By Adetunji Faleye
Introduction
Recent announcement by Unilever Nigeria that it has stopped the production of Omo and Lux did not come as a surprise to many. Though the company disclosed this in its unaudited interim financial statements for the year ended December 31, 2023 on the Nigerian Exchange Limited recently, it has been a decision the company had reached since March 17, 2023 to quit the homecare and skin cleansing brand of its business, concentrating on the foods, beauty and personal care product, while leasing out the factory for the production of the home care and skin cleansing products to a third party.
Before Unilever Nigeria’s recent withdrawal from both markets, the company disclosed a decrease in earnings and a rise in deficits. The revenue experienced a 45.1 per cent year-on-year decline, dropping from N23.92 billion in the period from January to December 2022 to N16.48 billion in 2023. Additionally, losses surged to N3.72 billion in last year, contrasting with the prior year’s N1.49 billion.
Apart from Unilever’s quitting its homecare and skin cleansing brand of its business in the country, the story of multinationals exiting the Nigerian market is sad to tell.
In 2023, Procter & Gamble (P&G), a producer of widely used household products including Pampers, Ambi-pur, Oral B, Always, Ariel, SafeGuard, Gillette and Olay exited the Nigerian market. Andre Schulten, the chief financial officer, speaking at Morgan Stanley Global Consumer and Retail Conference in New York said, the company choice to withdraw from Nigeria was because of tough business conditions and the complexities associated with establishing a consistent US dollar valuation, in spite investing $300 million to complete its massive ultra-modern plant at Agbara, Ogun State in 2017.
GlaxoSmithKline, GSK, also exited Nigeria in August 2023, putting an end to its 51 years of operation in the country, citing an unfavourable business environment too.
Interestingly, uncertainty surrounded the company’s exit until GSK UK Group communicated to GlaxoSmithKline Consumer Nigeria Plc about its strategic decision to discontinue the commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and shift to a third-party direct distribution model for its pharmaceutical products.
The genesis
The genesis of the exit of multinationals from this market began in 2007 when Michelin shut down its operation, followed by Dunlop which left in 2008 and completed the sale of its assets in 2014. The question many industry watchers have been asking is how the country got here. Many analysts have said that several factors have contributed to the exit of some of the multinational companies. One of the many factors is what Joel Adebiyi, a brand strategist called economic instability. Adebiyi said the country has for many years faced economic challenges, including fluctuating oil prices, inflation, and currency depreciation which have created uncertain business environment and affect the profitability of multinational companies.
He said acute infrastructural deficits including poor transportation networks, unreliable power supply and limited access to quality facilities have impacted negatively on the operating costs for businesses.
He added that changes in government policies, especially in areas such as trade regulations, taxation, foreign exchange controls, “have also toughened business environment,” saying that “uncertainty regarding government policies has also made it challenging for companies to plan for the future.”
For Amos Akinsola, another business analyst based in Lagos, corruption, complex bureaucratic processes and excessive regulations are hindering business operations, and making it difficult for companies to navigate the local business environment. He adds, “Corruption can be a significant deterrent for foreign businesses. If companies perceive a high level of corruption in the business environment, they may be reluctant to invest or continue operations in the country.”
Industry analysts also believe that shifts in market demand or competition may also influence multinational companies to reevaluate their presence in Nigeria, as they say, over the years changes in consumer behaviour have been affecting the return on investment of some of the multinationals.
They opine that the most immediate and tangible impact of low purchase behaviour is a decline in revenue. Brands heavily rely on consistent sales to sustain operations, invest in innovation, and drive growth. When consumers reduce their buying frequency, it directly affects a brand’s financial health. Such is the case of Unilever Nigeria quitting the homecare and skin cleansing brand of its business. For instance, consumers have been complaining that Omo has become very scarce in the detergent market. The competitive disadvantage of the brand made it difficult to compete with brands like Sunlight, Waw, Good mama and Viva which are very strong in the detergent market, and its scarcity was encapsulated thus by Babatunde Aribido, a Lagos resident, “I started looking for Omo mid-December. I went to the Island with no luck. I have been to both small and large stores still with no luck. When I could not find it, I knew it was all over.” Many consumers of the brand also had similar experiences as Omo became practically scarce before the company decided to quit the segments. The case of Lux was not different, though the product was available, it remained a fringe player in the market.
Effects
Experts say the decision by Unilever Nigeria to stop production of Omo and Lux in Nigeria, and other multinationals like P&G, GSK leaving Nigeria is a testament that many multinationals are not finding it easy. Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, recently expressed disappointment over the departure of multinational consumer goods manufacturer, Procter & Gamble, from Nigeria on a popular TV station in Lagos. He anticipated that if the Federal Government doesn’t implement comprehensive measures to tackle the challenges faced by manufacturers in the country, more companies may follow suit in exiting the manufacturing sector.
