P&G is leaving Nigeria. What does this mean for us?

Wake up, wake up, wake up!

Hi guys,

Hope you're well. I'm doing okay, Alhamdulillah.

A few days ago, news broke that Procter & Gamble, one of the world's top consumer packaged goods companies, had announced its intentions to exit Nigeria. In case you're not familiar with P&G, then perhaps you have heard of Ariel? Pampers? Gillette shaving stick? Always? Fairy detergent? Ambi Pur? Oral B toothpaste? Olay?

Well, all are brands of the $350B entity that is P&G.

Some sample P&G brands - Image from Procter & Gamble

** Side note: I followed P&G for many years as an undergraduate, whether through chasing them for PAADC sponsorship, or famzing my many Unilag egbons who ended up there for NYSC. Their package was very generous at the time, and it was one of several companies that I was hoping to get a job at after school. I did very well in their tests, did very well in their interview, and just never heard back (despite many follow-ups). Ah well.

As is expected, there has been a lot of outrage about P&G's exit.

But they are not alone. In the past 6 months only, some other major companies that have announced their planned exits from Nigeria include:

• GSK/Haleon, the pharmaceutical and consumer divisions of the combined £90B British company (and producer of Panadol, Sensodyne, etc), after 51 years in the country

• Equinor, Norway’s energy giant, which has been primarily responsible for enabling the Norwegian government to build the world’s largest sovereign wealth fund (worth about $1.5 Trillion), after 31 years in the country

• Sanofi, the €110B French multinational healthcare company and world leader in polio vaccines

Again, this is only in the last 6 months!

So why are companies leaving Nigeria?

Summary: The market is not attractive for international investors with $-based obligations

Like it or not, a lot of the global economy is reliant on the US dollar. It has the highest concentration of international investors, the world’s biggest stock exchanges, and the world’s best investment banks that enable corporations to access capital. For context, of Africa’s 7 unicorns*, only 3 are registered in Africa and the rest are actually American companies!

And seeing as the primary reason for the existence of any company is to maximize value for shareholders, it is only natural that the most important metrics for measuring success are $-based revenue and profits.

Let’s imagine you’re the CFO (Chief Financial Officer) of an American multinational company with a target $ growth rate of 10% per annum. That’s the number you need to hit every year to keep your investors happy and meet your debt obligations.

• In 2018, your Nigerian subsidiary did ₦10B in annual revenues, equivalent to about $33 million*

• By 2021, your Nigerian subsidiary had grown by 30% (as planned over three years) and achieved ₦13B in annual revenues, but this was only equivalent to about $35 million*

Your CEO and shareholders are pissed as they were expecting at least $43 million in revenues (assuming 30% growth over three years). But you calmed them down. These are part of the temporary challenges of doing business, and you will re-evaluate the Nigerian situation in about 2 years.

** Side note: This is a very simplistic view just to make it easy to follow. Big multinationals often factor international currency devaluations into their financial models, and hedge currency risk by making secured transactions at a fixed price far into the future.

Separately, you advise the CEO of the Africa division to ensure that all countries with a strong currency devaluation risk (including Nigeria) grow at a minimum of 20% in their local currencies to ensure they do not drag the overall business down.

So the pressure is on for the Nigerian Sales Directors. They work hard and kill it! Between 2021 and 2023, they manage to grow annual sales by about 40%, from ₦13B to ₦19B in revenues.

But guess what? By the time you’re re-evaluating the “Nigerian situation” in April 2023, the currency has been devalued even further, and ₦19B is only worth $23 million. 🤯

CEO: Wait, so not only has the franchise not achieved its 2023 target revenue projections of $53 million, but it is now regressing to $23 million?

CFO: Yes, that sounds right

CEO: Isn’t Nigeria the same country owing us money?*

CFO: Correct, we have been unable to retrieve tens of millions of dollars over the past few years due to forex scarcities

CEO: Wait, what percentage of our total revenues is from Nigeria again?

CFO: About 0.5% at the moment

CEO: No way. Are you telling me all this headache is for a country that doesn’t even contribute up to 1% of our global sales?

CFO: Yes

CEO: Get us out of the market. I will bring it up at the next board meeting and you can share the details in our Analyst calls in September. Please I don’t want to deal with this in 2024

CFO: Okay, I’m on it

————

Unfortunately, these conversations are going on in the boardrooms of many multinational companies around the world. And there is a risk that it becomes a reinforcing cycle.

As with most things in life, this is not all doom and gloom, and there are some potential silver linings.

1 - Rise of Nigerian companies

As more multinationals exit due to macroeconomic challenges, more Nigerian companies would have to fill in the gap. Whether it is Shell and Exxon giving way to companies like SEPLAT and First E&P in oil and gas, or GSK giving way to companies like May & Baker in pharmaceuticals, Nigerian business owners will get opportunities they have never gotten before. And they will pay tax in Nigeria, instead of the US, UK, France, or Singapore.

2 - The government will (hopefully) wake up

We (Nigerians) are a proud people. Just as random citizens like you and I are outraged by news like this, I genuinely believe our leaders (the good, bad, and “ugly” amongst them) will pay more attention to our FX crises to limit the possibility of the worst-case scenario becoming a reality.

3 - Elevated role of entrepreneurship

We have always been an entrepreneurial people - whether it be the Iya Akaras on the roadside, or the thousands of skilled professionals who identify as ‘KPMG Accountant by day, Instagram perfume vendor at night’. But traditionally, the (southwestern) Nigerian culture has always prioritized stable jobs with corporations.

Those days are gone. Nigeria produces over 600,000 graduates annually, and there are just not enough highly skilled (multinational) jobs to go around. Let us assume that the 'average' multinational has about 5,000 employees in Nigeria. Assuming 10% of them were hired in the past year, that is only 500 graduates (this number is probably much lower 😀).

And even if we waved a magic wand and got 20 new big multinationals to enter the market and recruit 500 graduates on an annual basis, that would come to 500 x 20 = 10,000 people. So 590,000 to go. Every single year.

So there’s no way around it, we need more people to focus on the less traditional routes. To join startups, to take on remote jobs, to create new businesses and provide services related to technology, food and restaurants, agriculture, education, healthcare, owambe services, filmmaking, arts & crafts, etc. That is the way forward, and the sooner we realize it, the better for all of us. 😊

Notes:

1. Assumed Africa’s 7 unicorns to be Interswitch, Flutterwave, Opay, Wave, Andela, Chipper Cash, and MNT Halan as of February 2023. Only Interswitch (Lagos, Nigeria), Wave (Dakar, Senegal), and MNT Halan (Cairo, Egypt) are actually registered in Africa.

2. Estimated naira to dollar conversion rates using CBN’s official exchange rates. The value of $1 was 305 naira in 2018, 380 naira in 2021, and 816 in April 2023.

3. The Central Bank of Nigeria has a backlog of about $7 billion in foreign exchange payments. Most of this is owed to multinational companies and global investors.

4. Nigeria is not as important a market for many of the multinationals as Nigerians often think. Outside of a few key industries (e.g., upstream oil & gas and alcohol), Nigeria sales typically contribute between 0 and 1% of total revenues for these companies.

   

   Nigeria division contributions to multinational revenues - Sourced by Rufyb

** Jara content:

Abdullah bin Amr, may Allah be pleased with him, said that the Messenger of Allah said: “There are four things, if you attain them, then whatever you miss in this world will not matter - preserving trust, speaking the truth, being of good character, and moderation in eating.”

Source: Musnad Aḥmad 6652, sahih

Have a great week. ✨