The increasing number of multinational companies exiting their operations in Nigeria will lead to reduction in foreign investment inflows thereby affecting the country’s $1 trillion economy target by 2030.
Analysts said that continuous exit of multinationals is not a good omen to the economy and can affect the federal government’s plan to reach a $1 trillion GDP as this will reduce foreign investment inflows.
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.
President Bola Tinubu, at the 29th Nigeria Economic Summit in Abuja, had told business leaders and Nigerians that Nigeria’s economy can grow to $1 trillion by 2026.
He had added that a $3 trillion economy is possible in a decade with the assurance that his government can ensure “double-digit, inclusive, sustainable and competitive growth.”
However, analysts believe the persistent exit of multinational companies from the country is set to impact negatively on this target.
With the recent news of Kimberly-Clark, the producer of Huggies products exiting Nigeria after almost 15 years of operations, has become a source of concerns for stakeholders.
Recall that before now, Procter & Gamble (P&G), Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, Stone Industries and GlaxoSmithKline Consumer Nigeria, are among companies that have shut down fully or partially in recent years.
In 2023, Unilever stopped the production of its legendary OMO, Sunlight and Lux home and skin care brands in a bid to cut costs so as to concentrate on higher growth opportunities.
The mass exit of these multinationals is expected to dampen Nigeria’s GDP growth and worsen unemployment, as they have been major contributors to the economy and job creation over the years.
According to data from the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) grew by 2.98 per cent (year-on-year) in real terms in the first quarter of 2024. This growth rate is higher than the 2.31 per cent recorded in the first quarter of 2023 and lower than the fourth quarter of 2023 growth of 3.46 per cent.
The performance of the GDP in the first quarter of 2024 was driven mainly by the Services sector, which recorded a growth of 4.32 per cent and contributed 58.04 per cent to the aggregate GDP.
Meanwhile, nominal GDP growth of the Manufacturing sector in the first quarter of 2024 was recorded at 8.21 per cent (year-on-year), 9.64 per cent points lower than the figure recorded in the corresponding period of 2023. While, real GDP growth in the manufacturing sector in the first quarter of 2024 was 1.49 per cent (year-on-year), lower than the same quarter of 2023.
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.
Speaking on this, the director-general of Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona said: “over the last few months, there has been a consistent increase in exit plans or a reduction in involvement in the Nigerian market by the multinationals, and this trend is worrisome. We have seen the likes of Unilever Nigeria, GlaxoSmithKline, and Guinness Nigeria Plc.”
She added that, “in Nigeria, lingering foreign exchange scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure, among others, have taken a toll on many businesses in the country.”
The chamber recommended that the government should implement measures to stabilise and ensure the availability of foreign exchange for businesses, particularly those operating in dollar-denominated environments.
The LCCI also implored the government to create a more flexible and transparent foreign exchange policy to address scarcity issues.
“Further, the Chamber urges the government to engage multinational corporations and the business community to understand their challenges and gather input and feedback on policy decisions to collaboratively develop solutions that will forestall the exodus of businesses from Nigeria. The CBN should prioritise the stability of the country’s currency and adopt the right policy mix to ensure price stability,” Almona said.
An economist and a senior stockbroker, Tunde Oyediran said that “we cannot grow a one trillion-dollar economy without a good and strong manufacturing sector. Closure of multinationals is a wrong signal to the economy.
“For companies to attain a higher productivity, they must be encouraged and stimulated to stay to enhance the economic growth.”
He added that this will have a triple effect on the economy, negative effect of unemployment as workers will be laid off and reduced GDP growth.
Oyediran urged the government to come out with the right policy that will attract new Foreign Direct Investments (FDI) and make the companies leaving the country to remain.
The president of Manufacturers Association of Nigeria (MAN), Otunba Francis Meshioye recently said that the development of manufacturing should be at the front burner for economic policymakers as the sector is the most essential for sustained economic growth and shared prosperity.
He noted that, the subdued performance of the sector is attributed to some ongoing harsh economic reforms that have compounded the long-standing challenges confronting the sector, revealing that forex scarcity, inadequate power supply, high inflation, rising energy cost, multiple taxation, policy inconsistency, exorbitant interest rate, poor infrastructure and high logistics costs are the top ten challenges depressing productivity in the sector.
He stated that MAN acknowledges the efforts of the government aimed at revitalising the manufacturing sector evidenced by the recent monetary policy initiatives targeted at salvaging the economy.
“However, it must be made clear that most of these policy initiatives have not resulted in a win-win situation. Most notably, the consecutive hikes in the Monetary Policy Rate by 600 basis points to combat inflation and encourage the inflow of foreign portfolio investment will not result in sustainable gains for the naira.
“The limited access to credit by the manufacturers has been further worsened by the upward adjustments of the cash reserve ratio and the recent reduction of the loan-deposit ratio without due consideration of the negative consequences on the survival of operators, especially the Small and Medium Industries (SMI).
Meshioye pointed out that “in its bid to bring high inflation under control, the apex bank must strike a balance by implementing policies that stimulate foreign investment and promote an enabling environment for domestic manufacturers to flourish.
“It is high time the government focused more on promoting foreign direct investment and exports of high-value added manufactured goods that are capable of boosting the country’s forex reserves and sustaining the appreciation of the naira.”
He said “MAN expects the government to frontally address insecurity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency. Among other priorities, the fiscal authority must also lend supportive measures by adequately incentivising the manufacturing sector and other productive sectors. This is very important to boost non-oil export earnings in addition to the increase in oil export proceeds occasioned by increased oil production, rising global oil prices and the coming on stream of the Dangote Refinery.”
Also, national president of the Association of Small Business Owners of Nigeria, Femi Egbesola said multinationals are among the companies that contribute largely to the country’s GDP and earnings.
“We cannot be talking of growing our economy when the real investors are leaving. Assuming they are leaving and the indigenous ones are increasing, it would have been a different thing. But that is not the case. You make income as a nation when you have investments and investors,” he said.