More jobs at risk as Sho­prite, oth­ers pull plug on Nige­ria

3,000 di­rect jobs, over 17,000 in­di­rect jobs at risk

Business Day (Nigeria) - - FRONT PAGE - DIPO OLADEHINDE, BUMMI BAI­LEY & EN­DURANCE OKAFOR

Nige­ria’s strug­gle to cre­ate jobs is get­ting worse as Sho­prite joins the list of other multi­na­tion­als ex­it­ing the coun­try, af­ter 15 years of op­er­a­tions.

The prom­ise of Africa’s big­gest econ­omy to cre­ate jobs for its teem­ing pop­u­la­tion is turn­ing peril as multi­na­tion­als drawn to Nige­ria by the prospect of a pop­u­la­tion big­ger than Ghana, Kenya and South Africa com

bined such as Sho­prite are re­treat­ing, while those stay­ing be­hind are ei­ther down­siz­ing or cut­ting cost due to eco­nomic chal­lenges fac­ing the coun­try.

Nige­ri­ans have nei­ther favourable busi­ness cli­mate nor high pur­chas­ing power to sus­tain their busi­ness op­er­a­tions so much so that they can no longer cover Sho­prite’s cost of do­ing busi­ness.

The Cape Town-based gro­cer said Mon­day that it had be­gun the of­fi­cial process that con­sid­ers the sale of the ma­jor­ity or en­tirety of its su­per­mar­kets stake in Nige­ria, ac­cord­ing to its trad­ing state­ments re­leased for the 52 weeks that ended June 2020.

Sho­prite’s de­ci­sion to leave Nige­ria means 3,000 di­rect jobs and over 17,000 in­di­rect jobs are at risk, a de­vel­op­ment that means doom to the coun­try’s mis­ery in­dex that has de­te­ri­o­rated be­yond cri­sis lev­els, and ought to be the govern­ment’s top con­cern as it has so­cial im­pli­ca­tions.

Nige­rian Eco­nomic Sum­mit Group (NESG), an in­de­pen­dent, non-par­ti­san, non-sec­tar­ian or­gan­i­sa­tion, says be­tween 2015 and 2018, 16.2 mil­lion peo­ple were added to Nige­ria’s un­em­ployed labour force while the prob­lem of un­der­em­ploy­ment con­tin­ues to be a ma­jor chal­lenge.

“Nige­ria needs to cre­ate at least 3.3 mil­lion jobs per an­num to cater for new labour mar­ket en­trants,” NESG states.

To put this in proper con­text, it means that at least 100 mil­lion jobs are re­quired over the pe­riod to main­tain the un­em­ploy­ment rate at 23 per­cent.

“Apart from the is­sue of grow­ing un­em­ploy­ment, multi­na­tional ex­its send a sig­nal to the global com­mu­nity that Nige­ria is a tough place to do busi­ness; even as eco­nomic and busi­ness con­di­tions have been ex­ac­er­bated by the pan­demic,” Damilola Ade­wale, a Lagos­based eco­nomic an­a­lyst, says

Many medium en­ter­prises like Sho­prite’s ex­ited the Nige­rian mar­ket be­tween 2013 and 2020 ow­ing to slug­gish growth, re­ces­sion, reg­u­la­tory pres­sure and poor eco­nomic man­age­ment.

A re­port by the Na­tional Bureau of Sta­tis­tics (NBS) and the Small and Medium En­ter­prises De­vel­op­ment Agency ( SMEDAN) puts this num­ber at 2,877, which shows why the un­em­ploy­ment rate is 23.1 per­cent in Africa’s most pop­u­lous coun­try.

“One big les­son here for for­eign re­tail­ers is the fact that a large pop­u­la­tion size does not in­vari­ably mean a larger mar­ket. Un­til ef­fec­tive de­mand, pur­chas­ing power of Nige­ri­ans im­prove and bet­ter­ment in macro fun­da­men­tals, for­eign re­tail­ers might not step their feet into Nige­ria,” Ade­wale says.

Frank Jacobs, former pres­i­dent of MAN, told Busi­ness­day that 54 firms closed their fac­to­ries be­tween 2015 and 2016 ow­ing to for­eign ex­change short­ages.

