Nigerian central bank moves to push banks to increase lending will be a damp squib, meaning an interest-rate cut is in prospect, says John Ashbourne, senior emerging markets economist at Capital Economics in London.
In Nigeria, 250,000 jobs and 19 firms hit by WEMPCO exit
News that the Chinese-owned Western Metal Products Company (WEMPCO) will exit Nigeria hit the wires last week, yet another victim of the economy contracting for five consecutive quarters between 2016 and 2017.
WEMPCO, a steel value-chain group and the majority shareholder in the popular Oriental Hotel in Lagos, is planning to sell the hotel at N94bn ($250m) and exit Africa’s biggest economy after four decades of operation and an accumulated debt of over N90bn.
According to the Punch newspaper, at least 250,000 jobs are also under threat as the survival of more than a dozen firms depends on WEMPCO. Nineteen enamelware firms have already shut down. The paper also reports that WEMPCO was for years “the authorised sole distributor of cold-rolled iron sheet, used in the manufacturing of roofing sheets and annealed iron sheets used in the manufacturing of enamelware”.
The company had already closed down the majority of its plants by the end of last year due to low patronage, as cash-strapped customers preferred to buy cheaper substandard substitutes smuggled in from across Nigeria’s borders.
Harsh business climate
While sources told finance publication Nairametrics that poor corporate governance and over-reliance on government policy contributed to the declining fortunes of the group, the harsh business climate in Nigeria also played a major role. On his election in 2015, President Muhammadu Buhari took six months to appoint a cabinet, leaving the economy on autopilot, while the central bank – which repeatedly refused suggestions from policy experts and economists to properly float the naira – placed import restrictions on as many as 41 items.
Small, large and medium-scale businesses were hit hard after falling oil prices and the lack of a sound economic policy sent Nigeria into its first recession in over two decades. The economy eventually exited the recession after a GDP growth of 0.6% in Q2 2017, but the impact of the marginal increase due to improved oil prices has hardly been felt.
Exodus of firms
Consequently, a number of thriving local and foreign businesses ended their operations in the country, sold their assets at a fraction of their values and have since moved on to other emerging markets. Others simply adopted austerity measures in order to stay afloat.
- In August 2016, 20 shipping firms packed up shop, with the dockworkers’ union saying over 3,000 workers were retrenched by shipping companies, terminal operators and logistic companies.
- Also in August 2016, the Manufacturers Association of Nigeria in a public statement announced that at least 222 small-scale businesses had shut down because of the import restrictions, leading to 180,000 job losses.
- That same month, local airline Aero Contractors suspended operations indefinitely and sent its staff on an indefinite leave of absence.
- Four months earlier, an inability to repatriate forex earnings led Spanish carrier Iberia airlines to exit Nigeria even though the company claimed its cause of action was due to dwindling air traffic on its routes.
- Perhaps the saddest story of all came in July 2018 when fast-moving consumer goods giant Proctor & Gamble closed its $300m production plant commissioned just a year before by vice-president Yemi Osinbajo in Ogun state. Earlier in 2018, the multinational had also divested from another plant in southwest Nigeria, saying it was “restructuring [its] Nigeria manufacturing operations to deliver a more effective business operation for now and sustainably for the future”.
With unemployment already at 23.1% according to official statistics, things can only get worse. On 2 May employment minister Chris Ngige predicted that it would rise to 33.5% by 2020.