Decline of real sector performance and exit of firms 

The decline in the country’s real sector performance as reported in the 2024 third-quarter gross domestic product (GDP) publication of the National Bureau of Statistics (NBS) did not come as a surprise to many Nigerians, given the overall increase in the cost of living, high inflation and reduced purchasing power of the average Nigerian. It remains important for the current administration to generate policies targeted at addressing the decline in the sector, to improve the welfare and living standards of Nigerians.

The government has at different times claimed that its current reforms will stimulate the economy in the future. This appears hard to comprehend given the escalating current economic difficulties. Mr Ajayi-Kadir’s analysis further indicates that the nominal growth rate of the sector has dropped, that inflation has been a big challenge to the sector and that the import duty used to bring in imported inputs has skyrocketed beyond the reach of many manufacturers. These are partly responsible for the exit of many firms in the country’s economic landscape. 
  
One of the latest exits is that of the Swiss cement and other building materials maker, Holcim which offloaded about 84% of its stake in Lafarge Africa to China’s Huaxin Cement in a deal valued at $1 billion. While this is a transfer of shareholding and change of ownership of the business, it nonetheless has implications for the level of business confidence potential investors would have in the Nigerian economy.

Globally, investors cherish a conducive business climate in making their investment decisions and thus when firms are exiting an economy for whatever reasons, it sends negative signals to various stakeholders as to the attractiveness or otherwise of the economy in question. The spate of exits of multinationals from the Nigerian business landscape in the past few years is not encouraging.
  
Holcim’s reason for the exit from the Nigerian economy is that it is “streamlining its portfolio and focusing on high-growth regions” appears both instructive as well as passive. It is instructive in the sense that it indicated that, in its estimation, Nigeria is currently not one of its growth countries hence the need to look elsewhere. This is a company which has sustained its investments in the country in cement production since 1959 through the West African Portland Cement Company (WAPCO) as a joint venture between the Western regional government, Blue Circle and United Africa Company of Nigeria (UACN).

This is a company that has grown to have four plants in Nigeria, across Sagamu and Ewekoro in Ogun State, Ashaka in Gombe State and Mfamosing in Cross River State with a combined installed cement production capacity of about 10.5 million tonnes per annum. Is it now that it has realised that there are other high-growth regions, aside from Nigeria or is it an indication that the Nigerian business landscape has been deteriorating over the years that a once lucrative business environment has suddenly become unattractive? This is a clear challenge, even indictment to the country’s political leaders over the years especially in the past ten years when this spate of exit of multinationals from Nigeria became recurring and consequently damaging to the growth of the Nigerian economy.
  
The evaluation of the business profile of Huaxin, the Chinese new buyer of the Lafarge brand, appears illuminating. The bulk of its operations have been in China with about 116 years of operations and rated as one of the top ten manufacturing firms in China. Chinese companies in various sectors are known to prefer their workforce to come mainly from China with its consequent negative implications for local employment in Nigeria whenever the purchase deal is approved and finalised by the regulatory authorities in Nigeria.

This looming transfer of ownership from Holcim to Huaxin will be with its consequences for the manufacturing sector. It can never be the same as similar transfers and exits of firms in the past have indicated. There is usually initial inertia in the commencement of operations and the understanding of the local operating environment, which may have repercussions on supply and prices, in the face of rising demand.
  
These frequent changes in the ownership of firms in Nigeria are not considered a very good thing for an economy that is seeking foreign direct investment and struggling with the implementation of its policy reforms.
  
A way out of this quagmire is that the recommendations by Mr Ajayi-Kadir on how to salvage the decline of the real sector may need to be considered seriously by the authorities. First, there may be a need for a review of the import duty rates for production inputs which are not locally available at a rate significantly less than the official naira-dollar exchange rate, possibly less than N1000 to one U.S. dollar.

There is a need for government to prioritise budgetary allocation for infrastructural development and in addition encourage public-private partnerships for the development of these much-needed infrastructures in the country, in the support of the growth of the real sector. Also, there is a need to encourage the growth of the agricultural sector for the supply of local inputs for industrial production. In this vein, the administration needs to address the issue of insecurity in the country since it has implications for local productions in the country.