Business & Money
Multinationals Retreat from Africa: Challenges in Kenya, SA, Nigeria
The depreciating value of currencies has made it increasingly challenging for multinationals to repatriate profits. In the past decade, Nigeria’s naira has fallen by 88% against the dollar, while the Kenyan shilling has decreased by 34%, and the South African rand has seen a decline of 44%.
Explore why multinationals like Nestlé and Unilever are retreating from Africa due to economic challenges in Kenya, South Africa, and Nigeria
Nestlé SA announced the cessation of production for Nesquik chocolate milk powder in South Africa in August 2023, attributing this decision to declining demand.
A year prior, Unilever Plc halted the manufacturing of home-care and skin-cleansing products in Nigeria to “sustain profitability.”
Pharmaceutical giants Bayer AG and GSK Plc have also outsourced the distribution of their products to independent firms in Kenya and Nigeria.
Over the past few decades, numerous top multinationals have flocked to Africa, attracted by rapid growth, youthful populations, and rising wealth.
However, recent challenges—including plummeting currencies, excessive bureaucracy, unreliable power, and congested ports—have diminished the region’s appeal.
“It doesn’t justify the effort,” remarks Kuseni Dlamini, a former chairman of Walmart Inc.’s African unit, who now leads the American Chamber of Commerce in South Africa. “This should be a wake-up call to African authorities. If you do not have a conducive environment to grow and scale businesses, you will be left by the wayside.”
The retreat of multinationals is most evident in Kenya, South Africa, and Nigeria, the trio of countries typically targeted for initial ventures into the region. Together, they represent 44% of sub-Saharan Africa’s economy and approximately 30% of its population.
This hesitation to expand or maintain current operations frustrates African leaders striving to alleviate unemployment and lessen their dependence on commodities as economic drivers.
President William Ruto of Kenya has stated that manufacturing could elevate the country to middle-income status by 2030, yet poor infrastructure and growing regulation have undermined competitiveness and stunted economic growth. Nestlé, which had contemplated increasing production in Kenya, is instead scaling back operations at its sole facility there.
While it will continue producing select items like Maggi noodles, it is downgrading parts of the facility to package imported foods like Cerelac baby cereal.
In January 2024, Neumann Gruppe GmbH, the world’s largest coffee trader, announced plans to shut down its Kenyan mill and a unit that provided financial and marketing support to small farmers, retaining only its operation that sources coffee beans for export.
The company noted that jobs would be lost, although it did not specify the number, attributing this move to a 2022 government decree that barred companies from both marketing coffee and grinding the beans, compelling them to choose one or the other.
Companies in Kenya are also grappling with increased taxes, particularly a levy on imports of essential raw materials such as cement, metals, and paper.
The Kenya Association of Manufacturers reported that last September, 53% of its members were operating at a quarter of their capacity or less, with 42% anticipating job cuts within six months.\
“All the numbers are negative,” stated Anthony Mwangi, CEO of the Kenya Association of Manufacturers, which represents both domestic and foreign firms. “Those spaces that were used for production, now they are empty spaces. There are warehouses that are importing the same stuff.”
Since 2016, major South African retailers like Mr Price, Shoprite, and Truworths have exited Nigeria, a market they once prioritized for international growth.
Last year, Unilever ceased production of Omo washing powder, Sunlight dishwashing liquid, and Lux soap in Nigeria, opting instead to import these products. In March, Nestlé’s local unit reported its first nine-month loss in twelve years following a significant decline in the local currency.
In South Africa, the continent’s most advanced economy, the once-praised infrastructure has deteriorated.
Power outages have become nearly daily occurrences, while water shortages are rising, with up to 40% of water lost to leaks in some urban networks.
Multinationals have also pointed to a convoluted work permit system that complicates the hiring of foreign executives.
The South African-German Chamber of Commerce stated last year that delays were jeopardizing operations owned by German companies responsible for 100,000 jobs in the country.
“The visa matter spans the entire hierarchy of German business in South Africa,” the group said in a statement. “This is of course not only a concern to German business but also to the country itself.”
The regular production interruptions and the scaling back of manufacturing pose significant challenges for local retailers.
Shoprite Holdings Ltd., Africa’s largest supermarket chain, has had to ramp up its stockpiles to prevent empty shelves, and is constructing additional distribution centers to accommodate more goods.
“This gives you an idea of how constrained the supply chain is,” noted Shoprite CEO Pieter Engelbrecht. “There’s very little investment in production capacity in South Africa amongst the manufacturers, and the multinationals have completely stopped.”
The declining value of currencies has further complicated multinationals’ ability to repatriate profits. Over the past decade, Nigeria’s naira has depreciated by 88% against the dollar, while the Kenyan shilling has weakened by 34%, and the South African rand has dropped by 44%.
This has resulted in diminished spending power for residents, especially concerning imported goods or those containing foreign components.
In response, local manufacturers are increasingly providing more affordable alternatives that replicate global brands.
South Africa’s Bliss Brands (Pty) Ltd. has long marketed its MAQ washing powder in poorer townships surrounding major cities.
Today, this brand is increasingly available at Shoprite’s Checkers outlets and Pick n Pay Stores in affluent suburbs—priced nearly 30% lower than Unilever’s Omo and Skip detergents.
While MAQ hasn’t always been the cheapest option compared to international competitors, it has managed to keep price increases in check, according to Moaz Shoaib Iqbal, a director at Bliss.
“Our structure is more nimble,” he explained. Multinationals are “relying on the equity of their brands to carry them through.”
This retreat has opened the door for lower-cost producers from other emerging nations to challenge the dominant brands with their own manufacturing facilities in Africa.
In Nigeria, locally produced diapers from a Turkish manufacturer are beginning to outpace Procter & Gamble Co.’s Pampers, while a ramen product from a Singapore firm is displacing Nestlé’s Maggi noodles.
“In Africa, the market for pricier items is dwindling,” said Alec Abraham, an analyst at Sasfin Securities in Johannesburg. “We are seeing a shift in ranges to suit more basic needs, which means fewer items as manufacturers match their ranges to income levels.”