Multinational companies exit Nigeria amid high operating cost

Despite being the largest economy in Africa with an over 200 million human population with potential to make fortunes, multinational companies are exiting Nigeria because of the high cost of doing business and lack of basic infrastructure, especially electricity.

Experts, who noted that even though the ugly development predated President Bola Tinubu’s government, said it was always good to bring the issue to the front burner, especially now that a new government was being formed for the new leaders to act fast and salvage the situation.

Our correspondent reports that over time the multinational companies have been forced to exit the country as a result of surging inflationary pressure, foreign exchange (forex) volatility, rising interest rates, electricity crisis, among other challenges, which have impacted operating expenses and profitability of businesses.

Procter & Gamble, Surest Foam Limited, Mufex, Framan Industries, Moak Industries, Deli Foods, Stone Industries, MZM Continental and Nipol Industries are among companies that have shut down fully or partially in recent years.

That notwithstanding, other experts have a different perspective as to why foreign companies are leaving Nigeria.

They said sometimes, the decision is based purely on internal company exigencies or market-wide or sectoral global trends in labour or technology.

They said the companies’ exit might be driven by sudden changes like the pandemic or economic downturns, adding that it is possible that as some companies are leaving or closing locally, other companies may be coming in or opening.

They said for example, the fintech sector and the digital economy more broadly have been expanding in the country, saying this could be a substitution situation, whereby the decline of one sector is complemented by the growth of another.

However, since the coming of the Tinubu administration, both the president and some of his aides have been speaking on efforts being put in place towards revamping the economy, encouraging Foreign Direct Investment (FDI) and also making local industries vibrant and competitive.

For instance, about a month ago, the Permanent Secretary, Federal Ministry of Industry, Trade and Investment, Dr Evelyn Ngige, said the launch of Nigeria’s first trade and investment policies would boost the local economy and facilitate increased foreign and domestic trade.

She stated this at the opening of a stakeholders’ workshop on the maiden Nigeria Investment Policy (NINP) and Trade Policy (NTP) in Abuja.

Recall that on May 10, 2023, at the twilight of the former President Muhammadu Buhari administration, the Federal Executive Council (FEC) approved the implementation of the first Nigeria Investment Policy (2023-2027) and the review of the Trade Policy of Nigeria (2023-2027).

Dr Evelyn said both frameworks represented significant milestones in the journey for economic growth and development.

She stressed that the ministry remained committed to improving the domestic investment and business environment in order to position the country as one of the world’s preferred investment destinations.

She pointed out that the development of the first investment policy, as well as the review of the country’s trade policy, was a useful outcome of the sustained efforts of the ministry.

The NINP focuses on three pillars: investment promotion, investment facilitation and sustainable development, with the objective to develop the investment policy framework, especially fast-tracking the process of Nigeria’s economic diversification, improving investment and business climate to attract both domestic and FDI.

And in July this year, the Special Adviser (SA) to the president on revenue, Zacch Adedeji, said the government would streamline its taxes from 52 to 10 in order to promote efficiency and accountability.

He stated this during the virtual TOPAZ 88 second lecture series, which had the title: “Revenue Challenges and Opportunities in Nigeria Today”.

It would also be recalled that the President of the Manufacturers Association of Nigeria (MAN), Francis Meshioye, recently said that more multinationals would exit Nigeria if electricity hike was implemented.

Meshioye, who stated that some international manufacturing firms had already exited Nigeria as a result of the electricity crisis, coupled with the unpredictability of the country’s forex before it was recently unified, added that over N144bn was spent on alternative sources of energy by manufacturers in 2022.

He said, “Now, if you spend N144bn on alternative energy sources in one year, you can only imagine the impact which that will have on your cost of operations. The manufacturing business in Nigeria is affected by so many factors, energy is a major one.

“Manufacturers provide almost every infrastructure by themselves. Outside the major roads, you find out that manufacturers provide water, power, security, etc. So, when you look at it, you find out that the cost of doing business is so huge, that a businessman will ask, ‘Is this the only place I can do my business? Can’t I move my capital elsewhere?’”

GSK could spark another exodus

The recent announcement by British multinational pharmaceutical and biotechnology company, GlaxoSmithKline (GSK), to discontinue operations in Nigeria after 51 years has raised fear among experts that it may spark another exodus of multinational companies in the country.

The Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA), the Lagos Chamber of Commerce and Industry (LCCI), the Nigeria Employers Consultative Association (NECA) and other expert bodies say the exit of multinational companies is as a result of unfavourable government policies.

They noted that GSK’s exit dealt a major blow to the country’s manufacturing sector which was already experiencing significant collapse.

