P&G exit: OPS advises FG to ‘prioritize survival of local businesses’

Organised Private Sector (OPS) in Nigeria has restated their displeasure over the seeming mass exodus of manufacturing firms out of the country’s business environment, describing the trend as negative for the country’s economy.

This is also as the operators have asked the Federal Government to evolve policies aimed at helping local plants to survive the tough business environment in the country.

The reaction follows the latest exit of another multi-national, Procter & Gamble (P&G), coming barely four months after the pull-out of pharmaceutical giants, GlaxoSmithKline (GSK).

All the exiting multi-nationals in the manufacturing sector have cited an inclement operating environment in the country, including to dearth of foreign exchange to run their operations as reasons for their actions, among others.

This is also as the Central Bank of Nigeria (CBN) has already confirmed that it has a foreign exchange backlog to the tune of around $7 billion which makes it more difficult for US Dollar-denominated companies operating in the country.

It would be recalled that In August, this year, pharmaceutical giants, GSK announced exiting the Nigerian business space after evaluating ‘various other options,’ adding that the decision of the Board of GlaxoSmithKline Consumer Nigeria Plc ‘has concluded that there is no alternative but to cease operations.’

On November 8, Sanofi, a French pharmaceutical multinational, also announced its exit from Nigerian operations as it appointed a third-party distributor to handle its commercial portfolio of medicines from February 2024, among a host of other multinationals in the manufacturing sector.

The list further includes scores of local operators who have shut down owing to dearth of foreign exchange and high cost of operations occasioned by difficulties in procuring raw materials, dwindling revenue, stringent regulations, among others.

Last Thursday, December 7, consumer goods manufacturing giant, Procter & Gamble disclosed plans to dissolve on-ground operations in Nigeria and focus on imports only.

P&G is the manufacturer of common Nigerian household items such as Pampers, Always, Oral B, Ariel, Ambi-pur, SafeGuard, Olay and Gillette.

The Chief Financial Officer of the group Andre Schulten stated this during his presentation at the Morgan Stanley Global Consumer & Retail Conference. 

The company explained that it is difficult to do business in Nigeria as a dollar-denominated organisation and the macroeconomic reality in Nigeria is responsible for its latest strategic decision. 

The current macroeconomic conditions in Nigeria have negatively affected foreign USD-denominated companies in Nigeria.

These companies have often cited difficulty in sending back U.S. dollars outside Nigeria.

Meanwhile, reacting to the spate of exits and closures in the manufacturing sector of the country’s economy, operators have sounded the warning to the federal Government over the trend as they fear this will register a fallback effect on the Gross Domestic Product (GDP) of the nation, with both short and long terms, if not checked.

In their separate reactions to the P%G situation, the Director- General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, and Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, agreed that the trend of exit of multinationals was worrisome and not sustainable, just as they tasked the government with urgently finding ways to implement measures to stabilise and ensure the availability of foreign exchange for businesses, particularly those operating in dollar-denominated environments.

Ajayi-Kadir said that the hierarchy of MAN was saddened to hear the news of another exit of a multinationals, Procter and Gamble; a firm that has invested billions of dollars in Nigeria’s economy, citing that the company had a portfolio valued at $85 billion.

The MAN DG explained that MAN could not fold its hands to see continued exit of multinationals in the country’s manufacturing sector, without proactive steps being taken by government in an already challenged business environment.

According to him, the lingering foreign exchange (forex) scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure, among others, have taken a toll on many businesses in the country.

In the same vein, Dr. Almona explained that the various reasons raised by the Chief Financial Officer of Procter & Gamble, Andre Schulten, in his statement, including challenges in conducting business as a dollar- denominated organisation and others to the macroeconomic conditions in Nigeria, had clearly shown that firms were still struggling to find their bearings in the country, especially in the manufacturing sector.

The LCCI DG noted that in the last few months, there has been a consistent increase in exit plans or a reduction in involvement in the Nigerian market by multinationals, saying this trend is worrisome. According to her, the country has seen the likes of Unilever Nigeria, Glaxosmithkline, and Guinness Nigeria Plc taking exit steps out of Nigeria.

Amidst the prevailing economic challenges, the economic expert said that the Chamber was recommending that the government should implement measures to stabilise and ensure the availability of foreign exchange for businesses, particularly those operating in dollar-denominated environments, create a more flexible and transparent foreign exchange policy to address scarcity issues, engage multinational corporations and the business community to understand their challenges and gather input and feedback on policy decisions to jointly develop solutions that will forestall the exodus of businesses from Nigeria and prioritise the stability of the country’s currency and adopt the right policy mix to ensure price stability.

On its part, the Nigeria Employers’ Consultative Association (NECA) berated the government over the negative trend of closures, with the latest decision by P&G, coming on the heels of similar actions taken by other multinationals like GSK and Nampak.

NECA blamed the government’s ‘stringent regulatory and legislative activities, insufficient infrastructure, and policy inconsistencies’ which it says are forcing these operators to exit the country.

According to NECA’s Director-General, Adewale-Smatt Oyerinde, the probable factors behind these business closures may include ‘the challenging business landscape, marked by stringent regulatory and legislative activities, insufficient infrastructure, and policy inconsistencies, all conspired to exacerbate the difficulties faced by businesses.’

“While we commend the Federal Government for the disbursement of the intervention funds, we urge a quick and definitive action to arrest the continuous exit and divestment of legitimate organizations in Nigeria.