Ajayi-Kadir acknowledged the inevitability of P&G’s exit and highlighted the challenging business environment in Nigeria. He emphasized the need for the government to make a clear commitment to industrialization, stressing that manufacturing is a strategic choice for any economy, and until the government addresses the constraints hindering the sector’s performance, there will be additional closures in the manufacturing industry.
In his words, “Manufacturing in any economy is a strategic choice; the government has to decide whether it wants the country to be industrialized. Once that decision is made, the necessary steps must be taken to eliminate the constraints limiting the sector’s performance. Unfortunately, Nigeria has not taken such steps, leading to closures. While the exit of Procter and Gamble and other notable companies like GlaxoSmithKline makes headlines, numerous others have quietly closed down for reasons that could have been avoided.”
Many have said if the trends continue unabated there will be no small and medium-scale enterprises (SMEs) left in the country because those companies that left will strategize to keep importing their products into the country.
However, Usman Umanah, MD/CEO, Friska, opines “Multinationals are very instrumental in the progress of nations, especially developing ones as they come in with capital, set up factories, create employment and will sometimes source raw materials locally, do CSR and generally add value to the economy. But let us also not forget that when a multinational does all this and it makes money, it has to repatriate such funds to the mother country.
“So, if for example, a Unilever makes $100M in one year, and it pays salaries with about $10M, spends another $40M on raw materials, production and marketing, the $50M left will not be kept in Nigerian banks, it will be repatriated back to mother country. There is nothing wrong with that except that Unilever trades in naira and will have to convert this naira to dollars for it to repatriate. So, the CBN has to source dollars to settle that transaction. This will eventually add to the balance of trade between nations and because our demand for dollars to balance trade outweighs our dollar earnings, the naira will continue to suffer.”
He adds, “It’s important for us as Nigerians to produce locally and fulfil our local demand… Multinational coming to set up in your country is good, but there must be a plan and an end game in sight. Multinationals train and transfer knowledge to locals who eventually should set up and start manufacturing to standard and meet demands. We need to be able to produce to meet our demand so that we are not dependent on exports. If there are local alternatives to fill the gap that exiting multinationals create, then their exit can actually be a blessing to Nigeria.
“The sweet spot is when local companies build capacity to export standard and eventually start earning foreign exchange. This is where the magic happens.
“For instance, many are crying that Shell is selling up its asset. That does not necessarily have to be a bad thing if local oil companies are buying up those assets and continuing the business. What this means for Nigeria is that there will no longer be mandatory repatriation of funds. If the new Shell makes money in Naira, it keeps it in Nigeria, if it makes FX and brings into Nigeria, it counts as FX inflow to Nigeria.
“What we need to do now, is to encourage local production and pressure the government to nurture local manufacturers by creating an enabling environment for them with all the support they need to succeed. Even the devaluation of the Naira isn’t always a bad thing. The instability is worse than devaluation.
“For example, we have a product that used to N2.000 ($6) in 2018. We tried to export to an African country but it wasn’t competitive and we couldn’t do business because it ended up being overpriced for that market. But now that the same product is N3000 ($2.5) due to devaluation, we have started exporting in small quantities to that country.
“If we can produce locally to standard, export is easier now. The only thing is that we don’t have a conducive environment. A devalued currency with good infrastructure and a productive workforce is a recipe for success. That was how China pulled itself out of poverty. Look at the countries in Asia that are into manufacturing, you will see that their currencies are not really as strong as you would expect them to be.
“I think that our focus as a country should be on getting as much knowledge from the multinationals to encourage local players to start producing. This is the only way that we can turn the whole situation into a blessing in disguise.”
Solutions
Analysts say revitalizing Nigeria’s economy starts with encouraging local production. They say it also requires a multifaceted and collaborative approach from the government by addressing the root causes of economic challenges with a commitment to fiscal discipline, transparent governance, and strategic investments in key sectors. By implementing and consistently enforcing policies that promote business growth, attract, and foster innovation, the government can pave the way for sustained economic development.
Furthermore, they say fostering a business-friendly environment by streamlining bureaucratic processes, reducing corruption, and ensuring the rule of law will encourage foreign and local investments in the country.
Analysts believe that while the challenges are significant, the potential for improvement is equally immense. They advise the government to stay committed to implementing long-term, sustainable strategies that address structural issues plaguing the economy to pave the way for a brighter future.
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