For Sho­prite par­ent com­pany, the Nige­ria unit has been a drag on Africa’s big­gest re­tailer, de­spite con­tribut­ing far less than the South African op­er­a­tions where 78 per­cent of the group sales are made dur­ing the year. Sho­prite’s su­per­mar­kets in South Africa have con­trib­uted 75 per­cent to to­tal group sales in the last five years, ac­cord­ing to data com­piled by Busi­ness­day.

To make things worse, sales in the Nige­rian su­per­mar­kets have been de­clin­ing since last year while the South African unit has man­aged to grow sales against the odds.

The South African unit saw sales rise 8.7 per­cent, but in the Nige­rian stores, sales de­clined by 6.3 per­cent in 2020. Sho­prite’s unique cal­en­dar means the year 2020 ended in June.

While sales in Nige­ria con­tracted by 5.9 per­cent and 6.7 per­cent in the first and sec­ond half of the year, re­spec­tively, sales in South Africa grew by 9.8 per­cent and 7.5 per­cent in the first and sec­ond half of the year.

Nige­ria’s cor­po­rate tribu­la­tions be­gan in 2015, when tum­bling oil prices bat­tered Nige­ria’s mono econ­omy, which re­lied on crude for two-thirds of govern­ment rev­enue as govern­ment in­er­tia and its con­tro­ver­sial poli­cies helped in­flict more woes on the econ­omy.

Cap­i­tal con­trols and re­stric­tions on cur­rency trad­ing im­posed, backed by Pres­i­dent Muham­madu Buhari, made mat­ters worse as for­eign di­rect in­vestors started tip toe­ing out of the harsh eco­nomic realities that sud­denly hit them while port­fo­lio in­vestors in­clud­ing Aberdeen As­set Man­age­ment plc and Ash­more Group plc, which to­gether over­see about $450 bil­lion of as­sets, re­treated from the Nige­rian mar­ket.

Busi­ness­day anal­y­sis took a closer look at those in­ter­na­tional com­pa­nies who have com­pletely shut down their op­er­a­tions in Nige­ria and the rea­son why they left.

Mr Price

Mr Price Group, a South African cloth­ing and home­ware re­tailer, an­nounced plans to exit Nige­ria two months ago. Mark Blair, chief ex­ec­u­tive of the com­pany, told an­a­lysts at the group’s full-year re­sults pre­sen­ta­tion in June that the com­pany would now fo­cus on its home mar­ket.

“Quite frankly I’m not pre­pared to in­vest any fur­ther whether it’s an in­vest­ment in time or in money into a coun­try that is volatile as it is,” Reuters quoted Blair to have said.

“In the early days, we were mak­ing money but now we just came up against too many road­blocks, whether it’s get­ting the money out, etc.”

“We are re­ally go­ing to fo­cus on South Africa in a more con­cen­trated way,” Mark Stir­ton, the com­pany’s chief fi­nan­cial of­fi­cer, said.

Opay

Af­ter a prof­itable 2019 for the Nor­way-based Chi­ne­se­backed Opay, the com­pany an­nounced that sev­eral of its sub­sidiaries will be ex­it­ing Nige­ria or tem­po­rar­ily stop­ping op­er­a­tions.

In 2018, Chi­nese in­vestors backed the start-up with $ 180 mil­lion to take over the mo­bile money space in Nige­ria.

“We can con­firm that some of our busi­ness units, in­clud­ing the ride hail­ing ser­vices, Oride, Ocar as well as our lo­gis­tics ser­vice OEX­press will be put on pause. This is largely due to the harsh busi­ness con­di­tions which have af­fected many Nige­rian com­pa­nies, in­clud­ing ours, dur­ing this COVID-19 pan­demic, the lock­down and govern­ment ban,” the com­pany an­nounced in a state­ment last month.

In Jan­uary 2020, La­gos State Gov­er­nor Baba­jide Sanwo- Olu an­nounced a ban on mo­tor­cy­cle and tri­cy­cle op­er­a­tions in sub­Sa­ha­ran Africa’s largest city. Ride hail­ing ser­vices, a sec­tor where Opay had be­gun to dom­i­nate, were af­fected by the ban.

