Many consumer groups on the front lines of the global cost of living crisis are assuring shoppers that the relentless price increases of the past few years will gradually slow as global inflation slows. But for Nigerian consumers, there is little relief in sight.
Heineken-backed Nigerian Breweries has raised prices three times so far this year. The economic woes of Africa’s most populous country are so dire that Hans Essaadi, the company’s chief executive, said on a call with investors that customers could no longer buy Goldberg, a popular and inexpensive lager. He complained that he couldn’t buy it.
Some customers, like Ayo Ajanaku, have begun cutting back on their consumption in response. “My consumption is now well thought out and no longer based on spontaneous decisions,” said the communications consultant.
The soaring prices are a sign of the country’s economic slump, with no end in sight.
A prolonged shortage of foreign exchange and a sharp devaluation of the naira have created a double whammy for multinational companies. Many of them find it nearly impossible to repatriate their earnings because fixed costs such as raw materials are charged in dollars and must be purchased due to currency depreciation. The central bank announced in late March that it had liquidated all “active” foreign currency debt.
Consumer groups that have invested heavily in the country, including groups such as Unilever, GSK and PZ Cussons, as well as national champions such as the Nigerian Breweries, are particularly exposed to the currency crisis.
Nigeria, which has a population of about 200 million people and was once hailed as a bellwether of emerging market growth, is also being overshadowed, according to the World Bank.
In response to the economic challenges, some of the world’s largest consumer groups are retreating, effectively giving up on a market where headline inflation, which reached 31.7% in February, is eroding consumer purchasing power.
Unilever stopped producing home care and skin cleansing products, the mainstay of its sales in Nigeria, a year ago. Chief Executive Officer Hein Schumacher cited the impact of the currency crisis and said the group was “not able to compete with competitive prices.”
GSK’s Nigerian affiliate also downsized its operations last year, ending its own drug distribution and switching to a third-party Nigerian company. Germany’s Bayer and France’s polio vaccine maker Sanofi also followed suit.
The U.S. group Procter & Gamble made the most significant cuts. The company announced in December that it would cease domestic production and switch to imports to the West African country.
The restructuring will take place in response to macroeconomic conditions in markets, including Nigeria, and will cost “up to $1 billion, including currency translation losses recognized on the significant liquidation of operations in affected markets.” It will be worth $1.5 billion.” ” the company said.
“When you think about places like Nigeria and places like Argentina, it’s very difficult to create value as a dollar-denominated company,” P&G Chief Financial Officer Andre Schulten said at an industry conference in December. ” he said. “Management is also difficult due to the macroeconomic environment.”
Ikemesit Effiong, a partner at risk advisory firm SBM Intelligence, said the company’s exit represented a “vote of no confidence” in Nigeria’s ruling All Progressives Congress’ economic strategy over the past nine years.
“The experience of established companies like GSK and P&G shows that decades of capital investment, building supply chains and navigating the country’s maze of regulatory regimes are not enough to prepare for the perfect storm of headwinds,” he said. “It shows new and potential investors that it may not happen.” .
Businesses are also grappling with the impact of the devaluation of the naira, which has fallen to record lows against the US dollar over the past year.
South African telecom company MTN, which derives a third of its revenue from Nigeria, saw its annual profits fall by almost 80% in 2023. The company’s Nigerian operations suffered a loss of NOK 133.8 billion ($97 million) due to the weak naira.
Jonathan Myers, chief executive officer of PZ Cussons, described the devaluation of the naira as the company’s “most important challenge”.
“Nigeria ended 2023 with an inflation rate of nearly 30%, putting tremendous pressure on consumers and the teams that serve them,” he said on a conference call with analysts in February. Stated. “However, the magnitude of the currency devaluation shows that these self-help measures have their limits.”
Nigeria is PZ Cussons’ largest single market. The Manchester-based company has revised its profit forecast after group revenue fell by around 18% in the six months to December 2 and pre-tax profits fell by around a quarter to £26.1m. has been revised downward.
“Our foreign currency debt has increased significantly in recent years, primarily due to our inability to raise foreign currency to repay our suppliers and other credit providers,” the company said. The company proposed reducing its interim dividend and taking its listed subsidiary in Nigeria private.
But despite concerns being raised about doing business in Nigeria, some non-Western consumer brands are seizing the opportunity to offer Nigerians a cheaper alternative as larger rivals retreat. .
Olam, listed in Singapore, is one of the companies still investing in Nigeria. The company, which operates an agro-processing business and makes products such as biscuits and noodles, will launch a new pasta brand in 2023 and is building a soybean crushing facility in western Nigeria, expected to be completed later this year.
Government leaders met with Nigeria’s vice president in March and pledged to help the country achieve its food security goals.
Anil Nair, Olam’s Country Director in Nigeria, said that while the business is also affected by economic headwinds, “Nigeria’s population is growing significantly, so there are huge opportunities for the food and agribusiness”. He said he remains bullish.
“Despite short-term economic fluctuations, the country’s demographic trends and increasing urbanization are creating sustained demand for food and agricultural products,” he said.
Nile said the group has a “localization strategy” that allows it to source raw materials and manufacture domestically, reducing dependence on imports and currency fluctuations.
Meanwhile, businesses and consumers alike are feeling the pressure.
Nigerian breweries last year posted their first annual net loss in more than a decade. Lobby group Nigeria Manufacturers Association warned that while multinational companies are struggling to weather the storm, small businesses in the country are being forced to close permanently.
Segun Ajay Kadir, the group’s executive director, recently said that many businesses are “quietly disappearing” and added: “If the current situation does not improve, more businesses will undoubtedly close down. “Dear,” he warned.
