The exit of a foreign company like Shoprite from Nigeria is no longer news. This has become the norm despite Nigeria’s massive youthful population and the growing middle class that seems to attract investors.
Even though this business decision often has a devastating impact on the jobs, government revenue, and perception of Nigeria’s business environment to the international community, nothing has been done to reverse the trend.
The same reasons given by the South African retailer, Woolworths, for closing its three stores in Nigeria eight years ago were given when Mr. Price and now Shoprite.
Following the steps of Woolworths and Mr. Price, Shoprite is set to sell its investment in Nigeria. These big retail companies, all from South Africa, are facing the same problem with their business operations in Nigeria – a difficult business environment.
This is not limited to only brick and mortar retail stores as e-commerce businesses such as Efritin, OLX, Buyam, and Dealdey, that left Nigeria cited the same reason.
Like Shoprite, Woolworths, And Mr. Price
Woolworths’ clothing and general merchandise business has been operating in South Africa for decades – since 1931 but its Chief Executive, Ian Moir, reportedly explained that the company had assessed the viability of all its investments on an ongoing basis and found out that its business in Nigeria had not been successful, despite several attempts to improve performance.
Eight years ago, the company was quoted by Financial Times as saying “High rental costs and duties and complex supply chain processes made trading in Nigeria highly challenging. The Nigerian business was unable to sustain a compelling product and value proposition that represents the brand well and meets the needs of the Nigerian customer in a climate that is hot throughout the year.
“Given that Woolworths could not see these circumstances changing in the medium term, the investment was deemed no longer viable.”
After its exit from Nigeria, Woolworths went ahead to open stores in Botswana, Namibia, Swaziland and Ghana.
Similarly, Chief Executive of Mr. Price, Mark Blair, said that the retail store made some money when it came into the country newly but it had become difficult to do business in the face of lots of challenges such as repatriation of the company’s profits.
Blair had said the company planned to conclude its exit from Nigeria in half-year 2021 to focus on its South African investment.
Speaking on the sale of Shoprite’s real supermarkets in Nigeria, its CEO, Pieter Engelbrecht, had earlier this year said it faced devaluation of the currency, which eroded its profits in some of its markets, including Nigeria.
According to him, the company is waiting for regulatory approval in order to conclude the sale of its Nigerian operations.
Shoprite, a leading South African mass retail supermarket, started operation in Nigeria in 2005 and has opened 25 stores in Nigeria’s major cities.
The retail company classified its Nigerian operations as a discontinued operation in its full-year financial report, stating that it had concluded sales of the Nigeria subsidiary but was waiting for the approval of the Federal Competition and Consumer Protection Commission (FCCPC).
Investment analysts have attested to the roadblocks to doing business in Nigeria that may have prompted the decision of Shoprite management, some of which are:
Speaking with BizWatch Nigeria, the Director-General, Nigerian American Chamber of Commerce (NACC), Sola Obadimu, said the efficiency of ports is one of the factors to consider when doing business in Nigeria.
According to him, the only operational port is in Lagos despite the presence of other seaports in different parts of the country.
He stated that Lagos ports are also difficult to access and clearing of goods has become tedious.
He said, “Whoever wants to invest needs to look deeper. Inefficiency and inaccessibility of the port are all real issues we need to consider. We are operating a mono-port because only the
“The other ports for some reasons are inoperative. If you are taking things to Port Harcourt, you have to clear the cargo in Lagos and use container trucks to take it down to Port Harcourt when there is a coastline that extends from Lagos to Warri and Port Harcourt. It doesn’t make any sense.”
Competitive Business Environment
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, the decision to leave Nigeria could be a result of intense competitive pressures which are posing risks to business sustainability or harsh business conditions.
He added that with operations in 14 African countries, the decision to quit Nigeria may be due to a comparative analysis of returns on investment in these countries.
Yusuf said, “The opportunities for retail business in Nigeria are immense. But the competition in the sector is also very intense. There are departmental stores in practically every neighbourhood in our urban centres around the country. There is also a strong informal sector presence in the retail sector. It is a very competitive space.”
Obadimu described the insecurity in the country as a major issue discouraging investors.
“Now that we are talking about African Continental Free Trade Agreement (AfCFTA), we cannot compete fairly if there is no security. There is no way we can produce at a competitive rate when we consider bribery and corruption, banditry and terrorism,” he added.
Outsiders who want to do business in another country are looking for the same denominators and part of it is the ability to repatriate their proceeds, the NACC DG states.
Yusuf added that the Central Bank of Nigeria’s forex policy has made importation and remittances difficult for foreign investors.
While noting that Nigerian investors face the same challenges as foreign investors, Obadimu said that due to poor infrastructure, Nigerian investors prefer to do less-productive businesses such as schools, petrol stations , and churches.
“Looking at the poor infrastructure, the light and road, there is no way we can compete with goods produced in other economies where things are more stable. No one wants to invest in a productive business because of poor electricity. You will have to power your business with diesel,” he added.
Despite these hurdles, other South African businesses such as MTN, Multichoice Stanbic IBTC, Standard Chartered Bank consider Nigeria as their biggest market and have remained profitable.
Also, PEP, a South African discount retail business is still operating in Nigeria. However, can the company survive the difficult business terrain and remain profitable? Only time will tell.