The economy and exodus of firms

The unchecked exodus of foreign firms from the country will likely vitiate the government’s vision of enhanced Gross Domestic Product (GDP). The reduced involvement of foreign firms in Nigeria’s equities market has equally worsened the matter. Consequently, the nation’s economy lost a whopping N95trillion in the last five years as a result of the exit of these firms. As a result of this development, the federal government’s dream of having $1trillion GDP economy in 2026 and $3trillion in 2030 will be a mirage.
In 2022, Nigeria’s economy was $477.4billion in real GDP terms. Latest data from the International Monetary Fund’s (IMF) global economic outlook shows that South Africa is on the track to reclaim Africa’s biggest economy by the end of 2024.  This is the first time in 34 years that Nigeria has piled up negative foreign direct investment (FDI). This is not good for Nigeria, currently ranked as Africa’s biggest economy.
The foreign firms that left the country included GlaxoSmithkline, Sanofi Aventi,  Unilever Nigeria Plc, PZ Cussons, Proctor & Gamble (P&G), and  Equinox Energies. Few weeks ago, Diageo, a UK-based owner of iconic Guinness brand became the latest multinational to divest its shareholding in the country. The company sold 58 per cent of its shareholding to Tolaram, another foreign firm. The exit of foreign firms from Nigeria has dire consequences.
The economy has lost about 60,000 direct and indirect jobs. In March, 2023, Unilever announced the shutting down of its plants across the country.  Also, in August, 2023, GSK Plc, disclosed plans to stop its operations in Nigeria after 51 years. The company said all its prescription medicines and vaccines in the country would be contracted to a third-party distributorship. And in September, 2023, PZ Cussons announced plans to delist from Nigerian Stock Exchange (NSE).
The firms listed unfriendly business environment, foreign exchange shortage, insecurity, power supply crisis, exorbitant energy costs, multiple taxation, high inflationary rate, uncertainty in government policies as reasons for leaving the country. Prices of essential drugs have skyrocketed due to the exit of the foreign pharmaceutical firms.
No doubt, the exit of these firms is seriously affecting the manufacturing sector, which is currently struggling with growth because of high cost of doing business that led the sector to borrow N1.8trillion from banks in the first half of 2023. The sector expanded by only 0.5 per cent in the first three quarters of 2023, relative to 1.9 per cent contraction recorded in the corresponding period of 2022. Similarly, the oil and gas sector suffered prolonged contraction since 2020. Beyond that, the weak inflow of capital has led to a shortage in FX inflow, and by extension, further exchange rate depreciation.
Following the exit of the foreign firms, Nigeria’s foreign investment inflows fell by 26.7 per cent to $3.9billion in 2023 from $5.3billion in 2022. The decline was majorly caused by the consecutive drop in foreign investment inflows in the first three quarters of 2023 and first quarter 2024 due to unfavourable business environment and rising production costs.
The removal of petrol subsidy and FX harmonisation did not rekindle foreign and domestic investors’ confidence in the economy. Moreover, the increase in capital importation in Q4, 2022 was due to the surge in Foreign Direct Investment (FDI) totaling $184 million in Q4 2023.  However, this fell sharply by 19.4 per cent to $377.4million in 2023 from $468million in 2022.  This is caused by the massive divestment of foreign firms’ shareholding in Nigeria. Meanwhile, the GDP growth of the manufacturing sector in the Q1 2024 was only 8.21 per cent (year-on-year).
Sadly, the country’s ease of doing business has not recorded significant improvement. This and other challenges have discouraged local and foreign investors. Let the government begin to urgently address these challenges responsible for the exodus of foreign firms from the country. Issues that must be addressed include the lingering FX scarcity, poor power supply, port congestion, multiple taxation, insecurity and poor infrastructure. The high cost of FX is partly responsible for pushing the inflation rate for the month of May to 33.95 per cent.
The ease of doing business must be improved to attract foreign investors. Government should make Nigeria’s macro-economic policies predictable. There is urgent need to stabilise the value of the naira, and ensure the availability of FX for businesses, particularly those operating in dollar-denominated environment. The United Nations Conference on Trade and Development (UNCTAD) reported that Foreign Direct Investment to Nigeria turned negative (-$187 million) in 2022 for the first time in 33 years.
The last time Nigeria’s economy grew above $500 million was in 2014 with a GDP of $574billion. This is not encouraging for a country that wants to be among the big league economies in the world. Currently, Nigeria is ranked 31 among major economies in the world. It may lose its position as the fastest growing economy by GDP in Africa. The government should initiate reforms that will attract foreign investments.

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