The exit of Unilever Nigeria, one of the country’s oldest manufacturing companies, from its home and skin care brands hold lessons for other multinationals operating in the country.
Over the past seven years, several manufacturers, especially in the fast-moving consumer goods (FMCG) industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.
According to experts, some of the lessons include having a tight scenario plan that involves planning for the worst kind of outcomes economically, investing in local production and partnerships with stakeholders to reduce the reliance on imports, and finding opportunities for innovation.
They also highlighted the need to invest in alternative sources of power generation and a good distribution network that improves the quality of consumers’ patronage.
“What Unilever got wrong was that they were too heavily import-dependent for some of their essential products. They were banking on the imports and strategic relationships they had especially in Asia and other countries to bring in imported things at cheaper cost,” Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School, said.
He said the supply chain, which has evolved as a result of the Russia-Ukraine crisis and Nigeria’s economic woes, has upturned the cost of imported goods. “So if they were less dependent on imports, they would have seen this coming.”
Some foreign manufacturers have become increasingly aware of the availability of abundant raw materials in the country as they now source more inputs locally than to navigate foreign exchange scarcity.
In a recent interview with BusinessDay, Eat’N’Go, Africa’s master franchisee for Domino’s Pizza, Cold Stone Creamery and Pinkberry Gourmet Frozen Yoghurt brands, said it tried to source its raw materials locally as much as possible.
“Over 65 percent of our products are sourced locally, which is another way we work to ensure an impact in the Nigerian economy. The company understands the need to buy Nigerian and reduce imports. We know that the less we import, the more successful we will be,” Pat McMichael, chief executive officer at Eat’N’Go, said.
Nestlé Nigeria Plc is also tapping local raw materials to boost its operations across the country. The food manufacturer has enrolled thousands of farmers in its backward integration programme, converting inputs into quality raw materials to meet expected standards.
The company now sources local inputs from over 41,600 local farmers and processors across the country. This makes the company one of the local input content drivers, as it sources 80 percent of its inputs locally.
Last month, Unilever, which started operations in the 1920s, announced that it was stopping the production of its legendary OMO, Sunlight and Lux home and skin care brands in a bid to cut costs so as to concentrate on higher growth opportunities.
The announcement to stop the production of the key product lines came after two years the FMCG company spun off its tea businesses (Lipton) to a separate legal entity under the Unilever global group.
“Their entire business in the last decade has been through several challenges. But their biggest challenge is competition because they are not as competitive as they used to be,” Abiola Gbemisola, consumer goods analyst at FBNQuest, said.
“The competitive advantage that the company used to have across several segments of the products are no longer there anymore. So, it has been struggling to kick off the business,” he said.
Despite the potential to take millions of people out of poverty through job and wealth creation, Nigeria’s manufacturing sector is bedevilled by major problems that have continued to stall industrialisation in Africa’s most populated nation.
Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses and the general profitability of businesses.
Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, Stone Industries, Procter & Gamble and GlaxoSmithKline.
“Large multinationals operate by certain best practices. And what that means is that they find it very hard to cope in a situation where they have to compromise certain best practices in product quality and dealing with government agencies like customs,” Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry said.
He said this created problems for them on top of lingering challenges such as poor power supply.
“So the lesson to learn is for smaller manufacturers who are not bound by very strict global corporate governance and ethical practices to negotiate their way around Customs and other regulatory agencies that come to inspect their factories and ask them to compromise regulations,” Idahosa said.
Two economic recessions in the last seven years have weakened Nigeria’s foreign inflows, resulting in a liquidity challenge in the country’s FX market. Last year, the naira depreciated against the dollar, dropping to as low as 448/$1 from 305/$1 in 2016 at the official market. It depreciated to 740/$1 from N455/$1 at the parallel market.
The FX liquidity challenge is also a major contributing factor to the country’s inflation rate, which hit 22.04 percent in March this year, the highest in 17 years, according to the National Bureau of Statistics.
The country’s Monetary Policy Rate, the benchmark for other interest rates, was raised for the sixth straight time to 18 percent last month.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said Unilever and some other multinationals have been victims of a badly managed economy, some inappropriate policies and an unfair regulatory environment that is not equitable and does not reward business ethics.
He said the government should make the business environment more conducive for people who want to do business ethically because they cannot be bribed to get FX. “Some of their raw materials are on the FX prohibition list. So they cannot be bribing the Custom agencies.”