Over the past decade, Nigeria has seen a significant exodus of multinational companies. These exits have raised concerns about the business climate in the country and its ability to attract and retain foreign investment. Understanding the reasons behind this trend and exploring potential solutions is crucial for economic stability and growth.
These companies are departing the Nigerian market from household names like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) to manufacturers like Kimberly-Clark. Though, some opted to transform to third-party model, leaving a trail of lost jobs, investment, and economic uncertainty.
This exodus is driven by a complex interplay of factors that make operations challenging. Obtaining foreign exchange (forex) is a significant hurdle for MNCs. The volatility in the exchange rate creates untold hardship for businesses. The lack of an easily accessible liquid forex market, where companies can easily buy and sell foreign currency at market rates, significantly hinders their operations.
This makes it hard for them to repatriate profits in dollars or euros, impacting their global bottom line. Finance Minister Wale Edun recently acknowledged this challenge stating "illiquid foreign exchange market" inherited from the previous administration which has been addressed is a major reason for MNC exits. Companies like P&G struggled to access dollars to import raw materials and repatriate profits, leading to their departure.
The depreciation of the Naira against major currencies like the US Dollar further compounds the forex woes. This erosion of value means that MNCs earn less in dollar terms for their sales, making their operations less profitable. The Naira has lost significant value against the Dollar. This and forex access issues likely played a role in many of these MNCs scaling back their operations.
Erratic and unreliable power supply is another chronic problem. Frequent outages disrupt production, increase reliance on expensive generators, and raise operational costs for MNCs. This lack of stable electricity makes it difficult to maintain efficient production lines and plan for the future. Manufacturers like Kimberly-Clark, which rely heavily on consistent power for production, might have found this energy situation untenable, leading to their exit.
Infrastructural impediments and bureaucracy bottlenecks are also a factor. No nation thrives better than its level of infrastructure. Poor road networks, congested ports, and inefficient logistics create bottlenecks that delay deliveries, increase costs, and disrupt supply chains. Additionally, complex bureaucratic procedures and regulatory hurdles add to the operational burden for MNCs. Companies that rely on efficient logistics for distribution might have found insufficient infrastructure and bureaucratic processes too cumbersome, impacting their ability to reach customers effectively.
Moreover, security concerns cast a shadow over stability. Rising crime rates and an insurgency and banditry in the northern part, create an unstable environment for businesses. This can deter investment, disrupt operations, and increase insurance costs for MNCs. While not explicitly stated as a reason for exiting MNC, the general security situation could be a contributing factor for some MNCs, especially those with a global security risk management strategy.
The underlying issues that make the business environment challenging must be addressed to stem the tide of MNC exits and attract new foreign investments. Reducing dependency on oil by diversifying the economy is crucial. Investing in agriculture, manufacturing, technology, and services can create more stable economic conditions. Government initiatives that support small and medium-sized enterprises (SMEs) and innovation can drive this diversification.
Improving foreign exchange policies is another key intervention. The CBN should adopt more flexible foreign exchange policies to ensure businesses can access foreign currency more easily. This could involve creating a more transparent and market-driven exchange rate system.
Streamlining regulations and ensuring consistency in policy implementation will reduce the uncertainty faced by businesses. The government should engage with the private sector to create a more business-friendly regulatory framework, simplifying processes and reducing bureaucratic red tape.
Improving national security is vital for creating a stable environment for businesses. This requires a multifaceted approach, including better funding and training for security forces, community engagement to address root causes of insecurity, and investments in technology for surveillance and intelligence.
Investing in infrastructure is essential. Public-private partnerships (PPPs) can be leveraged to develop critical infrastructure, such as roads, ports, electricity, and internet connectivity. Ensuring reliable power supply and improving logistics networks can significantly reduce operational costs for businesses.
The Presidential Fiscal Policy Reform and Tax Committee should consider incentives to reduce the cost of doing business. This could include tax breaks, subsidies for critical inputs, and support for technology adoption to improve efficiency. Additionally, creating special economic zones with favourable conditions for businesses can attract multinational companies.
Enhancing ease of doing business is also crucial. Implementing reforms to improve the ease of doing business is crucial. This includes simplifying business registration processes, improving access to credit, protecting minority investors, and enforcing contracts effectively. Some progress has been made in this area, as seen in the World Bank’s Ease of Doing Business rankings, but more needs to be done.
Promoting local partnerships is another viable intervention. Encouraging partnerships between multinationals and local businesses can enhance local capacity and ensure more sustainable investments. These partnerships can also help multinational companies navigate the local market more effectively.
Lastly, public relations and confidence building for Foreign Direct Investment (FDI). The government should actively engage in public relations campaigns to rebuild confidence among foreign investors. Highlighting successful stories of multinational companies thriving in Nigeria and showcasing the country’s potential can help change perceptions.
The exodus of MNCs from Nigeria is a worrying trend with significant economic repercussions. addressing these underlying issues and cautiously implementing measures to stem and reverse the trend, Nigeria can create a more attractive business environment. A stable and predictable operating environment with access to forex, reliable power, efficient infrastructure, and improved security will not only help in mitigating the trend but also attract new ones. This, in turn, will lead to increased investment, job creation, and economic growth, ensuring the "Giant of Africa" can retain its position as a leading destination for foreign investment in Africa.
Research & Advocacy Department,
Chartered Institute of Directors (CIoD), Nigeria
28, Cameron Road, Ikoyi, Lagos.