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…retain local assets to take advantage of opportunities
The dollar crisis and currency crisis have dampened investment appetite in Africa’s most populous country, leading multinational companies to withdraw from Nigeria operations.
However, they still retain local assets to take advantage of opportunities in the Nigerian market.
Procter & Gamble, once America’s largest non-oil investor in Nigeria, exited its $300 million manufacturing operation in Agbara, Ogun State in 2017. However, the asset is currently being used for imports.
“We have announced that we will make Nigeria an import-only market, effectively eliminating our presence in Nigeria and reverting to an import-only model,” P&G Chief Financial Officer Andre Schulten told Morgan Stanley. Ta. Global Consumer and Retail Conference to be held in New York in December 2023.
At least nine multinational companies have exited local operations in Nigeria over the past year, reducing foreign investment inflows and jobs, and pushing back the country’s $1 trillion gross domestic product (GDP) target.
Multinational companies import raw materials in dollars and also repay dollar-denominated debts.
Also read: Unemployment rises as multinationals exit and factories close
Muda Yusuf, founder and chief executive officer of the Center for the Promotion of Private Enterprises (CPPE), said in an interview on Monday that the company has huge foreign exchange debt exposure.
“Many of them import raw materials and borrow from abroad. This leaves them with debts denominated in dollars, and the devaluation of the naira makes it difficult for them to repay their debts and pay for their raw materials,” he said. .
Yusuf pointed out that major shareholders of multinational companies are located abroad and receive profits in foreign currency.
He added that the sharp depreciation of the naira has made the profits of Nigerian companies negligible compared to other peers.
The naira has lost about 70% of its value under President Bola Tinubu’s administration, averaging 1,511.34 naira/dollar at the investor and exporter counter this year, according to data on the Central Bank of Nigeria’s website. It fell more than 8% on Wednesday to 1,699 to the dollar, according to FMDQ data.
Dollar supply on Wednesday was $176.45 million, down 14.34% from $181.86 million recorded at NAFEM on Monday.
Companies are trying to limit their exposure to the dollar to stay afloat.
Some of the world’s biggest companies operating in the country have effectively given up on the market, with headline inflation reaching 32.15% in August and eroding consumer purchasing power. I’m on my way.
Related article: FDI inflows to Nigeria drop by 35% as multinationals leave
Microsoft Nigeria, Total Energies Nigeria, PZ Cussons Nigeria PLC, Kimberly-Clark Nigeria, Sanofi-Aventis Nigeria Ltd, Equinor Nigeria and Diageo PLC, and Unilever have exited terrestrial operations since Tinubu took over.
This is not the first time manufacturers have struggled to get funding to operate from Africa’s biggest oil producer, but this is the steepest and most volatile situation in a decade.
According to CBN data, the naira in 2022 and 2021 averaged 425.98 naira and 408.96 naira respectively, while in 2023 the naira averaged 645.19 naira/$. The average price of Naira in 2020 was 382.18 Naira/$.
Sola Obadimu, Executive Director of the Nigeria Chamber of Commerce, Mines and Agriculture Association (NACCIMA), said the government’s inability to stabilize the foreign exchange market is fueling the exodus of multinational companies.
“Our inability to stabilize the naira is a big challenge for multinational corporations. They like to plan and make predictions, so they want some stability, but I’m a little worried about the lack of that financially,” Obadim said.
Experts say that apart from currency exchange, poor infrastructure is also a major challenge prompting the exit of multinational companies.
“The Nigerian economy has faced significant challenges in recent years, including foreign exchange fluctuations, rising energy costs and food insecurity,” Francis Mesioye, president of the Manufacturers Association of Nigeria, said in a memo dated May 23.
“These challenges are increasing inflationary pressures, negatively impacting consumer purchasing power and hindering manufacturing growth,” Messioe said.
“As a result, production levels have declined, leading to reduced competitiveness within the industry,” he added.
Manufacturers need regular electricity, accessible roads, functional railways, new technology, and incentives to drive their operations.
However, Nigeria does not have enough infrastructure to grow the business.
Energy is a key element in the production process. Nigeria’s lack of electricity supply and distribution has left businesses at the mercy of gas, diesel and gasoline-powered generators, whose prices have soared in recent months.
These significantly increase production costs and deprive manufacturers of opportunities to compete with international peers.
According to MAN, manufacturers spend 30-40% of their total production costs on energy generation for their operations.
Nigeria’s manufacturing growth rate slowed to 1.28% in the second quarter of 2024 due to worsening foreign exchange shortages due to contraction in private consumption and high borrowing costs.
According to data from the GDP report, the manufacturing sector declined slightly to 0.92% in the second quarter of 2024 from 2.2% in the same period in 2023.
“One of the main reasons is the uncertainty plaguing the regulatory environment. There are too many policy changes regarding taxes, import restrictions and foreign exchange market manipulation,” said Chinere Armona, Executive Director of the Lagos Chamber of Commerce and Industry (LCCI). said in response to a question.
“Policy disagreements create uncertainty in the business environment. Unfortunately, to this day, businesses are still suffering from such uncertainty,” Armona further said.
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