The recent decision by the House of Representatives to investigate the mass exodus of multinational companies (MNCs) from Nigeria underscores a pressing economic issue. The formation of a special committee to probe the reasons behind these exits and devise solutions is crucial, given the alarming trend of foreign firms abandoning the Nigerian market. Over the past five years, Nigeria has lost approximately N95 trillion due to this phenomenon, highlighting the urgent need to address underlying issues, particularly the foreign exchange (forex) crunch.
The departure of MNCs from Nigeria has significant economic repercussions. For instance, the recent exit of Kimberly-Clark, a major player in the consumer goods and personal care sector, after investing $100 million in Nigeria, is a notable example. This exit, less than three years after their initial investment, is a direct result of the hostile business environment characterised by high power costs, expensive raw materials, and forex issues. Kimberly-Clark’s departure not only results in the loss of approximately 10,000 direct and indirect jobs but also affects the availability of essential sanitary products like Huggies and Kotex, impacting menstrual and childcare health in the country.
Similarly, other MNCs like Procter & Gamble (P&G), Unilever, and GlaxoSmithKline have also ceased or scaled back their operations in Nigeria. P&G, known for brands like Pampers and Gillette, cited problematic business conditions in Nigeria, including the forex crunch, as a major reason for their exit. Unilever’s decision to stop producing homecare and skin-cleansing products and GlaxoSmithKline’s shift to a third-party distribution model further illustrate the widespread impact of these exits across various sectors.
One of the primary reasons for the mass exit of MNCs is the persistent foreign exchange crisis in Nigeria. The devaluation of the naira and the resulting forex scarcity have made it increasingly difficult for foreign companies to repatriate profits and conduct smooth operations. The shortage of foreign currency leads to lower earnings in dollar terms, making it challenging for these companies to maintain profitability in Nigeria. This issue is compounded by the broader economic instability and policy uncertainties that deter long-term investment.
In response to these challenges, the House of Representatives has resolved to form a special committee to investigate the exits. This committee aims to understand the specific challenges faced by these companies and develop strategies to retain and attract MNCs. The motion, initiated by Babajimi Benson, underscores the necessity of addressing the high cost of power, expensive raw materials, and the forex crisis to create a more conducive business environment.
The proposed intervention includes engaging with the management of exiting companies like Kimberly-Clark to understand their grievances and explore potential solutions. Additionally, the Committee on Commerce has been tasked with discussing the challenges faced by these companies with relevant government ministries, departments, and agencies (MDAs) to find lasting solutions.
The economic implications of MNC exits are far-reaching. Beyond job losses and reduced availability of goods, the exodus of foreign firms weakens the naira and strains local manufacturers, further exacerbating economic instability. To mitigate these effects, Nigeria needs to implement strategic initiatives that address the root causes of the forex crisis and other business environment challenges.
But the chief executive at AntHill Concepts Limited, and Member of the Board of Economists, Dr. Emeka Okengwu, cautioned that Nigeria’s forex crisis is not the only challenge causing the MNCs’ exit. Dr. Okengwu noted that MNCs are leaving not because of forex, but because people are not buying what they are producing. He said if people were buying what they are producing they would be able to sell and get forex. He stressed that people are not buying their goods because of the lack of purchasing power. Because of this, he said the MNCs are not meeting up with returns on investment. He said other factors constituting a harsh business environment such as poor transportation and storage infrastructure were a burden on companies operating in Nigeria.
On his part, the chief executive of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the first and most important thing the monetary authorities should do at the moment is to stabilise the naira. He said to a good extent, the government has been able to minimise the volatility in the exchange rate over the last one month, which is a good development. He noted that foreign investors are averse to unstable currencies because it makes it extremely difficult for them to plan. “They have their standards about how they operate; they are not used to the volatile environment like what it is in many African countries; it’s not only Nigeria, they are also leaving other African countries,” he said.
He said operating in developing economies is not always easy for MNCs. “You will notice that the Chinese, Indians, and local Africans know how to navigate the challenges peculiar to developing countries, which is not the same for MNCs.
“As to whether we can quickly strengthen the currency, that is not something that can happen immediately because we need time for the fundamentals to be strengthened to be able to generate the forex and to be able to address the promotion of import substitution, which takes time.
“The other issue is that the business strategy of the multinationals is not very flexible in their business models; they have their standards across the world. So, when situations call for some flexibility in business models, it’s often very challenging for them because they have their global standards.
“For example, look at what the purchasing power has suffered over the past one or two years. The purchasing power of Nigerians has become extremely weak. So while some other companies are adjusting, covering up with fragmentation of products such as sachetisation to come down to the levels of the consumers, the multinationals are not structured to do that; they maintain their brands; and many of their brands are premium brands. When you have that kind of thing it makes the competition for the MNCs difficult.”
“Take for example, Ariel, which is produced by Procter and Gamble. Ariel is a premium brand. But because of the reduction of the purchasing power of Ariel, not many Nigerians can afford it as they used to. “Because of that, a lot of other brands have come into the market; so they have lost their share of the market. The same applies to Omo and Elephant. If you went to the market today it’s not that there is a shortage of detergent. It’s just the question of competition strategy and how we can adjust business models to suit the current intense competition. The current business environment requires different kinds of approaches, which many multinationals don’t have the patience for.
“That is not to say that there are no other challenges; but when challenges come how do you respond to them. For the multinationals, their response is just to pack and leave; whereas the response of the locals is to see how they can navigate the challenges, even in sectors where people are leaving,” said Dr. Yusuf.
The president of the Independent Shareholders Association (ISAN), Moses Igbrude, on his part, urged that the government prioritise stabilising the naira and ensuring sufficient forex availability to facilitate business operations for MNCs. He also said investing in robust infrastructure, particularly in the power sector, can reduce operational costs and improve the business environment. Igbrude further said establishing clear, consistent, and favorable policies for foreign investors can build confidence and encourage long-term investments.
The mass exit of multinational companies from Nigeria is a clear indicator of deeper economic issues that need urgent attention. By addressing the forex crisis and improving the overall business environment, Nigeria can halt the exodus of foreign firms and harness the full potential of its automotive and other critical industries. The efforts by the House of Representatives to investigate and resolve these issues are a step in the right direction, but comprehensive and sustained action is required to secure Nigeria’s economic future.
