More multinational firms set to quit Nigeria, forced by harsh business environment
By Jeph Ajobaju, Chief Copy Editor
Harsh business conditions that Bola Tinubu is yet to eliminate despite his media headlines may force more multinational firms in the Fast Moving Consumer Goods (FMCG) sector quit the country in 2024, warns CardinalStone.
The number will add to the at least 15 foreign companies which exited Africa’s largest economy in the three years to 2023.
A new report by CardinalStone, a financial solutions firm, warned high operating costs will persist for FMCG operators and drive them out of the country unless urgent steps are taken to tackle unstable power supply, multiple taxation, corruption, a lack of foreign exchange (forex), and other malaise in the economy.
The report, titled “Strategic Resilience: Sailing Through Business Disruptions”, said the FMCG sector remains heavily exposed to changes in commodity prices, exchange rates, import and clearing duties, and freight costs.
It stressed FMCGs may not benefit from moderation in global commodity prices because of significant depreciation of the naira which weakened from N422.00/$ in June 2023 to N951.94/$ in December 2023 after the Central Bank of Nigeria (CBN) floated the exchange rate.
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Volatile exchange rate troubles
The CBN floated forex rate in June 2023 to bridge the gap between the official rate and the parallel or black market rate to address forex scarcity.
“In 2024, we expect companies to continue to re-imagine their operational strategies to achieve cost efficiency,” the report said.
“We also see legroom for more collaboration between FMCGs to boost economies of scale, product portfolio diversification, revenue and cost synergies, technological innovations, and financial power of the resultant entity.
“The alternative path may eventually degenerate to exit from the operating environment or high-cost segments, similar to the cases with Procter and Gamble, GSK, Pernord Ricord, and Unilever.”
A weaker currency could spike diesel costs, CardinalStone reiterated, as happened in the first half of 2023 (H1 2023) when diesel prices soared to a new high of N1,004.98 per litre in H2 2023.
The report speculated the drag from higher energy costs to extend into 2024, barring a shock naira appreciation.
“Similarly, borrowings could be elevated on the combined impact of dollar-denominated debts that could spike when translated to naira and the surge in naira values of operating and machinery costs that are targeted to be funded with foreign currencies.
“The knock-on effect of these changes could translate to an increase in effective interest rates.”
