Exit of multinationals, death knell for local industry

The reported exit of multinational consumer goods manufacturer, Procter & Gamble (P&G), is the latest among multinational companies that are forced to wind down operations in the country, due to the harsh operational environment. They have lamented high production costs and unfair competition with importers of finished products. Sadly, that has been the trend since the return of democracy.

However, in the last six months, the woes for local manufacturers that are import-dependent for raw materials have tripled. The naira has lost tremendous value after the Federal Government adopted the floating policy to locate the real value of the naira in the Forex market, unaided by subsidies. For a country that does not earn enough foreign exchange, the Central Bank of Nigeria (CBN) is unable to meet manufacturers’ demands. Thus, there is a frustrating Forex crisis for manufacturers. Coupled with high costs of energy, haulage and sundry taxes imposed by different tiers of government, most operators are finding it difficult to sustain production. They are forced to scale down operations. For many, the survival strategy is to exit.

This, no doubt, is an unfortunate development for a government that has mounted vigorous campaigns to woo foreign investors into the country. It is ironic that at a time local operators are finding the economic environment too harsh to surmount, the government is asking new players to come on board.

The exit of P&G and others represent a major setback for the country and it must be addressed now. Owners of P&G announced they were putting a stop to their production lines after more than 30 years of operating in the country. The maker of sanitary items, detergent and toothpaste now plans to transit its Nigerian operations to an import-only model.

Industry watchers are rightly worried that the government is unable to resolve the challenges that make local production unprofitable. They lament the intensified competition from importers of finished products, massive job loss, increasing poverty, subsequent rising crime wave, dwindling consumers’ purchasing power and the inability of the government to deploy appropriate measures for the support of the local industry.

Procter and Gamble was reported to have invested $300 million to set up the sprawling plant in Agbara, Ogun State, in 2017. The company provided over 5,000 direct and indirect jobs at its factory, with support to over 200 SME services across the country. Touted as the largest single investment in a non-oil sector, P&G came with a lot of hope for the economy and for transfer of knowledge and skills. It has trained hundreds of technical hands and created hubs across its network of distributors. A lot of that will give way as it scales down to become a trading company.

Also, after more than 50 years of producing pharmaceutical and other consumer goods, the multinational company GlaxoSmithKline similarly announced plans to exit the country as a manufacturing concern. Sanofi, the French pharmaceutical multinational is also set to quit by February 2024. It announced the appointment of a third-party distributor to manage its commercial portfolio thenceforth.

In 10 months, the list of multinationals signifying to close production in Nigeria is on the increase. Unilever, maker of home care and skin cleansing products and Bolt Food delivery company are among those that are set to leave, citing similar operational challenges.

It must be noted by the government that capital looks for where returns are favourable and investments will only go to an environment that is conducive. These two ingredients are absent in Nigeria’s business environment of today. Government has also failed to maximize the competitive advantage it has of a vibrant and youthful and relatively inexpensive workforce, just as it failed to leverage a comparative advantage it enjoys in a good climate for cultivation of economic trees as a raw material base for the local industry. The textile companies are long gone, replaced by cheap textiles from other countries, particularly China. Gone are the jobs that attracted hundreds of workers to textile hubs in Kaduna, Ikeja and Isolo, Lagos and elsewhere.

The cost of doing business is discomfortingly high and there is no ease along the investment value chain for operators, from bottlenecks in business registration to frivolous and multiple taxes by Customs and other revenue generating agencies of government. Above all there is grave insecurity everywhere such that life and property are not safe. This is the time for the government to recalibrate the country as a business-friendly entity.

The Federal Government has always failed to incentivize local production. Instead, it uses tariffs to encourage importation, making the market disproportionately uneven for local investors. That was how Dunlop Nigeria Plc, that used to be the number one tyre maker was frustrated out of business. In 2006, the Federal Government reduced the tariff on imported tyres from 40 percent to 10 percent. Energy challenges of that era added to its horrors and Dunlop was forced to scale down operations, eventually winding down in 2008 when it came under the menacing weight of loans it procured for expansion.

The same thing happened to sister tyre manufacturer, Michelin, when the business environment caused it to stop production of tyres locally. It settled for marketing Michelin tyres produced in other countries.

For Nigeria, the implications of having multinationals close factories and becoming distributors and marketers are grave. It means loss of jobs at home and sustaining jobs for onshore companies and their countries. It means that technology transfer is put at risk because the proficiency that is to be developed over time is abandoned. It means being perpetually dependent on others.

This omen had lingered for years and now it is a full-blown economic disaster. This government must rise up and do things differently to halt jobs loss and death of the local industry. Six months into the Bola Tinubu administration has eroded the little confidence that sustained the economy. Let this government know that its honeymoon period is over. This is the time to declare an emergency in the manufacturing sector. This is the time to avert a simmering citizens’ vote of no confidence!