Corporate exit not over for Nigeria’s troubled economy

Another corporate giant, Sanofi-Aventis Nigeria Limited, like GlaxoSmithKline (GSK), is about to exit Nigeria; but says it is adopting a third-party model for the distribution of its products in the country. The French pharmaceutical multinational (Sanofi), which is renowned for producing polio, influenza, meningitis and rabies vaccines, is obviously changing its business model in Nigeria in the face of mounting challenges.

In a letter to its stakeholders, dated November 7, 2023, the company said the “exciting transformation of its business model in Nigeria”, would take effect in February 2024. “In our new model, commercialization of Sanofi’s portfolio of medicines will be driven solely by a 3rd party distributor to be named soon,” read the statement signed by Folake Odederin, general manager (general medicines).

“This strategic move represents a significant milestone for our organisation and is driven by our commitment to continually improve access to our medicines and to better serve our patients and the Nigerian health system.” The company also said it is engaging with its employees, partners and key stakeholders “to ensure full transparency.” Sanofi, a multinational pharmaceutical business has had its operations in Nigeria for upwards of four decades; but it is now electing to distribute its products through a third-party by 2024. This is coming on the heels of GSK, another pharmaceutical giant that chose a similar path about four months ago.

Although each of these exiting blue chips has euphemistically passed across their ‘new model’ as a “transformative strategy,” behind this veneer is the increasingly scorching environment that Nigeria has become. These exit messages, especially since the ‘new’ President Bola Ahmed Tinubu administration, are merely couched in business niceties, to enable such businesses to turn round only to exploit Nigeria as a ‘big market.’ But it is impolitic not to see the connection between the exit of these big business concerns after decades of unhindered success in Nigeria, and the lingering economic reform-induced hardship in the land today.

It is no brainer that practically all economic reform measures of the current administration in Nigeria have unleashed very debilitating unintended consequences on the polity. From fuel subsidy removal to multiple exchange rates merger; from palliative packages composition to their (mode of) distribution: pains and sufferings have been unleashed on all economic agents, unwittingly! So far, rather than meaningfully improving the wellbeing of the citizenry, the Tinubu administration has been deeply engrossed in managing the negative fallouts of its own economic policies.

In the face of this ugly reality, while most operators in the business sector are shouting and crying hoarse, not a few are opting to flee Nigeria under the guise of ‘new business models,’ to exploit the huge population advantage of the country, only as a market. On the other hand, not a few of those businesses that are still around are gradually creeping to insolvency. A Punch Newspaper report (November 13, 2023) says: “Eight firms record N918.1Bn loss on currency revaluation.” Currency revaluation is the ineluctable fate of all business entities arising from the local currency (Naira) floatation on June 14, 2023 by the Central Bank of Nigeria (CBN). This singular policy practically collapsed the Naira value vis-à-vis the dollar and others to the lowest level ever!

Following the CBN’s policy (Naira float) to allow the market to determine the value of the local currency, the Naira dropped from N461/US$1 as of December 2022 to N777/US$1 in September 2023. An analysis of the financial statements of the eight companies (in The Punch report) showed that the devaluation of the Naira from N465/US$1 at the end of May 2023 to N776.79/US$1 by September, gave rise to the record huge exchange loss. The firms include: Dangote Sugar Refinery Plc, Dangote Cement Plc, MTN Nigeria Communications Plc, Guinness Nigeria Plc, Nestle Nigeria Plc, Nigerian Breweries Plc, Airtel Africa Plc, MRS Oil Nigeria Plc, and Seplat Energy Plc.

Specifically, Dangote Sugar in its nine months’ (2023) financial report, recorded a revaluation loss of N90.99 billion. The report said: “In line with the CBN circular of 14 June 2023, which introduced Naira floatation…, the Group changed its USD/Naira closing rate of N461/US$1 as at 31 December 2022 to N756/US$1 as at 30 June 2023, and now N776.79/US$ as at September 2023. Monetary assets and liabilities for the Nigeria operations were revalued at this rate, resulting in a revaluation loss of N72.88 billion for the Group.” The report noted that this huge loss has been fully recognized in the month of September 2023.

On its own part, Dangote Cement recorded N99.02 billion as a revaluation loss, while Nestle’s revaluation loss stood at N143.4 billion in the period under review. According to Nestle, owing to the recent devaluation of the Naira, it revalued four foreign currency obligations, which led to its N143.4 billion loss for the period ended 30 September 2023. MRS Oil recorded N2.37 billion loss, and Seplat recorded N16.38 billion.

Nigerian Breweries on its own, recorded a revaluation loss of N86.83 billion during the period under review. MTN Nigeria recorded a forex loss of N232.8 billion on its net foreign currency liabilities owing to the Naira floatation policy of the CBN. The firm further highlighted that apart from recording a forex loss, it also had challenges raising foreign exchange for its capital expenditure needs. MTN said in its report that: “Given the protracted forex paucity in the market, MTN Nigeria utilised trade lines to fund the establishment of confirmed irrevocable letters of credit for its network (capital expenditure) investments to sustain revenue growth.”

In summary, MTN said: “Our recognised loss for the nine months to September 2023 was 77 percent higher than the amount reported in first-half 2023, where we measured all the trade lines after offsetting the naira-denominated cash cover that was provided to the banks.” For Airtel, its foreign exchange loss after tax was US$317 million (about N246.31 billion) —“driven largely by a foreign exchange loss of US$471 million recorded in finance cost before tax, and US$317 million after tax because of the devaluation of the Naira in June 2023.”

Summarising its plight in Nigeria, Airtel said: “In some markets, we face instances of limited supply of foreign currency within the local monetary system. This not only constrains our ability to fully benefit at Group level from strong cash generation by those operating companies but also impacts our ability to make timely foreign currency payments to our international suppliers.”

Obviously these huge ‘forex losses’ by these otherwise very profitable businesses put to question their continued viability in the Nigerian environment. If each of these blue chips is recording billions of Naira in losses in a matter of months sequel to the Naira floatation, it is a matter of time before they go bankrupt. There is not yet any sign in the horizon indicating imminent improvement in the state of the Nigerian economy. Neither the hyper-inflation rate (fast approaching 30%) nor the deteriorating Naira exchange rate, nor the heavily weakened consumer purchasing power, nor the terrible insecurity in the land gives hope for any turnaround soon. This, perhaps, explains why not a few companies, in their best interest, are exiting Nigeria in droves. Today, it is Sanofi! 

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