Procter & Gamble (P&G) announced Tuesday that it had to stop manufacturing in Nigeria. The US consumer goods powerhouse will discontinue manufacturing in Nigeria and pivot to import-only activity. “It’s also difficult to operate because of the macroeconomic environment,” it said
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The move adds to the woes of multinational operations in Nigeria, where foreign companies especially manufacturers and energy firms have been exiting in droves, most citing the current foreign exchange crunch and devaluation of the naira, which means lower earnings for foreign companies in dollar terms.
In March, Unilever announced an end to the production of its homecare and skin-cleansing products in the country because those categories are “margin dilutive” and the decision needed to be taken to make its Nigerian operation profitable.
“The impact of the market on the company’s overall net worth is due to two key factors – intensified competition within the industry and a declining consumer purchasing power,” Muda Yusuf, chief operating officer of the Centre for the Promotion of Private Enterprise (CPPE), told BusinessDay on Wednesday.
He added that the recent devaluation of the naira poses significant challenges for any business with substantial foreign exchange exposure, highlighting the current reality of the Nigerian market.
“Businesses with foreign exchange exposure are struggling.
Kalu Aja, a certified finance coach, said on X that if this reality continues, there will be no Small and Medium Scale Enterprises (SMEs) left in Nigeria and the amount of job loss will be exponential.
“As I keep saying, imports into Nigeria are cheaper. The economic implications are worse than an atomic bomb.”
On Wednesday, P&G which has been operating in the country for more than 30 years, said it plans to transit the Nigerian operations to an import-only model, effectively dissolving its on-ground presence in the country based on unfavourable macroeconomic conditions.
“We’ve announced that we will turn Nigeria into an import-only market, effectively dissolving our footprint on the ground in Nigeria and reverting to an import-only model,” Andre Schulten, chief financial officer at P&G said.
He added that the other reality that arises in some of these markets is that it gets increasingly difficult to operate and create U.S. dollar value. “So, when you think about places like Nigeria and Argentina, it is difficult for us to operate because of the macroeconomic environment.”
The firm, makers of Always, Ariel soap, and Oral B toothpaste has invested millions of dollars in the manufacturing sector. The biggest of such investment was the completion of the ultra-modern $300 million plant at Agbara, Ogun State in 2017.
During the 2017 plant launch, it provided over 5,000 jobs directly and indirectly through its offices, suppliers and distributors and created over 200 SME jobs.
However, one year later, it shut down the plant, citing restructuring of operations as its main reason. The plant was arguably the largest single investment by a non-oil firm in Nigeria and was expected to boost job creation and help improve the socio-economic state of its host community.
Schulten of P&G noted that Nigeria is a $50 million net sales business compared to its overall portfolio worth $85 billion, the company does not anticipate any material impact on the group’s balance sheet from a sales or profitability standpoint.
This development saddened a source familiar with the company. The source said another tragic example of opportunities has been missed.
“Approximately 14 years ago, or possibly earlier, the company had actively sought engagement with NNPC on Nigeria’s gas master plan during Jonathan and Deziani’s tenure as petroleum minister.”
The source added that P&G aimed to co-invest $2 billion with their raw material suppliers, gas converters. “The goal was to produce essential materials for their manufacturing plants, leading to the creation of numerous well-paying jobs. The plan envisioned exporting these raw materials to P&G plants in Africa and selected parts of the Middle East, however, it never saw daylight.”
According to Eke Urum, founder of RiseVest, the exit is an effect of embracing exchange rate reality.
“It’s going to be a rough two years but local manufacturing is cooking. It’s too small for P&G (their Nigerian business is $50 million out of $85 billion). But for local guys this is meaningful,” he said on X.
