Market shakeup

GlaxoSmithKline (GSK), the producer of Maclean toothpaste and painkiller Panadol, announced its exit from Nigeria after 51 years, citing…

GlaxoSmithKline (GSK), the producer of Maclean toothpaste and painkiller Panadol, announced its exit from Nigeria after 51 years, citing Nigeria’s shaky foreign exchange market. In H1 2023, its sales dropped to ₦7.75 billion ($9.9 million) from ₦14.8 billion ($19 million) in H1 2022, showing a 47.6% decline. The Haleon Group, a pharmaceutical company GSK owns 13% in, reportedly plans to terminate its GSK distribution agreement and appoint a third-party distributor for its healthcare products. The company hasn’t announced an exit date but is engaging the Securities and Exchange Commission (SEC) to see how to return cash to shareholders.

There have been previous pullouts by companies like GSK, and there will be more. Despite rhetoric from various administrations, Nigeria remains one of the most difficult places to do business. In recent years, the unavailability of foreign exchange (FX) has been a major issue for manufacturers. Foreign investors who bring FX to the country do so knowing they can access the same currencies from the CBN later. Unfortunately, this has not been possible in recent years, so many investors source FX from the parallel market at a substantial cost. Just last month, the CBN devalued the Naira substantially, and this has caused significant mark-to-market losses in the financials of companies with huge FX liabilities. Thus, many foreign investors have decided to cut their losses and redesign their business models. We expect companies that cannot implement effective backward integration in Nigeria will have to close their manufacturing plants and re-engineer their operations.