Shoprite: Exit of Multinationals from Nigeria

Recently, Shoprite Nigeria, a retail chain stores, and conglomerate announced it is shutting down operations and cited its inability to cope with the country’s current economic downturn, among several other reasons. Juliet Jacob reports the underlying causes, and implications for the Nigerian economy.

 

 

The Departure of Shoprite

In recent years, Nigeria has faced significant economic challenges, culminating in the departure of several multinational companies.

The most recent (as at press time) exit is that of Shoprite, one of the largest retail chains in the country. A Visit to Shoprite’s Former Store

During a recent visit to one of Shoprite’s former stores, by Africa health report (AHR) Correspondent, the stark reality of their exit was palpable. The shelves, once filled with a wide variety of products, were now eerily bare. The bustling aisles, previously teeming with shoppers, were deserted. Employees, who once wore the familiar uniforms, were notably absent, replaced by a few security personnel guarding the vacant premises. On this particular day, the Shoprite was a shadow of itself to state it vividly.

Also conspicuously vanished were commercial activities that once characterised the environment. Shops and outlets owned by individual businessmen and women were locked up following the notice by the management of the Shoprite. All these reflected an unpleasant sign. Over the past five years, Nigeria has experienced a significant economic downturn, losing N94 trillion in economic output due to the exodus of multinational companies from the country.

A former employee, who preferred to remain anonymous, shared their concerns about the future. “We were given notice about the closure, but the suddenness of it all has left many of us in a difficult position,” they explained. “Finding new employment in this economic climate is going to be a challenge.”

Reasons Behind the Exit

Several factors have contributed to Shoprite’s decision to exit the Nigerian market:

Economic Instability, The Nigerian economy has been volatile, with fluctuating exchange rates, high inflation, and a shrinking GDP. These factors have made it difficult for businesses to operate profitably.

Regulatory Challenges, Multinational companies often face complex regulatory environments. In Nigeria, bureaucratic red tape and inconsistent policies have added to the operational difficulties.

Insecurity, the rising insecurity in certain regions has affected business operations, leading to increased costs for security and insurance.

Supply Chain Issues, Disruptions in the supply chain, partly due to infrastructural deficiencies, have hindered the consistent availability of products, affecting sales and customer satisfaction.

Nigeria’s Unemployment Rate Rose to 5.0 %

According to the National Bureau of Statistics (NBS). Nigeria’s unemployment rate rose to 5.0 percent in the third quarter of 2023, marking an increase of 0.8 percent from the previous quarter’s rate of 4.2 percent.

 Broader Implications for the Nigerian Economy

The departure of Shoprite is not an isolated incident. Over the past five years, Nigeria has lost an estimated N94 trillion in economic output due to the exit of multinational companies. This trend has several implications:

Job Losses

Thousands of Nigerians employed directly or indirectly by these companies are now facing unemployment. This exacerbates the already high unemployment rate in the country.

Consumer Impact, the exit of major retailers like Shoprite reduces competition, potentially leading to higher prices and fewer choices for consumers.

Investors’ Confidence, the departure of multinational companies sends a negative signal to potential investors. It raises concerns about the viability of investing in Nigeria, potentially deterring future investments.

Economic Diversification, the exit of these companies highlights the need for Nigeria to diversify its economy and reduce its reliance on foreign businesses. Strengthening local industries and creating a more conducive environment for business is essential.

Alarming Trend: Multinational Companies Scaling Down Operations

Expert View

The former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, An Economist Dr. Vincent Nwani, raised alarms about the increasing trend of multinational companies scaling down operations, transferring ownership, or selling their stakes in Nigeria.

The latest instance is Diageo’s sale of its 58.02 percent shareholding in Guinness Nigeria to Tolaram Group on June 11, 2024.

Nwani’s analysis, which considers the valuation of these multinationals and their value addition, reveals a severe impact on Nigeria’s economy. His method involved examining each multinational’s contribution by looking at their employment numbers, salary expenditures, and turnover.

Economic and Social Implications

The exodus of these companies carries severe implications for Nigeria’s economy, workforce, and future investments. Thousands of Nigerians are losing their jobs, exacerbating the country’s economic challenges.

The Chairman of the Labour Party Lagos State, Dr. Dayo Ekong, described the situation as “very sad,” noting that several international companies have closed operations since the current government took office.

Key Departures from 2020 to 2024

2020:

– Standard Biscuits Nigeria Ltd

– NASCO Fiber Product Ltd

– Union Trading Company Nigeria PLC

– Deli Foods Nigeria Ltd

 

2021:

– Tower Aluminium Nigeria PLC

– Framan Industries Ltd

– Stone Industries Ltd

– Mufex Nigeria Company Ltd

– Surest Foam Ltd

 

2022:

– Universal Rubber Company Ltd

– Mother’s Pride Ventures Ltd

– Errand Products Nigeria Ltd

– Gorgeous Metal Makers Ltd

2023:

– Unilever Nigeria PLC

– Procter & Gamble Nigeria

– GlaxoSmithKline Consumer Nigeria Ltd

– Sanofi-Aventis Nigeria Ltd

– Equinox Nigeria

– Bolt Food & Jumia Food Nigeria

2024 (First Half):

– Microsoft Nigeria

– Total Energies Nigeria

– PZ Cussons Nigeria PLC

– Kimberly-Clark Nigeria

– Diageo PLC

– ShopRite Nigeria

Economic Impact

Nwani estimated a cumulative lost output and potential investment of N24 trillion between 2020 and 2022, with larger multinationals like Microsoft accounting for over 50 percent of the N94 trillion figure from 2023 to mid-2024. Microsoft’s departure was particularly impactful, as the tech giant closed its Africa Development Centre in Lagos, choosing instead to invest in a new $100 billion data center in Kenya.

Reasons for the Exodus

The primary reasons cited for the mass exit include:

Foreign Exchange Crisis: The inability to access foreign currency has made operations untenable for many companies.

Worsening Security Conditions: Increasing insecurity has made it difficult for businesses to operate safely.

Power Supply Crisis:

The unreliable power supply and high energy costs have driven companies to seek more stable environments.

Nwani stressed the need for the Nigerian government to address these issues urgently to prevent further economic decline. He warned that if conditions do not improve, at least 10 more notable multinationals could leave by the end of the year.

Professor Olusegun Ajibola of Babcock University explained that the fluctuating exchange rates have eroded the value of investments for foreign companies, making it unfeasible to continue operations. He noted that while some companies are exiting, others are still entering the Nigerian market, attracted by its large consumer base despite the challenges.

 Notable Company Exits

GlaxoSmithKline, Exited in August 2023 due to foreign exchange unification policies that caused persistent currency issues.

Equinor: Sold its business interests in November 2023, including its stake in the Agbami oil field, to Chappal Energies.

Sanofi: Adopted a third-party distribution model in November 2023, citing economic challenges and foreign exchange crises.

Procter & Gamble: Ceased operations in December 2023, transitioning to an import-only model due to macroeconomic challenges.

Microsoft:  Closed its African Development Centre in May 2024 but remains operational in Nigeria with a focus on strategic growth areas.

Conclusion

The departure of multinational companies from Nigeria poses significant challenges to the nation’s economic stability and growth prospects. Addressing the underlying issues of foreign exchange access, security, and power supply is crucial to retaining and attracting international investments. The government’s ability to create a more conducive business environment will be pivotal in reversing this trend and fostering economic resilience.

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