Local firms deepen investment as multinationals exit

By Merit Ibe                                               [email protected] 

As multinationals exit the Nigerian economy, a number of companies are defying the odds by expanding their operations and investing in new facilities.

Despite the downturn in the economy, these local and foreign firms are focusing on sourcing raw materials locally for production, thereby managing obvious challenges which include  surging inflation, depreciating currency, high insecurity,  electricity shortages among others to fill the void created by the mass exodus of foreign companies.

Over the past 18 months, Nigeria has experienced a notable exodus of companies, a trend that began at the start of 2023.

The departure follows sweeping reforms in the energy and foreign exchange markets, which have significantly disrupted the business environment and triggered economic shocks that adversely impacted corporate profitability.

An analysis by Nairametrics highlights that major Nigerian firms listed on the Nigerian Exchange (NGX) collectively faced a staggering forex loss of approximately N1.7 trillion, with some of these losses being unrealised. The consumer goods sector emerged as the hardest hit by these macroeconomic disturbances.

The Manufacturers Association of Nigeria (MAN) reported a troubling scenario where  767 manufacturing companies shut down in 2023, while 365 others faced severe distress due to economic challenges such as escalating inflation, interest rate hikes and volatile exchange rates.

Additionally, capacity utilisation within the manufacturing sector plummeted to 56%, and the inventory of unsold goods soared to N350 billion.

While the exits reflect how challenging the Nigerian consumer market has become, the resilience is also reflected in the notable 67.69% increase in Foreign Direct Investment (FDI) inflows into the sector in 2023.

Here is a closer look at some of the prominent expansion projects and new ventures underway:

In February 2023, Dangote Industries Limited (DIL) signed an agreement with China Sinoma International Engineering to develop a new cement plant in Itori, Ogun State. This plant will have a capacity of 6 million tons per annum, with two production lines each capable of 6,000 tons per day, leading to a total daily production capacity of 12,000 tons. This project, costing up to $585 million, is set to enhance Dangote’s production capacity in Nigeria to 42 million tonnes per annum and 57.6 million tonnes across Africa. The plant is scheduled for completion by the second quarter of 2025.

Another firm investing locally is Nestle. Despite experiencing financial setbacks in 2023, Nestlé is investing in a new distribution centre for Milo and Golden Morn at its Flower Gate factory in Sagamu, Ogun State. The company is also expanding production lines at its facilities in Sagamu, Agbara, and Abaji. This extensive expansion, managed by Vita Construction, is expected to cost around N60 billion. According to Nestlé’s 2023 annual report, a total investment of N61 billion is allocated for expanding production lines and enhancing distribution centre operations in these locations.

In mid-2023, BUA Cement secured a $500 million loan from the International Finance Corporation (IFC) for its Sokoto production facility, underscoring its commitment to growth amid challenging economic conditions.

Eraskon Nigeria began constructing the ERASKON lubricant and chemical blending plant in Gbarain, Yenagoa, Bayelsa State, in 2022. With a production capacity of 64,000 litres per day, the $50 million project had reached over 70% completion by May 2024.

According to its 2023 financial statement, Transcorp Hotel has committed N1.8 billion towards developing a new event centre within its facility. Additionally, the company is finalizing financing for a new 25-storey hotel in Ikoyi, Lagos.

This year, Diageo Plc sold its controlling stake in Guinness Nigeria Plc to Singapore’s Tolaram Group Inc; The Fouani Group, a local firm, now operates a diaper and sanitary pad plant in a complex where Cincinnati-based Procter & Gamble Co. shut down a $300 million facility making similar products.

A Turkish firm, Hayat Kimya’s premium diaper brand, Molfix, is taking the void left by P&G’s withdrawal. A group of Nigerian investors, Renaissance Group had purchased Shell’s onshore holdings when the oil giant decided to restrict its activities to the offshore market. EnjoyCorp Limited bought Heineken’s majority stake in Champion Breweries.

Similarly, Fidson Healthcare is picking up the slack created by GSK’s departure by expanding its range and exporting its products.

These developments and many more reflect a mix of resilience and strategic investment as Nigerian companies navigate a challenging economic landscape, demonstrating a commitment to growth and innovation despite prevailing uncertainties.

Findings have also shown that Asian companies are taking the place of some American and European companies that exited. A public policy analyst,  Magnus Onyibe said the exit of the foreign firms is not bad for the country as being portrayed, noting that many of the departing companies are already being replaced.

“Foreign companies have been stepping in to fill the void left by American and European companies? Asian companies. These include both Chinese and Indian corporations. Even Singaporean and Lebanese firms have presence in the list,” Onyibe stated.

Director General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has continued to emphasise that the exit of multinationals is a huge opportunity for homegrown industries to thrive with government support.

Ajayi-Kadir pointed out that apparent setbacks suffered due to the exit of the multinationals could be turned into an opportunity by placing the spotlight on homegrown manufacturers by the government empowering the domestic manufacturing sector.