Tiger Brand In­ter­na­tional

South African largest food com­pany, Tiger Brands, pull out of its strug­gling Nige­ria ven­ture in 2015 fol­low­ing an un­fruit­ful $181.9 mil­lion ac­qui­si­tion of 63.35 per­cent stake in Dan­gote Flour Mills (DFM), a Nige­rian com­pany that pro­duces flour, noo­dles and pasta.

Tough eco­nomic con­di­tions in Nige­ria, which in­clude the de­valu­ing of the naira and the fuel cri­sis in May and June 2015, meant that the com­pany could not meet its cus­tomers’ de­mands on time as their stock which was trad­ing around N9 in 2013 fell to N1.23 by the end of 2015.

“Hindsight is al­ways a per­fect sci­ence! At the time, it was the right de­ci­sion but we could not have an­tic­i­pated the global eco­nomic cir­cum­stances which would im­pact the busi­ness. The im­pact of low oil prices and the de­val­u­a­tion of the Naira against the US Dol­lar, and could not have been fore­seen,” then Chief ex­ec­u­tive of­fi­cer, Tiger Brands Lim­ited, Peter Mat­lare ex­plained in 2015.

CEO of Tiger Brands Lim­ited ex­plained that Tiger Brands had made sig­nif­i­cant in­vest­ments but the com­pany con­tin­ued to strug­gle with losses, which brought the board of Tiger Brands to con­sider ei­ther the two op­tions of ei­ther fur­ther re­cap­i­tal­i­sa­tion or find al­ter­na­tive op­tion, the board sub­se­quently set­tled for al­ter­na­tive op­tions.

By the end of 2015 in or­der to save over 3,000 jobs that are at risk, Aliko Dan­gote was forced to buy­back the com­pany at a nom­i­nal value of N1 by ini­ti­at­ing a “re­pur­chase Share Sale Pur­chase Agree­ment” for a com­pany he had he ini­tially sold for about $200 mil­lion.

“Tiger Brands Lim­ited will sell its shares (3,283,277,052) to Dan­gote In­dus­tries Lim­ited for a nom­i­nal amount ($1) in con­sid­er­a­tion for Dan­gote In­dus­tries Lim­ited in­ject­ing N10 bil­lion in Jan­uary in the form of a con­vert­ible (at lender’s op­tion) share­hold­ers’ loan,” the Share Sales Pur­chase Agree­ment (SSPA) stated.

The then-out­go­ing CEO stepped down at the end of 2015 af­ter eight years at the helm af­ter fi­nan­cial re­sults proved the in­vest­ment was a grave mis­take. Also, Tiger brand’s in­vest­ment in Deli Foods (49 per­cent), mak­ers of Diges­tive and Crack­ers also went awry. They had also writ­ten down N3.5 bil­lion.

Brunel Ser­vices plc

In 2015, a Dutch stock. ex­change- listed staffing agency Brunel in­ter­na­tional pulled out of Nige­ria be­cause of the “con­tin­u­ing feel­ing of cor­rup­tion and bribery,” its chief ex­ec­u­tive, Jan Arie van Barn­eveld, was quoted to have said.

“The se­cu­rity risk and bu­reau­cracy make it al­most im­pos­si­ble to guar­an­tee the qual­ity of our ser­vices and the safety of our work­ers in Nige­ria in the fu­ture,” Van Barn­eveld was quoted to have said by Dutch­news.

The de­ci­sion to shut down in Nige­ria was a huge blow to Nige­ria’s in­creas­ing un­em­ploy­ment fig­ures, as the per­son­nel ser­vice provider Brunel is head­quar­tered in Am­s­ter­dam and has of­fices in more than 40 coun­tries world­wide; “In Nige­ria, we had the feel­ing that we were be­ing con­stantly cheated and bribed,” said van Barn­eveld in his news­pa­per in­ter­view,” chief ex­ec­u­tive of Brunel ser­vices said.

Tru­worths In­ter­na­tional

Tru­worths In­ter­na­tional Lim­ited closed its two re­main­ing Nige­rian stores in Fe­bru­ary 2016, as strin­gent reg­u­la­tion of stock im­ports, for­eign ex­change con­trols and ris­ing costs made it too dif­fi­cult for the South African re­tailer to op­er­ate in Africa’s big­gest econ­omy.

