Many consumer groups on the front line of the global cost of living crisis have reassured shoppers that the relentless price increases of the past few years will diminish as global inflation declines. But for consumers in Nigeria, there is little relief in sight.
The Nigerian brewer, which is partly owned by Heineken, has increased prices three times so far this year. The economic distress in Africa's most populous country is so severe that the brewery's chief executive, Hans Saadi, complained on a call with investors that customers could no longer afford Goldberg, the popular, cheap beer.
Some customers, like Ayo Ajanaku, have begun cutting back on their consumption in response. “My consumption is now well-considered and no longer based on spontaneous decisions,” the communications consultant said.
The rise in prices is a symptom of the country's economic malaise that seems to have no end.
The long-term shortage of foreign exchange and the sharp decline in the value of the naira are a double blow to multinational companies. Many of them have fixed costs, such as raw material costs, that are invoiced in dollars, and they must now buy them using the declining currency – and then find it almost impossible to repatriate any profits. The central bank said in late March that it had settled all “in force” foreign exchange obligations.
Consumer groups that have invested heavily in the country have been left particularly exposed with groups hit by the forex crisis including Unilever, GSK and BZ Cossons, as well as local champions such as Nigerian breweries.
It has cast a shadow over Nigeria, whose large population — about 200 million, according to the World Bank — means it was once welcomed as a beacon of emerging market growth.
In response to the economic challenges, some of the world's largest consumer groups have moved out, essentially abandoning a market where headline inflation, which reached 31.7 percent in February, has eroded consumers' spending power.
Unilever stopped producing home care and skin cleaning products, a key component of its sales in Nigeria, a year ago. CEO Hein Schumacher noted the impact of the foreign exchange crisis and said the group “was not able to fight at competitive prices.”
GSK's subsidiary in Nigeria also scaled back its business last year, ending distribution of its own medicines and shifting to offshore Nigerian companies. Germany's Bayer and French giant Sanofi, which make polio vaccines, followed suit.
The deepest reduction came from the American group Procter & Gamble, which announced in December that it would stop production inside the country and shift to importing to the West African country.
It will undergo a restructuring exercise as a result of macroeconomic conditions in markets including Nigeria, the cost of which will range from $1 billion to $1.5 billion, “including foreign exchange translation losses that will be recognized upon significant divestiture of operations in the affected markets.” “, the company said.
“When you think about places like Nigeria, when you think about places like Argentina, it is very difficult for us as a US dollar-denominated company to create value,” Andre Scholten, Procter & Gamble's chief financial officer, said at an industry conference in December. “It is also difficult to operate due to the macroeconomic environment.”
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The companies' exit represents a “vote of no confidence” in the economic strategies of Nigeria's ruling All Progressives Congress party over the past nine years, said Ekemesit Effiong, a partner at risk consultancy SBM Intelligence.
“The experience of legacy names like GlaxoSmithKline and Procter & Gamble suggests to new and potential investors that decades of capital investment, building supply chains and navigating the country's labyrinthine regulatory system may not be sufficient preparation for the full storm of headwinds,” he said. .
Businesses are also facing the repercussions of the devaluation of the naira in the country, which has seen it fall to record levels against the US dollar over the past year.
South African telecoms company MTN, which generates a third of its profits from Nigeria, suffered a nearly 80 percent drop in its annual profits in 2023. Its Nigerian operations lost 133.8 billion naira ($97 million) on the back of a weak naira.
Jonathan Myers, CEO of PZ Cussons, described the depreciation of the naira as the “most significant challenge” facing the company.
“Inflation ended 2023 at around 30 percent in Nigeria, putting enormous pressure on consumers and our teams working to serve them,” he said during a call with analysts in February. “However, the scale of the devaluation means that these self-help measures can only go so far.”
Nigeria is PZ Cussons' largest single market. The Manchester-based company cut profit forecasts after group revenue fell by almost 18 per cent for the six months to December 2 while pre-tax profits fell by almost a quarter to £26.1 million.
“Our foreign currency-denominated payables have increased significantly in recent years, primarily due to our inability to source foreign currency to repay our suppliers and other credit providers,” it said. It cut its interim dividend and made a bid to take its Nigerian-listed subsidiary private.
However, despite all the concerns raised about doing business in Nigeria, some non-Western consumer brands see an opportunity to provide Nigerians with cheaper alternatives as their larger competitors withdraw.
Olam, listed on the Singapore Stock Exchange, is one of the companies still investing in Nigeria. The company, which operates an agricultural processing business and makes products such as biscuits and pasta, will launch a new pasta brand in 2023 and is building a soy crushing facility in western Nigeria that is expected to be completed later this year.
The executives met with Nigeria's vice president in March and pledged to help the country achieve its food security goals.
Anil Nair, Olam's country manager for Nigeria, said that although the business was also affected by economic headwinds, the company remained optimistic because Nigeria's “large and growing population provides significant opportunities for food and agricultural businesses.”
“Despite short-term economic fluctuations, the country’s demographic trends and increasing urbanization are creating sustainable demand for food products and agricultural commodities,” he said.
Nair said the group has a “domestic strategy” which means it sources raw materials and manufactures within the country, allowing it to reduce dependence on imports and foreign exchange rate fluctuations.
Meanwhile, businesses and consumers are feeling the pressure.
Nigeria Breweries recorded its first annual net loss in more than a decade last year. The Federation of Nigerian Manufacturers, a lobby group, has warned that while multinational companies struggle to weather the storm, smaller local companies in the country are being forced to close shop completely.
Segun Ajay Qadir, the group's managing director, recently said that many companies “died quietly” and warned that “if the current situation does not improve, we will certainly have more closures.”
