What will the mass exodus of companies mean for Africa’s second largest economy?

Nigeria, as Africa’s largest economy, is currently grappling with a significant devaluation of its currency, the Naira. As of Thursday, the local currency was trading at N1, 600 to the US dollar. The sharp decline in the value of the Naira has prompted numerous corporations to either relocate from the country or consider doing so.

How will this turn of events affect the West African country economically?

The facts

The mass exodus of businesses in Nigeria can be attributed to the scarcity of dollars by international businesses who need to repatriate their earnings.

Nigeria’s central bank has in the last eight months been struggling to clear a backlog of the demand of the dollar that companies need to either pay their debts or boost their operations. In 2023, companies such as Unilever PLC and JSK PLC had to stop producing in the country. Not only is the devaluation of the naira hurting businesses but the lack of reliable electricity supply coupled with congestion at Nigeria’s main ports is making matters worse.

Since taking office in May 2023, President Bola Tinubu’s quest to revive the once vibrant Nigerian economy was met with unpopular policies which he deemed were necessary in revamping the economy. President Tinubu faces a significant challenge in persuading major multinational corporations to maintain their operations within the country.

The arguments

In February PZ Cussons maker of personal care products had to slash its profit expectations for its whole group. On the other hand, Cadbury Nigeria PLC had to convert loans into equity from its UK parent company as it could not provide the needed foreign currency to repay.

Businesses are now skeptical of continuing their operations in Nigeria due to the development. For instance, distributors have had to either sell their trucks, completely shut down, or reduced the number of trips they embark on.

Furthermore, after enduring two recessions within the span of eight years, Nigeria, with a population of 230 million, now has over 100 million citizens living in multidimensional poverty, struggling to afford basic necessities.

Chief Financial Officer of P&G Andre Schulten said “it’s very difficult for a US dollar-denominated company to create value and it is also difficult to operate because of the macroeconomic conditions”.

Companies are not the only casualties of this economic disarray as ordinary Nigerians have been severely impacted by the ongoing economic crisis. As notable companies cease operations, reports say more than 6000 people face losing their jobs. Citizens have expressed dissatisfaction with the government’s handling of the crisis, urging swift action to address the situation.

The government of Nigeria believes that indigenous firms can step in in case of further exodus by these cooperate bodies yet Nigeria’s capital markets are already causing misery for investors and ordinary people. This has dwindled the popularity of the Tinubu government which took over in May last year.

President of the Manufacturers Association of Nigeria, Francis Meshioye, said the ‘harsh business environment’ is the reason for the mass withdrawals.

Meshioye cautioned that this trend is likely to persist, as not every business is equipped to weather such economic “turmoil”. He further adviced the government to be inclusive by engaging manufacturers on the way forward.