Currency crisis pushes consumer groups from Nigeria


Many consumer groups on the front line of the global cost of living crisis have assured shoppers that the relentless price increases of the past few years will taper as global inflation cools. But for consumers in Nigeria there is little relief in sight.

Nigerian Breweries, which is part-owned by Heineken, has increased prices three times so far this year. So dire is the economic distress in Africa’s most populous nation that the brewer’s chief executive, Hans Essaadi, complained on an investor call that customers can no longer afford Goldberg, a cheap and well-loved lager.

Some customers, like Ayo Ajanaku, have started cutting down their consumption in response. “My consumption is now well thought out — it’s no longer based on spontaneous decisions,” the communications consultant said.

The surging prices are a symptom of an economic malaise in the country that appears to have no end.

A long-running shortage of foreign exchange and a sharp devaluation of the naira pose a double whammy for multinationals. Many of them have fixed costs, such as those for raw materials, invoiced in dollars that they must now purchase using a slumping currency — and then they find it almost impossible to repatriate any earnings. The central bank said in late March that it had cleared all “valid” foreign exchange obligations.

Consumer groups that invested heavily in the country have been left particularly exposed with the forex crunch hitting groups including Unilever, GSK and PZ Cussons as well as domestic champions such as Nigerian Breweries.

It has cast a shadow over Nigeria, whose large population — of about 200mn, according to the World Bank — meant it was once hailed as a beacon of emerging markets growth.

In response to the economic challenges, some of the world’s biggest consumer groups have headed for the exit, essentially giving up on a market where headline inflation, which stood at 31.7 per cent in February, has eroded consumer spending power.

Unilever stopped producing homecare and skin-cleansing products, a key plank of its Nigeria sales, a year ago. Chief executive Hein Schumacher cited the impact of the foreign exchange crisis and said the group was “not being able to fight at competitive prices”.

GSK’s Nigeria affiliate also scaled back its business last year, putting an end to its own medicines distribution and switching to third-party Nigerian companies. Germany’s Bayer and French giant Sanofi, which makes polio vaccines, have followed suit.

An asthma inhaler in a box
An asthma inhaler manufactured by GSK. The company has scaled back its business in Nigeria © Temilade Adelaja/Reuters

The deepest cut has come from American group Procter & Gamble, which in December announced that it would cease in-country production and switch to importing into the west African nation.

It will undergo a restructuring as a result of the macroeconomic conditions in markets including Nigeria, the cost of which will be up to $1bn to $1.5bn, “including foreign currency translation losses to be recognized upon the substantial liquidation of operations in the affected markets”, the company said.

“When you think about places like Nigeria, when you think about places like Argentina, it’s very difficult for us as a US dollar-denominated company to create value”, Andre Schulten, P&G’s chief financial officer, told an industry conference in December. “It’s also difficult to operate because of the macroeconomic environment.”

Ikemesit Effiong, partner at risk advisory firm SBM Intelligence, said the corporate exits represented “a vote of no confidence” in the economic strategies of Nigeria’s ruling All Progressives Congress party over the past nine years.

“The experience of long-established names such as GSK and P&G indicate to newer and potential investors that decades of capital investment, building supply chains and navigating the country’s labyrinthine regulatory regime may not be sufficient preparation for the perfect storm of headwinds,” he said.

Companies are also grappling with the fallout from the country’s devaluation of the naira, which has seen it fall to record lows against the US dollar over the past year.

South African telecoms company MTN, which makes a third of its earnings from Nigeria, suffered an almost 80 per cent drop in annual profits in 2023. Its Nigeria operations lost N133.8bn ($97mn) on the back of a weakening naira.

PZ Cussons’ chief executive Jonathan Myers has described the devaluation of the naira as the company’s “most significant challenge”.

“Inflation ended 2023 at nearly 30 per cent in Nigeria, imposing huge pressure on consumers and our teams working to serve them,” he said during a call with analysts in February. “However, the magnitude of the devaluation means that these self-help measures can only go so far.”

Nigeria is PZ Cussons’ biggest single market. The Manchester-based company cut profit expectations after group revenue fell almost 18 per cent for the six months to December 2 while pre-tax profits fell about a quarter to £26.1mn.

“Our payables denominated in foreign currencies have increased significantly in recent years, primarily as a result of our inability to source foreign currency to repay our suppliers and other providers of credit,” it said. It has reduced its interim dividend and made an offer to take its listed subsidiary in Nigeria private.

Yet for all the concerns being raised about doing business in Nigeria, some non-western consumer brands see an opportunity to provide Nigerians with cheaper alternatives as their bigger rivals pull back.

Singapore-listed Olam is one of those still investing in Nigeria. The company, which runs an agri-processing business and manufactures products such as biscuits and noodles, launched a new pasta brand in 2023 and is building a soya crushing facility in western Nigeria which it expects to complete later this year.

Executives met Nigeria’s vice-president in March and pledged to assist the country in attaining its food security goals.

Anil Nair, Olam’s country head in Nigeria, said that although the business had also been affected by the economic headwinds, the company remained bullish because “Nigeria’s large and growing population presents significant opportunities for food and agricultural businesses”.

“Despite short-term economic fluctuations, the country’s demographic trends and increasing urbanisation create a sustained demand for food products and agricultural commodities,” he said.

Nair said the group had a “localised strategy” which meant it sources raw materials and manufactures in-country, allowing it to reduce dependency on imports and foreign exchange fluctuations.

In the meantime companies and consumers are both feeling the pressure.

Nigeria Breweries posted its first annual net loss in more than a decade last year. The Manufacturers Association of Nigeria, a lobby group, has warned that while multinationals are struggling to weather the storm, smaller domestic businesses in the country are being forced to close up shop altogether.

Segun Ajayi-Kadir, the group’s director-general, said recently that many businesses had “died quietly” and warned that “if the current situation doesn’t improve, certainly we’ll have more closures”.



Also Read More: World News | Entertainment News | Celeb News

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

Joe Biden says US support for Israel ‘ironclad’ as Iran threats increase

Unlock the Editor’s Digest for free US President Joe Biden said his…

What we must still learn about the great inflation disaster

Stay informed with free updates Simply sign up to the UK inflation…

Prosecutor to seek misdemeanor charges for driver killed 4-year-old

A suburban Atlanta prosecutor says she will seek misdemeanor charges against a…

Zelenskyy warns Russia’s Kharkiv offensive may only be ‘first wave’ | Russia-Ukraine war News

President says Ukraine has a quarter of air defences required to hold…