P&G to cut back on manufacturing operations in Nigeria amidst currency woes

Procter & Gamble, the American consumer-goods giant, is shutting down its care and hygiene products manufacturing operations in Nigeria. This move makes it the latest multinational consumer goods company to scale back in Africa's most populous nation amid a currency crisis. The crisis is at the center of government reforms aimed at boosting confidence among domestic and international investors.

The Cincinnati-based maker of Ariel detergent and Gillette razors said it will continue to supply the Nigerian market through imports, citing the naira's weakness and macroeconomic challenges as reasons for its decision.

“It's very difficult for us as a US dollar-denominated company to create value," P&G’s chief financial officer, Andre Schulten, said at the Morgan Stanley Global Consumer & Retail Conference in New York last week. "It's also difficult to operate because of the macroeconomic environment." 

Nigeria’s currency volatility has made it hard for firms to get foreign exchange and service their debts. Inflation has also soared, reaching an 18-year high in November at 28.2%, eroding consumers purchasing power.

P&G, which has operated in Nigeria since 1992, is not alone in scaling back. Other consumer- goods firms, such as Unilever and GSK, have also cut production or sold assets in recent months.

The exit of P&G and other foreign investors is likely to weigh on Nigeria's economy, which relies heavily on oil exports and foreign inflows.

Turning the corner with reforms

To create a conducive environment for business and investment, the government has taken some measures to ease the currency crisis, including clearing a backlog of dollar demand as part of efforts to boost foreign-exchange liquidity.

The Central Bank of Nigeria (CBN) is betting on President Tinubu’s bold reforms, which include the unification of the forex windows aimed at ending an artificially high exchange rate regime, to cool inflation and bring stability to the currency.

“The outlook for the domestic economy remains positive and is expected to maintain a positive trajectory for 2024,” Governor of the CBN, Olayemi Cardoso, told a joint legislative committee on banking, insurance and other financial institutions on Thursday.

“Inflation pressures may persist in the short term but are expected to decline in 2024. Exchange rate pressures are also expected to reduce significantly with the smooth functioning of the foreign exchange market.”

The government is also moving to reposition the aviation sector, which is vital for the country's trade and tourism. This week, President Bola Tinubu approved the suspension, removal, and replacement of Chief Executive Officers under the Federal Ministry of Aviation, citing poor performance. The government has disclosed plans to concession Nigeria's five international airports, saying that there is no going back.

Meanwhile, some international agencies have turned bullish on Nigeria's economy, citing some positive signs of recovery. Moody' Investors Service has upgraded Nigeria's credit outlook from stable to positive, reflecting the burgeoning confidence in fiscal reforms and efforts to bolster its foreign reserves. The World Bank has projected that Nigeria's economy will grow by 3.5% during 2023-2026, with Tinubu's economic reforms as a key driver.

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