Long before now, around more than 2,800 Shoprite’s outlets across Africa, employees had huddled together discussing what the future holds for them and their families should the Johannesburg, South Africa-based supermarket consider any divestment plan which will mean selling majority stake in the business in their respective countries. Such apprehension is genuine and legitimate especially at this time that the novel Coronavirus(COVID-19) has upended global economies and disrupted lives and livelihoods. But more than that, the employees’ fear was heightened by the letter from the Shoprite’s CEO Peter Engelbrecht. In Nigeria alone, Shoprite is reported to have provided about 3,000 direct jobs and 17,000 indirect jobs to Nigerians. That may be gone if Shoprite leaves Nigeria. Mr Engelbrecht had told analysts in February that Shoprite remained committed to the continent but not at any cost.
You see, the company has been reviewing its long-term options in Africa as currency devaluation, supply issues and low consumer spending in Angola, Nigeria and Zambia, among other countries, have weighed heavily on its earnings. But in Nigeria, it seems, things are not looking up, indeed, as tough as nails. As one investment analyst Christopher Gilmore told Reuters, regarding business environment in the country,”good riddance to Nigeria”. That may be an unfair comment, but that another factor propelling the exit plan.
Gilmour was quoted to have said, “it’s almost impossible for any foreign company to do business” in Nigeria. Companies never know where they stand with the (Nigerian) authorities and there are constant disruptions and distractions”. As far as he’s concerned, Shoprite’s CEO was delivering on his promise to deleverage the balance sheet and focus on the domestic market in South Africa, where the retailer continues to trade best. In fact, soon after Shoprite’s potential exit from Nigeria was announced, its shares in Johannesburg Stock Exchange reportedly soared to their highest in nearly two months.
That, it seem may have been the confidence boost Shoprite Holdings Limited in Nigeria needed to announce plans to sell majority stake in the country. In an “Operational and Voluntary Trading Update 52 Weeks Ended 28 June 2020” released on August 3, the company said it has been approached by “various potential investors”. The Update read in part, “Despite difficult circumstances, in a year incorporating the COVID-19 lockdown and accompanying regulations, the Group increased total sale merchandise for the 52 weeks to 28 June 2020(including the impact of hyperinflation in the prior year) by 6.4 percent to approximately R156.9 (that’s South Africa’s currency).
But it insists that, following approaches from various potential investors (which it didn’t disclose), and in line with its “re-evaluation model in Nigeria, the Board has decided to initiate a formal process to consider the potential sale of all, or a majority stake, in Retail Supermarkets Nigeria limited, a subsidiary of Shoprite International limited”. Consequently, the Shoprite Board added that its retail supermarkets Nigeria limited may henceforth be classified as “discontinued operation when Shoprite reports its results for the year”. It concluded that ‘any further updates will be provided to the market at the appropriate time”. This is emphatically an exit strategy, and it holds great lessons for Nigeria. With about 20,000 direct and indirect jobs to be lost by Nigerians, government’s effort to create jobs is getting worse. According to the latest unemployment data released last week by the National Bureau of Statistics (NBS), based on the 2019 Nigerian Living Standards Survey (NLSS), unemployment rate has risen to an all-time 27.1 percent in the second quarter(Q2)2020 from the 23.1 percent recorded in the Q3 of 2018. This, NBS said, was the highest when compared to other age groupings.
This could be a time-bomb by the time COVID-19 induced job losses are added across all sectors of the economy. Recall that at the build-up of the 2019 NLSS in May this year, NBS said that out of the estimated 200 million populations, 40.1 percent or 82.9 million Nigerians are poor. This means that four out of 10 Nigerians have real per capita income below N137,430 per annum. The Nigerian Economic Summit Group (NESG), an independent, non-partisan organisation recently said that between 2015 and 2018, 16.2 million people were added to the labour market.
What does the Shoprite Holdings Limited exit plan tell us? More than anything else, tried as hard the Buhari government has done already, foreign investors still perceive Ease of Doing Business (EoDB) in Nigeria as a harsh, disrupting and distracting country. This is in spite of the fact that the country has moved 15 places in the World Bank EoDB index, released last year. For instance, capital controls and restrictions on currency trading imposed by the government have not helped matters, according to experts. Foreign investors like Shoprite and others, complain about the harsh economic conditions, including devaluation of the naira and tight foreign exchange regime, are adding pressure on businesses.
What will happen to Shoprite’s investments in Nigeria estimated at $30bn will be clearer in the coming months. But one thing is clear: more jobs are at risk, though Shoprite will not be the first South African company to exit Nigeria. In 2015, South Africa’s largest food company, Tiger Brands, pull out out following poor sales after a reported $181.9billion acquisition of 63.35 percent stake in Dangote Flour Mills that produces flour, noodles and pasta.
Also, in 2015, Brunel International, a Dutch stock exchange-listed agency pulled out of Nigeria, citing “continued feeling of corruption and bribery”. The company’s CEO Jan Arie van Barneveld told the DutchNews that the “security risk and bureaucracy made it almost impossible to guarantee the quality of our services and safety of our workers in Nigeria in the future”. The company with headquarters in Amsterdam claimed that while in Nigeria, it had the feeling that it was “constantly cheated and bribed”.
True or false, when things go wrong, foreign companies operating in Nigeria give all manner of reasons to pull plug on Nigeria. Nevertheless, Shoprite’s planned exit from Nigeria should serve as a rude awakening to make our environment conducive for, and attractive to the business community. Investors should be constantly reassured that their investments are saved. The necessary regulatory frameworks and adequate security must be guaranteed. In fact, no investor, whether local or foreign, wants to put itself/resources in an uncertain environment. Though there are few things stronger than brand loyalty in business, there will be little success without security and ease of doing business and sustained profitability in any country. That may have weighed more on Shoprite’s decision than perhaps any other consideration.