“The cloth­ing com­pany strug­gled to get stock into Nige­ria and cash out of the coun­try,” CEO Michael Mark was quoted to have said at that time. “Tru­worths’ dol­lar rental bill also soared as the rand weak­ened against the US cur­rency,” Mark, CEO of Tru­worths In­ter­na­tional, said.

Ac­cord­ing to the CEO, the reg­u­la­tions were al­ways mak­ing it ex­traor­di­nar­ily

dif­fi­cult to get stock into the stores as the com­pany strug­gles con­sis­tently to get money out.

“Ob­vi­ously ev­ery­one gets ex­cited about Nige­ria be­cause of its size, but I think they’ve taken an in­cred­i­ble strain with in­ter­nal prob­lems in the coun­try po­lit­i­cally and then there are the is­sues with their oil,” Mark said.

Fur­ther in­ves­ti­ga­tion showed the prob­lem is just Nige­ria as Tru­worths con­tin­ued ex­pan­sion in other African coun­tries like Kenya, Botswana and Ghana; “The stores in coun­tries bor­der­ing South Africa are do­ing well and in Ghana its O.K.,” Mark said. “It’s just Nige­ria that’s not prof­itable and we would go back there if ev­ery­thing changes. This is not a per­ma­nent thing, we will see what hap­pens.”

Ibe­ria Air­line

Span­ish na­tional car­rier, Ibe­ria Air­line, with­drew its ser­vices from Nige­ria in 2016. As sources claimed the de­ci­sion to with­draw was based on the huge fi­nan­cial dif­fi­cul­ties the air­line faced based on the Cen­tral Bank of Nige­ria’s forex pol­icy that pre­vented air­lines from repa­tri­at­ing pro­ceeds made in Nige­ria to its par­ent coun­tries.

Ibe­ria Air­line left in May 2016, cit­ing “very dif­fi­cult op­er­at­ing cir­cum­stances and dwin­dling pas­sen­ger num­bers.”

Though the na­tional car­rier of Spain at­trib­uted the de­ci­sion to the dwin­dling pas­sen­ger traf­fic on the route, find­ings by Busi­ness­day in­di­cated that the prob­lem was largely as a re­sult of the for­eign ex­change scarcity with many for­eign air­lines un­able to repa­tri­ate their funds to their home coun­tries.

United Air­line

United Air­lines, Chicago-based Amer­i­can air­line, pulled out of Nige­ria in 2016 over dif­fi­culty in re­cov­er­ing monies made from tick­ets sales, due to Nige­ria’s for­eign ex­change pol­icy.

Ac­cord­ing to United Con­ti­nen­tal Hold­ings Inc., op­er­a­tor of the air­line, the daily route from Hous­ton to La­gos had not met tar­get for years but was kept alive be­cause of its im­por­tance to Texas-based cus­tomers.

“Since last fall, we have not been able to repa­tri­ate rev­enue sold lo­cally in Nige­rian cur­rency and there­fore we had to es­sen­tially sus­pend these sales which makes the route un­sus­tain­able as about half of the rev­enue gen­er­ated by the route comes from Nige­ria pointof-sale,” United spokesman

Jonathan Guerin says in a state­ment to To­day in the Sky

ome of the dif­fi­cul­ties may in­clude a re­stric­tion by the govern­ment on the amount of money that can be moved abroad af­ter the global slump in oil prices de­pleted the govern­ment’s U. S. cur­rency re­serves. Vir­gin, Emi­rates, Bri­tish air­lines re­duced their fre­quency.

Eti­salat

Abu Dhabi’s Eti­salat ter­mi­nated its man­age­ment agree­ment with its Nige­rian arm as Mubadala De­vel­op­ment Com­pany of the United Arab Emi­rates, the com­pany’s largest share­holder, pulled out its in­vest­ment and headed out of the coun­try.

