Procter and Gamble (P&G), a global consumer goods giant, has recently announced a strategic shift in its Nigerian operations, opting for an import-only model and effectively ending its on-the-ground presence in the country. This decision comes as a response to the formidable challenges posed by Nigeria’s business environment, characterized by dollar-denominated operations, foreign exchange scarcity, and unfavorable macroeconomic conditions. However, P&G is not alone in facing these hurdles, as a growing number of multinational corporations have either left Nigeria or adjusted their operations due to the difficulties of doing business in the region.
P&G’s decision to shift to an import-only model follows a similar trend in the pharmaceutical sector, with GSK recently announcing the cessation of its operations in Nigeria and opting for a third party to manage distributions. The collective decisions of these multinational corporations highlight the growing concerns about the business landscape in Nigeria and its impact on foreign businesses.
Over the past seven years, numerous manufacturers, particularly in the fast-moving consumer goods sector, have exited Nigeria or scaled back their production activities. The complexities of the operating environment, marked by rising interest rates, surging inflationary pressure, and foreign exchange volatility, have significantly impacted input costs, operating expenses, and the general profitability of businesses in Africa’s most populous nation.
Some prominent companies that have exited the Nigerian market include Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, and Stone Industries. These departures underscore the widespread challenges faced by businesses across various sectors, prompting a broader conversation about the need for systemic improvements to attract and retain foreign investments.
In March of this year, Unilever, a multinational company with roots in Nigeria dating back to the 1920s, made headlines by announcing the cessation of production for its popular brands, including OMO, Sunlight, and Lux. Unilever’s decision was part of a cost-cutting strategy to focus on higher-growth opportunities, reflecting a broader trend of companies reassessing their operations in the face of the challenging economic landscape in Nigeria.
Addressing the reasons behind the move, Andre Schulten highlighted the difficulties faced by the company in operating in certain markets, including Nigeria. Factors such as macroeconomic realities, foreign exchange scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure have collectively contributed to the decision. Schulten stated that the restructuring program aims to optimize P&G’s operating model and portfolio, focusing on markets with greater potential.
Schulten emphasized that the restructuring program will predominantly focus on Nigeria and Argentina, with Nigeria being transformed into an import-only market. This decision, while impacting the local workforce and economy, is seen as a necessary step for P&G to maintain its portfolio discipline and concentrate on markets with higher growth prospects.
In response to concerns about the impact on P&G’s overall portfolio, Schulten reassured stakeholders that Nigeria represents a $50 million net sales business in a portfolio valued at $85 billion. He emphasized that the company does not anticipate any material impact on the group’s balance sheet from a sales or profitability standpoint.
The pinnacle of P&G’s investment was marked by the completion of the ultra-modern $300 million plant at Agbara, Ogun State, in 2014. At the time, it stood as the United States of America’s largest non-oil investment in Nigeria. The plant provided over 5,000 jobs directly and indirectly, showcasing the company’s commitment to the Nigerian economy.
The impact of these exits on the Nigerian economy is palpable, with data from the Manufacturers Association of Nigeria (MAN) providing a snapshot of the manufacturing sector’s struggles. According to MAN’s latest half-yearly review report, the number of jobs lost in the manufacturing sector surged to the highest level in three years during the first half of 2023. The figure increased by a staggering 108.7 percent, rising from 1,709 in the same period in 2022 to 3,567.
Conversely, the number of jobs created in the sector took a substantial hit, declining by 32.8 percent. In the first half of 2023, 6,428 jobs were created, down from 9,559 in the same period in 2022. MAN attributed this decline in job creation to the unfriendly business environment resulting from hasty policies and the residual effects of the currency redesign policy, which led to a naira crunch.
These statistics underscore the ripple effects of the challenging economic conditions, impacting both multinational corporations and local businesses alike. P&G’s decision to shift to an import-only model, adding to the list of companies restructuring their operations in Nigeria, raises concerns about the sustainability of the business landscape and the urgent need for policy reforms to attract and retain foreign investments.
As Procter & Gamble joins the growing exodus of multinational corporations from Nigeria, the cumulative impact on the nation’s economy becomes more apparent. The departure of key players, coupled with the decline in job creation, poses a serious challenge to the Nigerian government. Urgent reforms are required to address systemic issues, create an environment conducive to business growth, and prevent further departures, ultimately stimulating economic recovery.
The Nigerian government now faces the pressing task of reassessing policies, streamlining regulatory processes, and addressing infrastructural deficiencies to improve the overall business climate. Only through concerted efforts to create a more business-friendly environment can Nigeria hope to retain and attract foreign investments, ensuring sustainable economic growth and development in the years to come.