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Thursday, January 26, 2023

More Foreign Firms to exit Nigeria as Economic Conditions Worsen

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Several foreign companies might exit Nigerian market given the recent devaluation of the currency which has caused increases in the shelf prices of their products.

Also, the decision of regulators to hike consumer utilities will be detrimental to companies whose products are elastic in nature, a double whammy for a country that exited a recession four years ago.

Mr. Price Group, popular affordable clothing, sport and home wear has disclosed its intentions to leave the country following the closure of four out of five outlets in Nigeria.

Trendtype, a strategic market research firm that covers 50 countries across Africa warned that Shoprite may be the second South African retailer to exit Nigeria.

Shoprite’s operations in Nigeria have been since 2016, hit hard by currency devaluations that make it loss making in Rand terms.

In 2013, Upmarket South African retailer Woolworths pulled the plug on its Nigerian business, as it cited tough operating environment in African countries as the reason for the decision.

An increase in consumer utilities will further put strain on already pressured consumer income, in a country where over 50 percent of a population of 200 million live below $1.98.

The Nigerian macro story remains challenging for various businesses and individuals.

The proposed hike is on top of spiraling inflation, devaluation of the currency, and increase in VAT to 7.50 percent.

The Petroleum Product Pricing Regulatory Agency (PPPRA) set the new band for petrol prices for July at N140.80 – N143.80/litre, representing a c.16% upward revision from the N121.50 – N123.50/litre band in June.

The PPPRA said such increment is inevitable since there has been an uptick in global crude oil price.

Unemployment level is expected to hit 34 percent by the end of 2020 from 23.1 percent reported in the third quarter (Q3) 2018, the Nigeria Employers’ Consultative Association (NECA) has warned.

NECA said the lockdown measures imposed by government to curb the coronavirus pandemic paralyzed business activities and a lot of Nigerians were not able to job hunt.

If consumers refuse to open their purse string due to macroeconomic headwinds, company’s revenue will be negatively impacted.

The revenue of 10 largest consumer goods firms that have released first quarter financial statement dipped by 1 percent to N361 billion from N363.25 billion the previous year, data compiled by Money Central shows.

Combined net income slumped by 31.32 percent to N38.85 billion in the period under review from N56.58 billion the previous year.

Nigeria has been struggling with an economic downturn since 2015 when the sudden drop in crude oil price of mid-2014 stoked a severe dollar scarcity that depleted the foreign exchange reserve tipped the country in its first recession in 25 years.

Analysts and investors have come realized that Nigeria could slip into another recession because the country does not have the shock absorbers to withstand the crash in crude oil price and the coronavirus pandemic.

The International Monetary Fund (IMF) recently announced that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020.

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