange for Business
Currency fluctuations are a natural outcome of floating exchange rates, although numerous factors influence exchange rates, including a country’s economic performance, the outlook for inflation, interest rate differentials, capital flows and so on.
A currency’s exchange rate is typically determined by the strength or weakness of the underlying economy. As such, a currency’s value can fluctuate from one moment to the next.
A year ago, the current administration, through the Central Bank of Nigeria (CBN), collapsed forex into an import and export window, scrapped the RT200 rebate, and the Naira4dollar remittance schemes. Of course, this directly culminated in a 2.2 trillion gain in the Equity market, a trait applauded by experts. But these have not been sustainable over time.
Foreign exchange volatility can have significant impacts on businesses, especially those involved in international trade. Such impact manifests in pricing, profits, and competitive advantage supply chain.
However, in the medium term, Apex Bank needs to have a consistent focus on price stability, increased transparency and clear communication, as well as a clear framework for FX interventions.
For the long-stated objective, Nigeria’s policymakers need to diversify its export base, which given Nigeria’s labour abundance, distils to ensuring that industrial activity is geared towards the production of exportable goods that use a lot of low-skilled labour that is abundant in Nigeria.
Expectedly, many people do not pay attention to exchange rates, because rarely do they need to. The typical person’s daily life is conducted in their domestic currency. However, exchange rates only come into focus for occasional transactions, such as foreign travel, import payments or overseas remittances.
An international traveller might harbour for a strong domestic currency because that would make travel to Europe inexpensive. But the downside is a strong currency can exert a significant drag on the economy over the long term, as entire industries are rendered noncompetitive and thousands of jobs are lost. While some might prefer a strong currency, a weak currency can result in more economic benefits.
With several failed attempts at transitioning to a flexible exchange, it was time for Nigeria to embrace another. This attempt needs to be situated within the context of wider discussions about macroeconomic strategy within the appropriate time frames.
Mere FX adjustments to adapt to reality may lead to short-lived gains, followed by a return to previous practices. To avoid this cycle, forex and monetary policies should be part of a comprehensive economic plan where the exchange rate serves as a tool for export diversification and for attracting capital flows to foster overall development. Successful fixed-to-floating transitions are characterized by certain key features.
The Government Must Work at reducing Inflationary Trends
The latest data released by the Nigeria Bureau of Statistics, (NBS), yesterday Saturday, 15th, 2024, indicated that Nigeria’s annual inflation rate had risen to 33.95% in May from 33.69% in April.
The statistics office said the May 2024 headline inflation rate showed an increase of 0.26% points when compared to the April 2024 headline inflation rate. The implication of this is that on a year-on-year basis, the headline inflation rate was 11.54% points higher compared to the rate recorded in May 2023, which was 22.41%.
Meanwhile, skyrocketing inflation for business is a harbinger of the increased cost of raw materials, causes supply chain disruptions, increases overhead and inventory costs, and brings about higher interest rates. Other effects include stymied investments, reduced employment and growth rate.
Thus, creating tax breaks picking some top sectors to grow more intentionally and providing some policy reform that will make it easy for people to do trade and business in those promising sectors may be the right way to go. There is the dire and urgent need for the government to come up with an investment-friendly road map, at the state level that can make it easier for investments and businesses to thrive.
Once there is a comparative advantage across the states, it means that even the multinationals will now know where their factories will be. It is not gain saying that inflationary pressure, and foreign exchange volatility are seriously impacting input costs, operating expenses and the general profitability of businesses in the country.
Nigeria’s inflation has been higher than the average for African and Sub-Saharan countries for years now, and even exceeded 16% in 2017 – and a real, significant decrease is nowhere in sight. The bigger problem is its unsteadiness, however: An inflation rate that is bouncing all over the place, like this one, is usually a sign of a struggling economy, causing prices to fluctuate, and unemployment and poverty to increase.
Nigeria’s economy, a so-called “mixed economy”, which means the market economy is at least in part regulated by the state is not entirely in bad shape, though more than half of its GDP is generated by the services sector, namely telecommunications and finances, and the country derives a significant share of its state revenues from oil.
For the businesses that are still navigating the uncertain terrain of Nigeria’s economy, we recommend that they embrace; innovation, invest in people, collaborate more and leverage on technology.
The Government Should Work on Social Security Schemes
In this “Yam Pepper scatter Scatter” situation that we have found ourselves in, when people are out of jobs, there should be a means they can collect funds at the end of the month, depending on the time they spend employed or to get other jobs.
The idea is that economic activity should continue; whatever interest they get, they are not going to keep the cash. They are going to buy foodstuffs and consumables that will keep the manufacturing businesses going.
As those businesses are growing, they will continue to upgrade, continue to employ, and fit into controversy, and we hope that the government will do the needful, conduct the necessary investigation, and repackage this scheme to meet the yearning and expectations of the Nigerians.
