FEATURE: Implications of Shoprite exits from Nigeria
* Massive job loss
* Loss of tax, rental, royalty
* Huge loss to local manufacturing, farmers, etc
* Undermine foreign investors confidence in economy
By Oludare Mayowa
There were hues and cries over the announcement by Shoprite Holdings to sell all or majority stake in its Nigerian unit on Monday, with many commentators blaming the decision by the South African biggest grocery firm to exit the country on lack of conducive business environment.
The company in a regulatory filing with the Johannesburg Stock Exchange (JSE) said it has initiated the process to sell all or majority stake in its Nigerian unit; Retail Supermarkets Nigeria Limited (RSNL) and that the business which holds its franchise in Nigeria may be classified as discontinued operations in its year-end results.
A number of issues have been canvassed on what would have been responsible for the planned exit of the biggest superstore in Nigeria, which including dwindling sales as a result of economic downturn, rising inflation and currency crisis, which has made it tough for multinational firms to repatriate their profit back to their home countries.
See also: Shoprite To Leave Nigeria, Initiate Sales Of Majority Stake In RSNL
“I think the purchasing power of our middle class is really dwindling at a very fast rate coupled with the fact that the naira is on a free fall. These companies are not Nigerian companies, so their profit will be declared in dollars,” a commentator has said.
Many people see the imminent exit of the supermarket chain from the Nigerian market as a great setback on the already tough job market, contributions to the country’s economy in terms of tax payments, rental payments for malls where they are located, purchasing from local producers of products on display in the shops and other value-addition to the country.
Analysts believed that the supermarket chain failed to adjust to the economic trend in Africa’s biggest economy, which has been experiencing dollar shortages as a result of dwindling revenue from crude oil exports, leading to its decision to exit.
Some people, however, believed that Shoprite’s business was internally sabotaged by unscrupulous staff, who devised their own means to steal from the company.
The important things to note, however, is that the planned exit of the company may not be the end of the company operations in the country since it only plans to change ownership with either local investors or interested foreign interest, depending on who eventually bought over the franchise or the entire stake.
What this will also mean is that the company may eventually retain the bulk of its workforce under new management and ownership structure, which will leave little room for massive downsizing of staff.
Equally, all things being equal, if the South African business is able to get good investors to buy over its stake in the local unit, this could have minimal impact on the economy, especially if the new investors happen to be a local interest because there won’t be the need for such investors to constantly repatriate its profits abroad any longer.
The downside to this remains the country’s inability to manage its foreign exchange resources at the time of oil boom, by frittering away a huge portion of its reserves through a misconceived decision of the Central Bank of Nigeria (CBN) not to allow market mechanism to determine the exchange rate, thereby making the dollar cheaper for some privileged individual at the official window to arbitrage on it.
Also, if Shoprite is unable to get a good buyer to take over the business, it may resort to total closure or liquidation of the business and sell all its present stocks through open auction. That will definitely result in a big loss to the country’s economy through the losses of value addition in jobs, tax, rental as well as huge purchase foreign exchange repatriation of money generated through the liquidation process.
Many local banks would have lost access to cash flow from the operations of the company in the local market and possible interest they would have generated from loans and advances to the company and its suppliers as well.
That will also result in massive job loss both indirect and direct down the value chain, both its suppliers who will lose that market and those who provide services to the company.
The government may need to reevaluate the economic environment and understand why many companies are folding up and the reason behind the exit of South African businesses from the local market.
In the last couple of years, many South African businesses, such as MR Price, Woolworths and Truworths have exited the country over some issues relating to dwindling sales and tough business environments, particularly the difficulty in getting dollars for their operations.
The government, especially the monetary authority needs to urgently address the issue of currency shortage and fix the rapid depreciation of the local currency, which undermines confidence in doing business in the country as investors could no longer predict what happens next and do a long term planning for their business.
The huge cost of doing business in the country should be reviewed by the government, as Nigeria remains the most expensive place to do business in the continent, especially among its peers.
Costs of providing infrastructure by business owners, such as power supply, multiple taxations, corruption at the ports, which adds to the cost of bringing in goods into the country and issues of insecurity in the country must be tackled by the government.
With the planned exit of Shoprite from Nigeria market, many foreign investors who had initially made move to the country for possible entry may develop cold feet as the rash of exit from the local market by South African businesses could send wrong signals to them and undermine confidence in the local economy.
The focus is on foreign owned businesses exiting the country, there are many Nigerian businesses that have folded up due to the various unaddressed lapses in the operating environment and until the government is able to do something about such variables, the vision of reviving the economy might be a mirage at the end of the day.#GFD