Fund Repatriation Hiccups: More Multinationals May Leave Nigeria

Stakeholders have called on the federal government to address the scarcity of foreign exchange (forex) and heavy tax burdens to stem the exit of multinational companies from the country.

This is coming as strong indications have emerged that more multinationals may leave Nigeria as the forex market crisis is crippling their efforts to repatriate money into their respective countries of origin.
In recent years, Nigeria has witnessed a concerning trend of multinational companies exiting the country due to various economic challenges.

Recall that the Minister of Finance, Wale Edun, had acknowledged that the lack of a liquid forex market was a major reason why some multinationals left Nigeria. He’d stated that the government has established a willing buyer, willing seller forex market to improve the investment climate.
However, stakeholders argue that more needs to be done

LEADERSHIP Sunday learnt that the scarcity of ‘hard currencies,’ especially, dollars in the nation’s foreign exchange market is a major concern for multinationals operating in the country and it’s one of the issues while some international firms left Nigeria in recent times.

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 will also have broader implications for the local economy and would contribute to the trend of foreign companies divesting from Nigeria due to high operational costs and economic challenges which could lead to a decline in foreign direct investment, which is crucial for Nigeria’s economic growth and development.

The exodus departure of multinational companies 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, among others.

Notable brands from household names like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) to manufacturers of Huggies like Kimberly-Clark have exited and opted out from the nation’s manufacturing landscape with economic watchers and analysts linking the exit of Multinationals to a complex interplay of factors that bothers on bad politics, lack of liquidity in Fx, 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 investments.

Speaking on this development, 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 foreign exchange to meet import obligations.

He alluded that dollar-denominated investments 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.

Speaking on the repatriation of dividends, FX instability and illiquidity, Johnson Chukwu remarked that: “The main factor that drives foreign direct inflow into the economy is the liquidity in the FX market. Foreign investors want to be able to convert back to their foreign currencies when they want to exit. If there is no liquidity in the FX market, foreign portfolio investors stay away from the market.

“As you know, the Nigeria FX market witnessed locking of foreign portfolio investors who sold their investments and wanted to exit, but they could not access FX to exit. So because those people couldn’t exit, new investors couldn’t come in. You can’t really go into a market when people are trapped.”

On his part, 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.

He acknowledged the ‘illiquidity of the foreign exchange market’ inherited from the previous administration as the major reasons behind MNC exits.

He said, this erosion of value means that multinational companies earn less sales from their dollar denominated assets making their operations less profitable as the Naira has lost significant value against the Dollar.

Adducing further reasons for the exit, the CIoD boss reeled out the challenges bedevilling businesses in the country to include the hurdles involved in obtaining foreign exchange (forex); depreciation of the Naira against major currencies like the US Dollar, Erratic and unreliable power supply, Infrastructural impediments and bureaucracy bottlenecks, security concerns which cast a shadow over stability, among others.

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.

He noted that companies like P&G struggled to access dollars to import raw materials and repatriate profits, leading to their departure.

Also speaking, director, Centre for Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf said, exit of multinationals from the Nigerian economy remains a cause for concern because of the implications that the exit has in terms of employment, especially, those directly employed by the companies, implications for their suppliers, their service providers, their logistics providers and so on.

Buttressing on the import dependent companies, he said, ‘with what has happened with our exchange rates, the depreciation of our currency in particular, companies that have high currency exposure are some of the biggest casualties of what happened in the forex market.’

On the business side, the national president of Association of Small Business Owners of Nigeria, (ASBON) Dr. Femi Egbesola stressed that the introduction of new taxes has virtually challenged every business, adding that some of these multinationals work with plans and projection.

ASBON boss noted that the multinationals are here to make profits and repatriate the profits to their mother country even as he stressed that it’s difficult for them to repatriate the profits with the current exchange rate system.

According to Egbesola, the new government policy allows 50 per cent repatriation of profits by multinational firms to their own countries because of unavailability of dollar which, he said, has become a big challenge for big multinationals players.

He maintained that the exit of multinational companies will cause a negative downward trend to small and Midsize businesses who rely on them along the value chain of supplies and production centres to create their own value chain.

He also urged the government to rejig economic policies holistically to see the one’s to remove and reform to make the economy stable for business, to attract FDIs.

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.

“When we talk about costs, we are referring to losses in investments, losses in dividends to shareholders, losses in government revenue, losses in employment, losses to GDP, etc. We are talking about losses running into trillions of Naira. In terms of losses in employment, we are talking about a figure above 100,000 direct and indirect jobs,” he pointed out.