“In the last few years, hitherto strong brands like GSK, Nampak and now P&G and some other local brands have either closed shop or divested fully or partially. These regrettable departures will persistently undermine the Federal Government’s efforts to attract Foreign Direct Investment, rendering its initiatives highly ineffective.”

“When established global brands like P&G cannot survive the environmental and regulatory onslaught, it is worrisome how many more businesses will capitulate.

“Regulatory bodies tasked with fostering business growth persist in prioritizing revenue generation at the expense of their core mandate, while legislators, in the guise of oversight functions, consistently create impediments for organized businesses, hindering their operations.

“The contradictions and self-disruptive tendencies of many federal and state Institutions can only be imagined, as they negate the efforts of the President to attract Foreign Direct Investment,” said the NECA boss.

NECA, therefore, implored President Bola Tinubu, as well as the Minister for Finance and the Coordinating Minister of the Economy, “to prioritize the survival of local businesses as the primary step before actively seeking Foreign Direct Investment.

“We advocate for the 2024 Appropriation Bill to address crucial infrastructural requirements conducive to business expansion, laying the groundwork for a prosperous nation.

“Additionally, he underscored the necessity of focusing on comprehensive tax reforms and addressing the challenges related to FOREX and exchange rates with a sense of urgency.”

Recall also that I August, this while reacting o the exit of GSK from manufacturing to third-party distribution of its products, LCCI and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) warned that the decision by the pharmaceutical company to shut its operations in the country after over five decades ‘would have adverse effects on the economy.’

The bodies noted that despite offering international businesses access to the largest market on the continent, the country still faced economic slowdowns due to rising costs of doing business, an unreliable power supply, and weak infrastructure.

“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 ease of business measures, which the chamber has constantly spoken about. It is time the government took appropriate action 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,” LCCI said.

On its part, also reacting via a statement signed by its President, NACCIMA expressed deep concern over the exodus of companies from Nigeria.

It said the recent announcement of GlaxoSmithKline’s exit from Nigeria had dealt a major blow to the country’s manufacturing sector, which was already experiencing significant collapse among its local businesses.

According to NACCIMA, the sudden rise in the price of petrol and the abolition of the official naira rate has caused a significant backlash.

It claimed that that had eroded 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.

That, it said, had led to a steady exodus of multinational companies and the collapse of several local companies, resulting in significant job losses and economic damage.

“NACCIMA urges the government to urgently review the short-term impact of its economic policies as it relates to commitments already concluded for remittances/raw materials by the affected companies/businesses to reverse the trend of companies leaving Nigeria.

“We call 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. The government should prioritise 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,” the NACCIMA statement read.

According to NACCIMA, it is crucial for the government to take urgent action to reverse the trend of companies leaving Nigeria and restore confidence in all sectors of the economy.

“NACCIMA maintains that sustainable development can only be achieved through collaboration between the private and public sectors, and we are committed to working with the government to ensure Nigeria’s economic success,” it stressed.

Similarly, the Bank of Industry (BOI) also lamented GSL’s exit over high cost of doing business and other challenges in the country.

According to the bank, the situation is causing manufacturers a lack of access to financing options.

The bank’s Divisional Head, Large Enterprises, Isa Omagu, further listed other factors such as lack of credit history, non-availability of collateral, vulnerability to market fluctuations and the highly unstructured nature of many manufacturing entities also accounted for major reasons why many of them lacked access to finance.

“High cost of doing business, that issue can never be overflogged. That is one of the biggest problems of manufacturers. For manufacturers to improve their access to finance, they have to ensure that they keep proper records. They need to do proper bookkeeping to make themselves more bankable.”

While officially announcing its exit from manufacturing business in Nigeria, GSK Consumer Nigeria Plc explained that the action followed after evaluating the options for moving to a third-party distribution model for its pharmaceutical products.

The company is well-known for its household products such as Augmentin, Neosporin, Panadol, Sensodyne, Advair, Ventolin, Theraflu, among others, made the official announcement via in a statement signed by Company Secretary, Frederick Ichekwai which was sent to the Nigeria Exchange Limited (NGX), in August.

The company said it is working with its advisers to agree on next steps and plans to submit a scheme of arrangement to the Securities and Exchange Commission (SEC), which if approved, will see it return cash to shareholders except its parent company, GSK UK.

According to its unaudited HY 2023 financial statement, the company noted that it would appoint a local third-party distributor in Nigeria for the supply of its consumer healthcare products.

The company, which employs over 290 people, assured that all necessary legal proceedings would be met as regards employees and shareholders.

‘In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products.

“The Haleon Group has also separately informed the Board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.

“For the above reasons, and having, together with GSK UK, evaluated various other options, the Board of GlaxoSmithKline Consumer Nigeria Plc has concluded that there is no alternative but to cease operations.

“Today we are briefing our employees whom we will treat fairly, respectfully and with care, meeting all applicable legal and consultation requirements.

“The Board is conscious that shareholders will have many questions; we have been working assiduously with our professional advisors to agree on next steps and we will be shortly submitting to the Securities and Exchange Commission (“SEC”) a draft Scheme of Arrangement which may, if approved, see shareholders other than GSK UK, receive an accelerated cash distribution and return of capital.

“The Board acknowledges the support of the GSK Group in its intentions to make this possible, full details of which we hope to publish shortly.

“In the meantime, however, we cannot give you assurance of the final terms of any scheme, or that any scheme will be approved by the SEC or by shareholders.

“Shareholders are advised to seek professional advice and continue to exercise caution when dealing in the company’s shares until a further announcement is made,” the company statement read.