The President of NACCIMA, Dele Kelvin Oye, noted that, “While the current administration has commendably set Nigeria on a long-term path to economic progression, it has been noted that some of the immediate positive economic policies of President Ahmed Tinubu have had an adverse effect on certain sectors of the country. In particular, the sudden rise in the price of petrol and abolition of the official naira rate have caused a significant backlash, eroding the already earned income and trading capital of several multinational companies that had established their previous earnings based on the official naira rate at the time.

“As a result, there has been a steady exodus of multinational companies and the collapse of several local companies, resulting in significant job losses and economic damage.”

He, therefore, called on the government to urgently review the short-term impact of its economic policies as they related to commitments already concluded for remittances/raw materials by the affected companies/businesses to reverse the trend of companies leaving Nigeria.

He also called on the government to focus on creating a conducive environment for businesses to thrive and provide access to single-digit short and long-term financing to reduce the cost of doing business while prioritising investments in infrastructure and power supply, provide tax incentives to encourage businesses to invest in Nigeria and improve the ease of doing business by reducing bureaucratic bottlenecks.

He added that, “Furthermore, NACCIMA urges the government to work collaboratively with the private sector to develop policies that will stimulate economic growth and create job opportunities in the country. We firmly believe that with the right policies in place, Nigeria’s economy can be revitalised and the country can become a hub for business and investment in Africa.”

He also called on the government to take urgent action to reverse the trend of companies leaving Nigeria and restore confidence in all sectors of the economy.

On its part, LCCI, through a statement by its Director General (DG), Dr Chinyere Almona, opined that despite presenting international businesses with the largest market in the continent, Nigeria still suffered from worrying economic slowdown decisions which were often provoked by the rising cost of doing business, epileptic power supply, weak infrastructural backing, among others.

Almona said, “With justification, the chamber is concerned that if the trend persists, the nation’s economic growth potential will not be realised. GlaxoSmithKline’s decision critically reflects on the nation’s poor ranking on the ease of business measures, which the chamber has constantly spoken about. It is time the government takes appropriate actions to reverse the saddening trends in the business clime in Africa’s largest market.

“Factor cost, as an integral element of the profit equation, is viewed with utmost seriousness by business people. In the face of rising costs, business people will likely search for cost-friendlier locations. The chamber is inclined to suggest the government take a holistic view/review of the business environment and take steps to make the nation’s business clime more competitive for growth.”

Speaking in Lagos, the DG of NECA, Adewale-Smatt Oyerinde, stated that, “The recent trend of business relocation and divestment is unfortunate. Over the last decade, the private sector has been adversely affected by various policy thrusts of government. Many of these policies were either anti-growth, ill-timed or not-well thought out, while others were not in alignment with the country’s economic realities. In more complex cases, we witnessed an era of policy clashes and contradictions and regulatory and legislative strangulation of businesses which left many companies without a clear path for planning and decision making. Operational costs have increased astronomically, heaping more woes on many companies.”

Speaking further, the DG averred that, “The consequences of the years of wrong policy choices are not far-fetched. As expected, divestment, capital flight and outright closures have become the ‘new normal’ within the business community. This is one of the chief reasons why the rate of unemployment continues to soar perpetually with consequential rise in crime and other security issues. When businesses cease operations, divest or move to other profitable and hospitable environments, a large number of Nigerians become unemployed. Inadvertently, the country loses income from taxes, social investment is hindered and poverty holds sway.”

While urging a more definitive and urgent intervention, Oyerinde stated that, “It is germane to state that the government must take urgent steps to arrest this predicament. While we acknowledge and commend the current administration’s effort to address the concerns of the private sector and the steps it took to provide some respite to businesses in specific sectors of the economy, more needs to be done. Beyond the tax reforms activity and the provision of palliatives to select corporate entities, government should, by deepening engagement with the organised private sector, provide the right intervention and incentive not only to attract more Foreign Direct Investment (FDI), but to also prevent more companies from shutting down, divesting or leaving the country.”

NECA, LCCI and NACCIMA urged the government to work collaboratively with the private sector with the view to developing and implementing action plans that are capable of promoting enterprise sustainability and competitiveness.

Apart from foreign companies, many indigenous companies are also folding up because of the harsh operating climate.

This is also leading to massive job losses in a country where the unemployment rate is above 35 per cent.

A former Chairman of the Textile Manufacturers Association of Nigeria (TMAN), Senator Walid Jibrin, recently told Daily Trust Saturday that only 20 out of the 175 textile companies in the country were working as others had been forced to shut down.

The poultry industry has also seen decline in recent months as poultry farms are shutting down over the soaring price of maize as noted by the National President of the Poultry Association of Nigeria (PAN), Sunday Ezeobiora.

A request to the SA to the President on Media and Publicity, Ajuri Ngelale, on other measures being taken by the government to address the collapse of businesses was not replied at the time of filing this report.

SOURCE: VANGUARD