Exchange rate fluctuations are forcing multinationals out of the Nigerian market

Exchange rate fluctuations are forcing multinationals out of the Nigerian market

Exchange rate in Nigeria

The fluctuating Nigerian exchange rate has persistently posed a significant challenge for many years, perpetually depicting the Nigerian Naira as relatively weak compared to other global currencies. In this essay, the focus is on elucidating the adverse effects of this currency fluctuation on multinational corporations operating in Nigeria.

These are businesses that operate in multiple countries worldwide. The Nigerian landscape is adorned with numerous multinationals, including Shell BP, Nestle Nigeria, British American Tobacco, United African Company (UAC), Unilever, MTN Telecommunication, Coca-Cola, Lever Brothers, Mobil Oil, and several others. These Multinational Companies are powerful conglomerates that emerged in Nigeria after the abolition of the slave trade. Consequently, European countries sought a market for their surplus products and a source of cheap raw materials and labor. In this context, Africa, particularly Nigeria, with the largest black population on the continent, became the obvious destination.
The importance of multinational corporations in the current global business environment cannot be denied, given their substantial investments in major economic activities. Countries benefit from a variety of products, services, and facilities brought to their doorsteps. This leads to the creation of more jobs for the populace, optimal utilization of the nation’s pool of skills, and effective and efficient use of resources. Additionally, there is advancement in technology, as these companies introduce state-of-the-art technology for their businesses. Most of the products we use are supplied by multinational corporations. Their presence and significance in our lives are undeniable facts. They have developed distinct advantages that can be utilized for world development. Their ability to tap into financial, physical, and human resources worldwide, combine them in economically feasible and commercially profitable activities, and develop new technology and skills, as well as their productive and managerial ability to translate resources into specific outputs, has proven to be outstanding.
While multinational corporations may appear disadvantageous to domestic and local producers, they have proven to be extremely helpful, especially concerning the state of the economy and markets in Africa and Nigeria. These markets are evidently insufficient to provide, import, and produce the necessary commodities for the citizens, and multinational corporations have seemingly taken on these roles.
However, the unsteady nature of the Nigerian exchange rate has inflicted considerable damage on these corporations. Over the years, statistics have consistently shown a decrease in the value of the Naira in the international sphere.
Fluctuations in the value of the Nigerian exchange rate between 2003 and 2022 were found to hurt export value in 2004, 2007, 2009, 2013, 2015, 2016, 2019, and 2020 (1.9%, 16.0%, 36.9%, 35.9%, 50.3%, 29.1%, 2.5%, and 44.9%, respectively). However, it was found to have an unstable impact on export value in other years.
This unfortunate development stems not from an escalation in the production costs of most commodities but rather from the depreciation of the naira, compelling Nigerians to allocate more funds for their acquisition.
Consequently, this trend has resulted in the withdrawal or substantial reduction of activities by several multinational corporations operating in Nigeria.
Within the past year, at least five multinationals have ceased operations in Nigeria. Procter & Gamble, a consumer goods giant, declared its intention to discontinue on-ground operations in the country. The company attributed this decision to the challenges of conducting business in Nigeria as a dollar-denominated entity, citing the macroeconomic reality in Nigeria as a primary factor. Schulten, the Chief Financial Officer, elaborated, stating, “We have announced the transformation of Nigeria into an import-only market, effectively dissolving our on-ground presence and reverting to an import-only model.”
Unilever also disclosed the cessation of its operations in Nigeria, citing business changes necessitating an exit from its home care and skin cleansing categories.
Francis Meshioye, the President of the Manufacturers Association of Nigeria, informed The PUNCH NEWSPAPER that several international manufacturing firms had already exited Nigeria due to the power crisis and the unpredictability of the country’s foreign exchange rate before its recent unification. Following Meshioye’s warning in July 2023, GlaxoSmithKline Consumer Nigeria, the country’s second-largest drug producer, announced the cessation of its manufacturing operations in Nigeria.
Sanofi, a French pharmaceutical multinational, declared its exit from Nigeria, appointing a third-party distributor to handle its commercial portfolio of medicines from February 2024.
Bolt Food also made the difficult decision to discontinue its food delivery operations in Nigeria, citing business reasons such as the rise in fuel prices, leading to an increase in delivery fees.
Recently, Nigeria’s central bank terminated its distorted foreign exchange rate, aligning with President Bola Tinubu’s commitment to fortify the struggling economy. For years, Nigeria operated multiple exchange rates, with the official rate dictated by the central bank and a significantly higher unofficial rate determining the prices of imported commodities like wheat, priced in dollars. The exchange rate will now be determined by market forces rather than the central bank, a move praised by economists and analysts as a step towards stabilizing the exchange rate. However, it is anticipated to raise the cost of imported goods in the short term, potentially impacting a nation heavily dependent on imports. Nevertheless, this is expected to result in short-term challenges and long-term benefits.
The exchange rate has regrettably remained a persistent and significant issue in Nigeria. This predicament arises from the nation’s excessive reliance on the importation of commodities and the extensive business activities and profits intricately connected to this dependency. Even a minor uptick in the exchange rate can have severe repercussions, affecting not only the corporations engaged in importing these goods but also the retailers selling them and the consumers acquiring them. 
There exists a compelling call for the government to demonstrate greater determination in its endeavors, aiming not only to stabilize the exchange rate but also to establish an infrastructure that fosters the growth of domestically produced commodities. This proactive approach is vital to mitigate the vulnerability of the nation’s economy to external factors, ensuring a more resilient and self-sufficient economic landscape. By strategically promoting and supporting local industries, the government can play a pivotal role in reducing the adverse effects of exchange rate fluctuations on businesses and consumers alike.