Directors institute blames FX crisis for exodus of multinationals

The Chartered Institute of Directors has expressed concern over the increasing departure of multinational companies from Nigeria, attributing forex issues, inadequate power supply, and inconsistent government policies as primary hindrances to national economic growth.

In a document titled “Position Paper on the Exodus of Multinationals from Nigeria,” the Director General/CEO of CIoD, Bamidele Alimi, disclosed the troubling trend of MNCs exiting Nigeria.

The document shared with PUNCH Online on Tuesday, sheds light on the challenges plaguing the country’s business environment.

Over the past decade, Nigeria has witnessed a significant exodus of multinational giants, including notable names like Procter & Gamble, GlaxoSmithKline, and manufacturers such as Kimberly-Clark.

This trend raises alarms about Nigeria’s capacity to attract and maintain foreign investments, underscoring the need to identify underlying causes and potential solutions.

“A major factor driving these departures is the difficulty in obtaining foreign exchange (forex).

“The volatility in the exchange rate has created substantial hardships for businesses.

“The lack of an easily accessible liquid forex market significantly hinders their operations and complicates profit repatriation in foreign currencies”, noted Alimi.

Finance Minister Wale Edun recently acknowledged the challenges posed by the illiquid forex market, attributing it as a major reason for MNC exits inherited from previous administrations.

Companies like P&G faced hurdles in accessing dollars for raw material imports and profit repatriation, contributing to their decisions to leave Nigeria.

The depreciation of the Naira against major currencies like the US Dollar further exacerbates forex issues, eroding earnings in dollar terms and diminishing operational profitability.

“The Naira’s significant depreciation against the Dollar, coupled with forex access challenges, likely influenced many MNCs to scale back operations,” explained Alimi.

The CIoD official noted another ‘chronic’ issue impacting MNCs is Nigeria’s erratic and unreliable power supply.

Alimi said, “Frequent outages disrupt production, increase reliance on expensive generators, and escalate operational costs. For manufacturers like Kimberly-Clark, dependent on consistent power for operations, the energy instability became untenable, prompting their exit.

“Inadequate infrastructure and bureaucratic bottlenecks also contribute significantly to the exodus. Poor road networks, congested ports, and inefficient logistics delay deliveries and inflate costs.

“Complex bureaucratic procedures and regulatory hurdles further burden MNC operations, making efficient logistics and distribution challenging.”

Security concerns add to the unfavourable business climate. Rising crime rates, insurgency, and banditry in northern Nigeria create instability, potentially deterring investment and raising operational risks and costs for MNCs.

To address these challenges, CIoD proposes several recommendations.

Alimi stressed the importance of economic diversification away from oil dependency, advocating for investments in agriculture, manufacturing, technology, and services to stabilize economic conditions.

“Improving forex policies is crucial,” he noted. “The CBN should adopt more flexible policies to ease foreign currency access for businesses.”

Streamlining regulations and ensuring policy consistency are also imperative.

“The government should collaborate with the private sector to create a more business-friendly regulatory environment. Additionally, incentives like tax breaks, subsidies, and support for technology adoption can reduce the cost of doing business and attract MNCs to special economic zones,” Alimi advised.

The exodus of MNCs from Nigeria, Alimi added underscores critical economic challenges that require immediate attention and reform.

“By addressing these issues and implementing effective solutions, Nigeria can enhance its attractiveness for foreign investment, spur economic growth, and ensure sustainable development.”