Averting Exit Of Multinational Firms From Nigeria

No doubt, some multinational companies (MNCs) have left Nigeria to seek business asylum elsewhere, the ripple effect of this decision is strangulating some small and medium enterprises (SMEs) in Nigeria who do outsourcing and contractual activities for these multinationals in a bid to drive local content, backward and forward integration while strengthening the distribution of supply chain management system across production centres.

Over the past decade, Nigeria has seen a significant exit of multinational companies (MNCs). These exits have raised concerns about the business climate in the country in crucial times where multinational firms and big consortium companies are finding it difficult to repatriate profits and dividends on dollar denominated assets to retain foreign direct investment inflows.

Undeniably, the exit of multinational corporations from the Nigerian market has raised several criticisms among industry watchers and sectoral groups even as they expressed fears about the trail of lost jobs, deactivation of factories, mothballing of industry, decline of household brands amidst economic uncertainty.

Notable brands from household names like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) to manufacturers of Huggies like Kimberly-Clark have, in recent times, exited and opted out from the country’s manufacturing landscape, leaving behind a trail of lost jobs.

Economic watchers and analyst have also said that the exit of multinationals was driven by a complex interplay of factors that bothers on bad politics, lack of liquidity in foreign exchange, high inflation rate, subsidy removal, market volatility, dollar fluctuations, depreciation of Naira, untold hardship on business and erratic power supply which cast shadow on FDI drive and Multinational investment, issues they said must be addressed to avert future occurrence.

Impact of MNCs Exit On SMEs

Speaking on this, national president of Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola said, the exit of multinationals could potentially hurt the SMEs operating in the country, adding that, government must take urgent steps to stop the exit of the transnational companies.

According to Egbesola, SMEs provide backward, forward integration services, and also provide outsourcing and subcontracting activities to large international corporations.

Egbesola noted that the SMEs creates a common market for MNCs players through outsourcing and subcontracting of activities between them and the larger corporations noting that, the interconnectivity of foreign firms with SMEs brings them together for practical integration.

Immediately the MNCs fold up and leave the country, he said, the SMEs also feel the impact, hence leaving them with a trail of lost jobs.

“MNCs have a large workforce of 6,000 to 10,000 workforce in their production centres, they also come with technological transfer of equipment and machines, so, the exit of Multinationals will see that their technology go away with them.

“When these multinationals take their exit, the revenue the government generates from them in terms of taxes will no longer be there when they stop doing business and this sends a signal to expatriates and international bodies that Nigeria is not a destination point to do business,” he stressed.

Egbesola suggested that the government should make the economy stable and address ease of doing business by providing intervention programmes for manufacturers and indigenous companies to support them from leaving the country.

He also urged the government to rejig economic policy holistically to see those to remove and reform to make the economy stable for business, to attract FDIs.

Addressing Forex Crisis

Speaking in a telephone conversation, managing director of Cowry Asset Management company, Johnson Chukwu explained that, a combination of foreign exchange crisis, unstable exchange rate had negatively impacted foreign investors’ sentiment to further participate in multinational investment drives in the country.

He noted that, repatriation of dividends hurts multinational companies on dollar denominated investment, adding that, MNCs exit was caused by difficulty to repatriate dividends, and access forex to meet import obligations.

He alluded that dollar denominated investment from multinational companies are finding it hard to create value in the market, hence, making it impossible for investors to repatriate dividends, access FX to meet import obligations. He blamed the combination of FX liquidity crisis and instability of the Nigeria foreign exchange market as the underlying causes of the downward trajectory.

On the other hand, the director-general and the chief executive officer of the Chartered institute of Directors (CioD),  Alimi Bamidele said the depreciation of the Naira against major currencies like the US Dollar further compounds the forex market woes, adding that, this makes it hard for them to repatriate profits and dividends in dollars, euros or pounds, which impacts their bottom line in the global business trade.

Going forward, Alimi urged the government to address the underlying issues and cautiously implement measures to stem and reverse the trend, so that Nigeria can create a more attractive business environment.

The institute advised that the underlying issues that make the business environment challenging must be addressed to stem the tide of multinationals exits and attract new foreign investments. To this end, he called for diversification of the economy; To him, reducing dependency on oil by diversifying the economy is crucial.

Investing in agriculture, manufacturing, technology and services can create more stable economic conditions. Government initiatives that support small and medium-sized enterprises (SMEs) and innovation can drive this diversification, he stressed.

Other remedies Alimi proffered are: “Improvement in FOREX Policies, Regulation & Policy Consistency; Improving Internal Security, Improvement in Infrastructure, Policy Reforms, Enhancing ease of doing business, Promoting Local Partnership, Confidence Boosting for the Nigerian Economy among others.”

Volatile Business Operating Environment

Speaking on this, chief executive of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf stated that the purchasing power of Nigerians has become extremely weak over the past few years.

This, he said, has led to a market shift where local companies adapt by offering more affordable products, while multinational companies, with their premium brands, struggle to maintain market share.

He noted that foreign investors are averse to unstable currencies because it makes it extremely difficult for them to plan. “They have their standards about how they operate; they are not used to the volatile environment like what it is in many African countries; it’s not only Nigeria, they are also leaving other African countries,” he said.

On his part, former chairman, Manufacturers Association of Nigeria (MAN), Frank Onyebu said, there was no need pretending that the exit of multinationals has not jolted the Nigerian economy because the impact has been enormous.

Recommendations

Director general of Chartered Institute of Directors(CIoD), Dr. Alimi Bamidele also stressed the need for streamlining regulations and ensuring consistency in policy implementation adding that this will reduce the uncertainty faced by businesses.

The government, he added, should engage with the private sector to create a more business-friendly regulatory framework, simplifying processes and reducing bureaucratic red tape by improving internal security and improving national security is vital for creating a stable environment for businesses.

This requires a multifaceted approach, including better funding and training for security forces, community engagement to address root causes of insecurity, and investments in technology for surveillance and intelligence, he said.

While stakeholders charged the Presidential Fiscal Policy Reform and Tax Committee to consider incentives to reduce the cost of doing business, they added that, this could include tax breaks, subsidies for critical inputs, and support for technology adoption to improve efficiency.

Additionally, they noted that creating special economic zones with favourable conditions for businesses can attract multinational companies, even as enhancing ease of doing business is also crucial.

To them, implementing reforms to improve the ease of doing business is crucial and such reforms include; simplifying business registration processes, improving access to credit, protecting minority investors, and enforcing contracts effectively.