Mubadala, an Abu Dhabi Govern­ment-owned in­vest­ment and de­vel­op­ment com­pany, con­trols about 70 per­cent of the shares in Eti­salat along with Eti­salat UAE mo­bile, with Emerg­ing Mar­kets Telecom­mu­ni­ca­tions Ser­vices (EMTS, pro­moted by Ha­keem Bello- Osagie, own­ing the re­main­ing 30 per cent.

“All UAE share­hold­ers of Eti­salat Nige­ria have ex­ited the com­pany and have left the board and man­age­ment,” then chief ex­ec­u­tive of Eti­salat In­ter­na­tional Hatem Dowidar told Reuters in an in­ter­view.

Nige­rian reg­u­la­tors in­ter­vened to save Eti­salat Nige­ria from col­lapse af­ter talks with its lenders to rene­go­ti­ate a $ 1.2 bil­lion loan failed.

In­ter­con­ti­nen­tal Ho­tel Group

In early 2018 news broke out that UK based In­ter­Con­ti­nen­tal Ho­tels Group ( IHG), op­er­a­tor of In­ter­Con­ti­nen­tal Ho­tels brand had with­drawn from Nige­ria four years af­ter it opened its first site in Nige­ria.

Un­like its other ho­tel busi­ness in sub-sa­ha­ran Africa such as South Africa, Mau­ri­tius and Zam­bia; its Nige­ria busi­ness was hit by un­cer­tain­ties such as West African Ebola health cri­sis in 2014, the un­cer­tainty of the Nige­rian gen­eral elec­tions in 2015, the crash in oil price, the even­tual Nige­rian re­ces­sion in 2015, as well as the de­val­u­a­tion of the naira and en­su­ing fis­cal cri­sis.

“The UK com­pany’s 358room ho­tel in La­gos, Nige­ria’s com­mer­cial cap­i­tal, will no longer op­er­ate as an In­ter­con­ti­nen­tal-branded prop­erty as of Jan­uary 18,” IHG’S di­rec­tor of African op­er­a­tions Si­mon Stam­per, said in an emailed state­ment on Jan­uary 17.

In May 2017, a Nige­rian court or­dered one of the lenders to the N30 bil­lion ($ 83m) In­ter­con­ti­nen­tal ho­tel, Skye Bank plc, to take over the prop­erty from its owner Mi­lan Group over debts of $29.8 mil­lion and N3.8 bil­lion. IHG con­tin­ued to man­age the prop­erty, which then went into re­ceiver­ship.

The re­ceiver for In­ter­Con­ti­nen­tal Ho­tel in La­gos, Messrs Kunle Ogunba & As­so­ci­ates said in Jan­uary, “the ho­tel’s rev­enue can­not sus­tain IHG’S charges of al­most N40 mil­lion monthly with­out fur­ther bor­row­ings as fur­ther bor­row­ings based on the pe­cu­liar cir­cum­stances of the ho­tel is fool­hardy as the ho­tel is cur­rently in­debted to two banks in ex­cess ag­gre­gate of over $100 mil­lion.”

Over the years, In­ter­Con­ti­nen­tal Ho­tels Group PLC has been bat­tling with a back­log of debt. As at June 2017, the group’s long-term debt & cap­i­tal lease obli­ga­tion for the quar­ter that ended in June 2017 was $2,106 Mil­lion. These debts have been is­sued over a pe­riod of 3 years.

Wool­worths

In Novem­ber 2013, barely one and half years af­ter South African re­tailer Wool­worth ex­panded into Nige­ria it called it quits and pulled out its three stores from the west African coun­try cit­ing high rental costs, du­ties and com­plex sup­ply chain pro­cesses.

The rea­sons cited by Wool­worths were high rental costs, du­ties and sup­ply chain chal­lenges in Nige­ria.

“When an in­vest­ment no longer gen­er­ates vi­able re­turns, dif­fi­cult de­ci­sions have to be made to con­tain costs,” CEO of Wool­worths Ian Moir said in a state­ment. “The Wool­worths cloth­ing and gen­eral mer­chan­dise busi­ness in Nige­ria has not been suc­cess­ful, de­spite sev­eral at­tempts to im­prove performanc­e.”

*These in­clude job losses in lo­cal com­pa­nies.

Newspapers in English

Newspapers from Nigeria

© PressReader. All rights reserved.