As United States and Europe-based multinationals exit Nigeria, Asian and local companies are stepping in to fill the void, Bloomberg reports.
Last week, London-based Diageo Plc sold its controlling stake in Guinness Nigeria Plc to Singapore’s Tolaram Group Inc.
The Fouani Group, a local firm, operates a diaper and sanitary pad plant in a complex where Cincinnati-based Procter & Gamble Co. shut down a $300million facility making the same products.
Lagos-based Fidson Healthcare Plc is expanding its manufacturing range after the UK’s GSK Plc closed its Nigerian distribution arm.
Turkish diaper-maker, Hayat Kimya AS, has also established itself in Nigeria.
Nigeria, with a population of more than 200million, is Africa’s most populous nation, in theory presenting a huge market for consumer goods.
But rampant unemployment, widespread poverty and insecurity, a plummeting currency, sky-high inflation and decades of economic mismanagement have turned it into a graveyard for multinational consumer goods companies.
The naira has swung wildly in recent months and is 56% down against the dollar over the past year, the most of any African currency.
That’s made it difficult for companies that import goods and service foreign debts to make a profit as they struggle to pass the necessary price increases to consumers.
And while the central bank has now cleared a $7 billion backlog that companies were seeking to repatriate the difficulty in doing so in recent years made many businesses unsustainable.
The gaps in the market left by the departing multinationals present an opportunity for domestic companies and foreign firms that focus on sourcing raw materials in Nigeria and manufacturing locally, thereby avoiding the currency risk that has hounded some foreign companies out.
And while the departures show just how unattractive the Nigerian consumer market has become they also highlight the success of strategies of companies such as Hayat and Tolaram, which have each turned their brands into household names.
For companies such as Tolaram, used to operating in challenging environments such as Indonesia, the answer has been to localize as many costs as possible.
That’s helped it turn Indomie instant noodles into one of Nigeria’s most popular brands, and led it into joint ventures with US cereal and snack maker Kellanova and Danish dairy giant, Arla Foods.
“Brands can’t continue to operate the way they’re used to. You need to adapt to the market accordingly,” said Girish Sharma, an executive director at Tolaram.
“There is hardly anything in Indomie that we import. We have our own flour milling, we have our own palm oil refining, we have our own packaging.”
Tolaram operates 24 “fully backwardly integrated” plants in Nigeria, meaning the company produces the raw materials they need, and is even setting up its own oil palm plantations, Sharma said in an earlier interview. GSK, by contrast, imported its products.
That doesn’t mean that local firms aren’t struggling.
“In theory, we think we can better manage the difficulties of doing business in Nigeria,” said Jide Ogundare, managing director of MBO Capital Management Ltd, which took over supermarkets run by Shoprite Holdings Ltd. when the South African company quit Nigeria in 2021. “In actual fact, we face the same challenges as the foreigners except that we can’t leave and go elsewhere.”
Still, despite the narrowing margins and reduced spending power, the weaker naira is making Nigerian manufacturing competitive.
“We’re exporting to some West African countries like Mali and to East Africa and our target is to export to another five to 10 countries by the end of next year,” said Imokha Ayebae, Fidson’s executive director.(SaharaReporters)
