By Ebere Inyama
(Lagos) Five multinational companies shut down operations in Nigeria in the first half of 2024, bringing the total number of multinationals exiting Nigeria in the last four years to 75, ThruthNigeria has learned.
The vacuum left by these multinational companies has cost Nigeria an estimated N94tn ($59 billion) loss of output in five years, according to an economist and former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, Dr. Vincent Nwani, Procter and Gamble,, Equinor, Diageo PLC, Sanofi PLC, and Kimberly-Clerk exited Nigeria in the first quarter of 2024 while over 55 multinational corporations including GlaxoSmithKline Nigeria Plc, Universal Rubber Company Ltd and NASCO Fiber Products Ltd among others shut down operations in Nigeria between 2020 and 2023.
This exodus of multinational companies led to a 35.2 percent decrease in Foreign Direct Investment (FDI) inflows in Nigeria in the first quarter of 2024, according to a statement by the president of Nigerian Economic Society (NES), Professor Adeola Adenikinju.
Speaking during an interview with TruthNigeria, an economist and former director at the Central Bank of Nigeria, Sunday Akuns, said the challenges facing the Nigeria’s economy can be overcome through restructuring (changing from the presidential system of government to the regional system whereby the regions, namely north, west, east and south control their natural resources and contribute a certain percentage to the federal government.)
“ The Nigerian federation is wobbling, and it is not working. What has the USA done to stabilize it? The USA itself is a federation of 50 states. Because it has stabilized, it should be a reason to replicate same in other entities that are wobbling.
“ Insecurity in Nigeria, whether you call it banditry or herdsmen killings or IPOB or Boko Haram, it is a simple statement about the need to restructure Nigeria. Ethnic nationalities are seeking an opportunity for self determination and it has been chaotic and violent.
“ If the USA can take a strategic position on the matter the way they did in Berlin in 1884, they will end insecurity and enhance global peace and prosperity,” he said.
US Government Raises Concern Over Declining FDI In Nigeria
In its 2024 Investment Climate Statements, the US Department of State reported that poor regulatory framework, corruption, insecurity and inadequate electricity supply are the factors threatening the growth of Foreign Direct Investments (FDI) in Nigeria.
According to the statement by the US body, Nigeria’s underdeveloped power sector forces businesses to rely on generators powered by diesel to run their operations, further contributing to rising prices.
In the same vein, an international business research firm, the Economist Intelligence Unit (EIU), stated in its 2024 Country report on Nigeria that multinationals are increasingly deciding to quit Nigeria or reduce their presence owing to corruption, cronyism, rampant insecurity and a giant infrastructure gap.
Government Policies Driving Foreign Investors Away From Nigeria
Nigeria received the highest FDI inflow on the continent in 1997, but since 2023, the country is not only witnessing a decline in foreign investment, but it is also experiencing an exodus of foreign investors.
Following the removal of fuel subsidy in 2023 by President Bola Ahmed Tinubu, the Nigeria’s economy was hit by inflation and an increase in the cost of transportation and power generation. These changes in the economy added to harsh regulations on foreign investment and frequent changes in the value of the naira made Nestle, Guinness and other businesses to collectively loose ₦900 billion ($565 million) in 2023.
A multinational company which birthed brands including Huggies and Kotex, in its official press release published in May 2024, announced plans to exit Nigeria partly due to ‘economic developments in the country’ which has led to a monthly loss of ₦500 million ($314,000) through operational costs despite operating at a lower capacity.
Nestlé Nigeria PLC reported a loss of ₦104 billion ($65 million) before tax in 2023, with the company noting that ‘despite the strong operational performance, the net profit is impacted by significant devaluation of the naira.’
Similarly, the Corporate Affairs Commission (CAC) increased the minimum paid-up share capital in 2023 for companies with foreign participation from ₦10 million ($6000) to ₦100 million ($63,000) with a six-month compliance deadline which was then withdrawn less than a week later.
All instances demonstrate the business risks that Government policies have exposed investors to.
Perhaps, the most outstanding reason why multinational companies are exiting Nigeria was given by a Professor of Economics from Babcock University, Professor Olusegun Ajibola. According to him, the exit of multinationals happened chiefly because the investment attracted by the foreign companies in their original currencies eventually dropped in value due to the increase of the exchange rate against the Naira.
Ajibola explained that a multinational whose investment inflow of about $1m gets converted to the existing naira rate and after a financial year, converts its profit to original currency for repatriation purposes only to discover that the value is not worth the same as before because the naira exchange rate plummeted.
According to him, it was most unlikely that a multinational in such a situation as his analogy will continue to spend further resources to do business in a country with an exchange rate challenge as Nigeria.
Experts Proffer Solutions To Nigeria’s Declining Foreign Direct Investment
In a statement during a three-Day Nigeria Manufacturers Summit held in Abuja in July 2024, Aliko Dangote, Africa’s richest man who has made his billions by way of partnership with various Nigerian presidents, said that one way to discourage foreign investors from leaving Nigeria in droves is for the Federal Government to initiate deliberate industrial policies that assure investors of support and protection. That is the Dangote path: crony capitalism.
He said when government policies become more supportive and protective, investors would be more willing to partner with the government. According to him, this will help resolve other challenges such as infrastructure deficit, market instability, inflation and foreign exchange volatility.
Speaking further at the event, Dangote underscored the importance of stable and affordable power, adding that “ignoring all these facts is what gives rise to insecurity, banditry, kidnappings and abject poverty in the land.”
However, an alternate path of building economic growth is to bring in a wide range of investors on the ground in Nigeria, according to financial consultant Bayo Adams, a Doctoral Candidate with the Hult International Business School and Lead Consultant at Periscope Consulting Ltd.
In a study of 52 of the companies listed on the Nigerian Stock Exchange (NSE) in August, 2024, Adams recommended that the organized private sector and regulators in the Nigerian economy should take proactive steps to enhance the diversity of their investor base. Adams recommends investors such as owner-managers, for example, who can be key to enabling Nigerian companies to take advantage of positive changes in law enforcement and availability of government-financed small-enterprise loans.
According to him, it is essential that firms open up shareholding and management to accommodate various investors because this diversity helps companies navigate through economic uncertainties effectively.
Ebere Inyama is an Imo – state based conflict reporter for TruthNigeria
