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Nigeria: Shoprite to discontinue all or some of its operations

By Oluwatosin Adeshokan
Posted on Monday, 3 August 2020 14:25

shoprite
People gather to enter the newly commissioned Shoprite store at Novare Gateway mall Abuja, Nigeria November 30, 2017. REUTERS/Afolabi Sotunde

Shoprite is the latest company to announce plans to exit Nigeria.

In the operational and voluntary trading update published by the company Monday (3 August) morning, the South African grocery retailer is considering an outright sale of its operation or selling a majority stake in its Nigerian subsidiary.

Shoprite will be following South African Mr. Price and Opera in discontinuing some or all of their operations in Nigeria.

READ MORE Nigeria: Opera subsidiaries are the latest companies to quit the country

The company has said it has been approached by potential investors looking to take over its Nigerian operations and will be considering an outright or majority sale of its stake in the Nigerian subsidiary.

Growing economic frailty

Shoprite’s Nigeria exit comes at a time of a growing economic slump in tandem with declining consumer spending.

READ MORE How will Nigeria navigate the pandemic

In 2015, Nigeria entered a recession that cut through all sectors of the economy, particularly the consumer market. 2018 brought saw a recovery, but another slump in 2019 saw some of those gains fall back.

As the economy was finally moving in an upward trajectory, along came COVID-19 that has essentially wiped out all those gains.

Due to the COVID-19 pandemic, several countries have seen their economies slow down or grind to a halt. Despite being one of the largest economies in Africa, the IMF has forecasted the Nigerian economy to shrink by at least 3.4%, but local experts predict that the estimated value is generous.

Poor consumer market growth

Nigeria’s consumer market is rather fragmented and heavily based on the informal sector. Since 2015, Nigeria has not seen consumer market growth.
For large retailers like Shoprite and Mr. Price, a strong middle class is needed. But the Nigerian formal consumer market is insignificant and the now shrinking middle class is unable to push the retailers into the sustainability they need.

“Companies have sometimes been open to subsidising losses for a while with the hopes that they will be at the forefront in the case of an economic recovery, but Nigeria does not have great prospects at the moment. The economy is not growing, unemployment and inflation are high and income has not grown in years.” says Adedayo Bakare, a Lagos-based economist.

The exits from Nigeria by foreign multinationals are not expected to slow down any time soon. A new recession is looming in Q3 of 2020.

READ MORE Coronavirus: recession in Nigeria likely, despite measures in place

“Right now is probably the best time to exit Nigeria as a multinational. Companies that exited Nigeria before 2015 possibly got the best value for their investment,” explains Bakare.

Action from the CBN

But the Central Bank of Nigeria (CBN) already told investors to wait for an orderly exit especially since the CBN no longer has enough FX liquidity to serve everybody.

The company said it has been approached by potential investors willing to take over its Nigerian operations. It said it was considering an outright sale of its operation or selling a majority stake in its Nigerian subsidiary.

It is expected that the CBN will not sell USD until there is a hike in oil prices. At the moment, that future is bleak.

But the CBNs Capital controls to stabilise the economy is putting the country and its investment climate in a state of uncertainty.

“Global indices tracking Nigeria are considering leaving the country especially as Nigeria can’t guarantee capital flows for investors. The FX restrictions mean that more investments might leave because of the foreign exchange restrictions currently in the market. A lot of multinationals report their earnings and profits in dollars and when you look at Nigeria’s abysmal exchange rate, especially in the black market, the investments are not viable,” says Bakare.

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