There is a concerning trend of multinational corporations (MNCs) leaving Nigeria. Due to the substantial economic effects of this migration, stakeholders, economists, and policymakers are looking for ways to stop this trend.
Companies like Procter & Gamble (P&G), Unilever, GlaxoSmithKline, and Kimberly-Clark have left Nigeria, highlighting the effects of MNCs leaving Nigeria one after the other. Less than three years after making a $100 million investment, Kimberly-Clark’s departure caused the availability of necessary sanitary products to be impacted and led to the loss of about 10,000 direct and indirect jobs.
This phenomenon has cost Nigeria almost N95 trillion in losses during the last five years. In order to resolve the issues and win back investor trust, it is essential to comprehend the fundamental causes of these departures.
Environments with predictable, stable, and transparent regulatory frameworks are favorable to multinational corporations. But in Nigeria, an atmosphere of ambiguity has been brought about by frequent policy changes and uneven enforcement. Abrupt policy changes, such new tax legislation, import limits, or foreign exchange controls, make it difficult for businesses to plan long-term investments.
But the falling purchasing power of Nigerian consumers is a major reason in the international corporations’ departure.
Low consumer disposable income due to high rates of inflation, unemployment, and poverty means lower sales volumes and lower profitability for multinational corporations, particularly those in the consumer goods sector, according to Dr. Emeka Okngwu, chief executive of AntHill Concepts Limited.
Economic Associates’ CEO, Dr. Ayo Teriba, told this media that it’s crucial to remember that a large number of businesses that are leaving Nigeria are also leaving other areas. He added that if they were exclusively leaving Nigeria and not other nations, we would investigate the causes behind their departure that were unique to Nigeria.
Strategic risks, he added, are another story. He mentioned how technology changes, like solar energy taking the place of other energy sources, can force organizations to abandon particular industries.
The Center for the Promotion of Private Enterprise’s (CPPE) chief executive, Dr. Muda Yusuf, added that Nigerians’ purchasing power has significantly declined in recent years. According to him, this has caused a shift in the market where local businesses are adapting by providing more reasonably priced products, while international corporations are finding it difficult to hold onto market share with their luxury brands.
He pointed out that because fluctuating currencies make planning very difficult, foreign investors are wary of them. “They are not accustomed to the unstable environment like what it is in many African countries; it’s not just Nigeria; they are leaving other African countries,” he added. “They have their standards about how they operate.”
He claimed that MNCs do not always find it simple to operate in developing economies. You’ll see that, in contrast to MNCs, local Africans, Chinese, and Indians are able to deal with the unique difficulties faced by emerging nations.
The other problem is that multinational corporations have highly rigid business structures and business strategies that follow global norms. Because they have their global standards, it is therefore frequently very difficult for them when circumstances demand for some flexibility in their business strategies.
Take a look at the decline in purchasing power over the last year or two, for instance. Nigerians’ purchasing power has drastically decreased. Therefore, while some other businesses are adapting and masking their product fragmentation—such as sachetization—in an effort to lower themselves to the level of the consumer, the multinational corporations are not set up to do that; instead, they keep their brands, many of which are premium brands. It is challenging for MNCs to compete when things like that exist.
Consider the product Ariel, made by Procter and Gamble. Brand Ariel is high-end. However, fewer Nigerians can now buy it than in the past because to Ariel’s declining purchasing power. They have lost market share as a result of numerous other brands entering the market as a result of that. Elephant and Omo are in the same boat. There isn’t a scarcity of detergent if you visit the store today. All that needs to be considered is competition strategy and how to modify business models to fit the present competitive environment.
Many multinationals lack the patience to adopt the varied approaches needed in the contemporary business environment.
That’s not to imply there aren’t any other obstacles; rather, what matters is how you handle them when they arise. The locals’ approach is to figure out how to overcome the difficulties, especially in areas where people are departing, while the multinationals simply pack up and go, according to Dr. Yusuf.
Dr. Emeka Okengwu emphasised that the reason for the departure is not just currency exchange problems but also a lack of consumer demand for the products these companies manufacture. MNCs are not achieving their returns on investment because of the absence of purchasing power. Other harsh aspects of the business environment, like inadequate infrastructure for storage and transportation, exacerbate this difficulty even more.
He pointed out that local businesses that are more knowledgeable about consumer preferences and market dynamics present fierce competition for global corporations in particular industries. He emphasized that smaller businesses can operate with fewer overhead expenses and are frequently more nimble, which makes it challenging for international corporations to effectively compete.
Moses Igbrude, the president of the Independent Shareholders Association, for his part, pleaded with the government to give naira stabilization and enough foreign exchange availability first priority in order to support MNCs’ commercial operations. Additionally, he stated that making investments in strong infrastructure, especially in the electricity industry, can lower operating costs and enhance the business climate.
Igbrude continued, “Building confidence and encouraging long-term investments can be achieved through the establishment of clear, consistent, and favorable policies for foreign investors.”
