Your last visit to Shoprite was probably before the lockdown but do you remember the first time you visited? Looking back now it’s a bit of a blur, but I definitely recall how I felt- like I was in a different world. Not to mention the yellow nylon that follows you after like a badge of honor. Shoprite quickly wormed its way into our hearts and pockets but the reason why we’re sad to see it go involves way more than dope pictures and glitterati.
As one of Nigeria’s early retail investors, the business chain announced plans to divest from the country on Monday in its latest annual report. The South African parent company opened its first store in Nigeria in December 2005 and has 26 outlets across 8 different cities of the country. The supermarket boasts of more than 2000 employees predominantly made up of 99% of Nigerians. Its decision to divest from Nigeria’s retail market is hinged on shrinking purchasing power, unstable foreign exchange rates which led to a drop of 8.1% in sales, and the general harsh business environment. The company also blamed measures set up within the country to curb the spread of Covid-19 as one of its major challenges.
Naturally, there have been a range of views shared in wake of the announcement. While it has been hailed in some quarters, others think it’s an ill omen and reflective of the uncertainty potentially facing the business community particularly foreign-owned ones. As things stand, both foreign and local businesses bear the cost of doing business in Nigeria and the troubles that come with it.
The move to divest from Nigeria means a local investor could take over and either choose to maintain its name or not. If the latter happens, Nigerians will definitely miss the customized yellow nylon bags that have come to denote a feeling of importance and wealth- artificial or not. Moreso, the name itself will be missed and the enhanced shopping experience. On the other hand, it will be remembered for opening Nigeria up to local retail after the demise of giants like Leventis and Kingsway. The likes of Spar, Ebeano, and Justrite among others came onboard posing a threat. A competent local investor could have a better understanding of consumers, local wants, and tastes without the potential pressures of international investors to please.
An Overview of Covid-19 on Nigeria’s Economy.
2020 has witnessed changes in the operations of businesses across all sectors in reaction to COVID-19 as the short and long term effects on businesses and the economy play out. As of March, the International Air Transport Association (IATA) reported an estimated loss of $252 billion owing to travel restrictions. Movie theatres have been shut down to maintain social distancing with concerts either canceled or postponed. Other sectors like hospitality, Art(s) and Culture, Oil and Gas, Real Estate, Trade, and Manufacturing are not left out. While some have had to lay off workers and slash employee salaries, a few have shut down completely.
Prior to the pandemic, Nigeria’s business environment was not entirely conducive for industries to thrive due to infrastructural challenges like stable power supply, motorable roads, traffic congestion, bans on foreign importations, and the prohibitive cost of doing business. The pandemic has seen businesses and Nigeria’s economy sink further with the sudden drop in oil prices which provides about 31% of Nigerian revenue and 90% of the country’s foreign exchange. Nigeria’s 2020 budget was based on an oil price of $57/bl but a decline in the price of Brent Benchmark crude forced the government to reverse this to $30/bl. Her crude oil export was also cut by 400,000 barrels per day following the deal by OPEC+ and other oil-producing countries in a bid to stabilize the market. Nigeria is also having to deal with foreign exchange hitches. The unstable rate has caused businesses to relax on importations as there would be a decline in purchase if goods are sold expensively. Following the drop of Nigeria’s dollar reserve from $45 billion to $35 billion, the naira was devalued from 307 to 360 per dollar while the dollar exchange rate for investors increased from $360 to $380. The Nigerian Stock Exchange lost 2.3 million earlier after cases of the virus first sprang. The naira is currently pegged at N474 against a dollar.
Restraints on movements around the world will make up for most of Nigeria’s sinking economy. There’s no importation due to closure of borders while commercial services are not fully in operation. Companies with constrained staff numbers could also struggle with productivity and citizens exhibit a low consumer purchase.
Foreign Companies Exiting Nigeria
Shoprite isn’t the only foreign retailer to divest from Nigeria. Mr. Price, a South African clothing company shut down four of its five Nigerian stores to focus on its home market. Mark Blair, Chief Executive of the retailer was quoted as saying he wasn’t prepared to invest further in a country with such economic volatility. In 2019, Woolworths, a South African retailer pulled out of Nigeria as a result of high rental costs, duties, and supply chain challenges in the country. These exits are becoming a trend and the reasons cited range from and include: the unavailability of critical infrastructure, access to Forex, compliance to standards, and instability of regulatory policies. Efritin was shut down in 2017 by parent company, Salt Side Technologies for poor internet, high cost of data, and a challenging economy. Etisalat UAE, UBS, HSBC, and Tiger Brands also exited the country in the 2010s. In 2016, Guardian reported that over 20 shipping firms left the country owing to a lack of financing and poor import policies of the federal government. Investors like Aberdeen Asset Management PLC and Ashmore Group PLC overseeing $450 billion of assets together also retreated from the market. With the onlook of things, it is likely that more companies are set to leave the nation leading to more unemployment and poverty.
Why does this matter?
Opeyemi Ani, a Senior Equity Analyst at Cordros Securities believes that the ongoing issues around doing business- forex illiquidity, multiple forex rates, constant devaluations, unavailability of critical infrastructure, bans on the importation of certain items and a pressured consumer wallet will continue to serve as deterrents to anyone potential investors in Nigeria. Foreign investors will always see Nigeria as potentially worthy of investment but its volatility and the government’s whimsical decision making serve as a deterrent. As long as that is swept under the carpet, these exits and divestments will continue to become more common place.