He believes  that the exit  should send a clear signal to the government.

“We need to be strategic in what we promote. He is unlikely to go anywhere if you have a challenged local manufacturer. That is why we say foreign direct investment is excellent, but it should come secondary to empowering the local investor, the existing manufacturers, because that is what is enduring.”

Reiterating concerns about the future of the manufacturing sector in Nigeria, the MAN DG called for clear and decisive action from the government to prevent further exits and ensure the sector’s growth.

He advised that the government should also open new windows for manufacturers to source credit at rates that are not lower and that are not higher than five per cent. “These are very quick wins that the government can do that can lower the pressure that is upon the manufacturing sector.

“Manufacturing in any economy is a strategic choice and the government must decide if it wants the country to be industrialised. If so, it must take all necessary steps to remove the binding constraints that hinder the sector’s performance. Nigeria has not done so, so we see closures,” he added.

Emmanuel Abolo, Director General, The Economic Think-Tank Centre Limited noted that increase in the

FDI inflows reflects improved investor confidence driven by the government’s fiscal and monetary reforms.

“It has been widely reported that Nigeria’s FDI inflows rose sharply to US$3.4 billion in 2024Q1 from US$1.1 billion both in 2023Q1 and 2023Q4. The jump reflects improved investor confidence driven by the government’s fiscal and monetary reforms.

Abolo however, noted that the capital importation profile has remained skewed in favour of Foreign Portfolio Investment (FPI), signifying that the investment climate is anchored on investors’ appetite for short-term instruments.

He therefore advised that there must be structural shift and sustained improvement in overall macroeconomic stability to enable short-term investors reinvest their funds at a time when there are negative returns on investment. “There should also be renewed efforts to reverse the upward inflationary trend and improve FX liquidity from oil and non-oil exports.

“There is also the need for low-interest rates regime to reduce borrowing costs and making the country more attractive for investment.

“Focus should also be on increased infrastructural development; low debt profile; stable political environment/robust governance architecture; investment incentives such as tax breaks, subsidies, special economic zones (SEZs), and reduced bureaucracy for foreign investors; more bilateral and multilateral trade agreements; creation of business-friendly regulatory environment, including low levels of corruption  and streamlined business procedures and low levels of bureaucracy, faster business registration processes and fewer restrictions on foreign ownership.”

A manufacturer and a former chair of MAN, Frank Onyebu acknowledged that Nigerians are very resilient, adding that it is based on this ability of Nigerians to thrive in the midst of harsh operating environment that local  businesses are still functioning in spite of heavy odds weighing against them.

“It is an established fact that Nigerians are very resilient people.

There is a common saying that anyone who can successfully operate a business in Nigeria can operate a business anywhere in the world, based on the ability of Nigerians.”

He however noted that  there are limits to resilience.

“Most Nigerian businesses have gotten to their implosion point. Most businesses are just hanging on by the strings.

“The operating environment keeps getting harsher by the day. More taxes are being imposed without an improvement in infrastructure. It is tough even for the most resilient!”.

He urged the government to give the real sector its full support by massively developing infrastructure within the industrial areas while offering tax incentives to manufacturers to ensure their survival.

“These firms would not only offer employment to millions of jobless Nigerians but would be able to pay enough taxes in the future to grow our economy to unprecedented levels.”

An SMEs analyst, Daniel Dickson-Okezie noted that the expansion of local and foreign firms and the increase in FDI, was a good development but queried the confidence level, doubting if those investments could be sustained.

“What is the confidence level that the investments  will be sustained?

Because any form of economic improvement or economic growth is determined by the time factor.”

Dickson-Okezie viewed that until those factors that would encourage businesses; both local and foreign investors, are put in place, the move could be unreal.

“ Government needs to  create an enabling environment for investments to thrive, until that is done, I think the news of new investors, FDI and expansion of local firms could be a flash in the pan.”

“Yeah, it is good news to hear that there has been some improvement in foreign direct investments

and also that the sector seems to be enjoying about a 67.69% increase.

“Economic statistics are time-bound.”

He was bothered about the non improvement in the inflationary trend, employment, power, petroleum sector, security situation, seasonal flooding, noting that  the factors that are keeping  investors away are the same factors that have led to exits of  multinationals and close up of shop, including hundreds of SMEs.

“If we see improvement in these sectors and then there is a kind of positive economic status being brought out, then people will have confidence in the system that there will be a sustained growth. That is fundamental.”

He lamented that there was no visible  commitment on the part of government,  to solving these issues worsening the business environment.

He noted that  Nigerians are no longer interested in economic statistics;being churned but needed food on the table .

“What Nigerians are talking about is that there is so much hunger.

People are more interested in seeing that the prices of food items in particular come down.

“They are interested in seeing that the energy sector, electricity and petroleum sectors are functioning well.”