Shoprite Divestment: How Nigeria Can Keep and Attract Foreign Investment


On Monday, Africa’s largest retailer, Shoprite, announced plans to sell its Nigerian investment, Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited.

“Following approaches from various potential investors, and in line with our re-evaluation of the Group’s operating model in Nigeria,” the company said in a statement. “the Board has decided to initiate a formal process to consider the potential sales of all, or majority stake in Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited.”

This announcement came a few months after another South African business in Nigeria, Mr. Price, exited Nigeria in June. In 2014, Wordsworth Holding, the South African seller of designer clothing and organic food quit its operations in Nigeria.

Plummeting Foreign Investment

Shoprite opened its first supermarket in 2005, four years after another South African telecom company, MTN arrived in Nigeria as an early investor.

A decade later, about 120 big South African companies, including Multi-choice, Stanbic Merchant Bank of Nigeria, South Africa Breweries (SAB Miller), Protea Hôtels, among others entered into the Nigerian market.

But in five years, about five South African businesses have discontinued operations or divested their shares over issues ranging from poor ease of doing business such as severe delays in clearing goods at Nigeria’s ports to difficulty in purchasing foreign exchange due to Central Bank of Nigeria’s restrictions.

Nigerian economy has been described by economists as “recursive” i.e. characterised by repeated episodes of growth linked to high oil prices and recurring periods of slump occasioned by low oil prices. Nigeria tends to overspend in good times and freely supply rising oil dollars to businesses and citizens. The country has resisted advice to smoothen both consumption and access to foreign exchange through a mix of moderate spending and the use of high foreign exchange rates to deter sharp rises in imports and hence preserve its reserves in good times.   Hence, the economy is characterised by deep circles of booms and bursts. This has both burnt and deterred  foreign investors.

“Fifteen years ago, Nigeria had the highest reception of Foreign Direct Investment (FDI) in Africa, said Dr Vincent Nwani, Lead Consultant at Lagos based Kavind consulting services and former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, “We were number one in Africa, but now we are number 10. Nigeria is a very difficult place to invest in. It is sad that about 114 South African brands have one issue or the other that threatens them to leave Nigeria.”

Nigeria has witnessed a sharp drop in Foreign Direct Investment i.e. a controlling ownership in a business in one country owned by an entity based in another country.

FDI flows to Nigeria totaled USD 3.3 billion in 2019, showing a 48,5% decrease compared to the previous year (USD 6,4 billion in 2018). The total inflow of FDI was estimated at USD 98.6 billion in 2019. The main investors in Nigeria include the United States of America, China, United Kingdom, the Netherlands and France, according to the UNCTAD 2020 World Investment Report.

In the 2020 edition of the World Bank’s Doing Business Report, Nigeria ranked 131st worldwide among 190 countries. A criticism of the Doing Business Ranking is that it is easy to “game”, i.e. countries focus on easy to achieve measures such as cutting the number of processes and days required for the  registration of businesses while a host of deeper structural reforms which determine the possibility of businesses making a profit are ignored. A CNN report noted that while Nigeria moved up 15 places in the 2020 Ease of Doing Busines ranking, “that doesn’t necessarily mean an improved economy and that the country still has anti-business policies

Harsh business environment

Nigeria’s leap to number 131 from the previous 146 position in the Ease of doing business ranking stands in sharp contrast to the realities of the harsh business environment.

“Nigeria is a difficult place to do business presently, ” says Dr Nwani “it is bad news Shoprite has been affected, and bad news is not good for potential investors.”

Dr. Nwani said that a few factors which include macroeconomic instability, conflicting exchange rate policy, inflation, counterproductive economic policies, and lack of confidence in the judiciary system of Nigeria would have contributed to Shoprite divestment.

For 9 years Shoprite has been entangled in a legal tussle that has been a huge distraction to operations in Nigeria. In 2011, AIC limited, a Nigerian company, sued Shoprite, claiming it breached an agreement to set up the Nigerian arm of the business with it.

In 2017, Nigeria’s Federal High Court ruled in favour of AIC and awarded damages of $10 million against Shoprite. Shoprite’s appealed against the judgement but lost the appeal earlier in 2020.

Dr. Uwani says this might have contributed to Shoprite’s divestment decision.

“Nigeria is not good to businesses founded by its own citizens. Do you know how many SMEs have shut down in the last 6 months because of the harsh business environment? We do not hear news about these because they are not Shoprite. If Nigerian business can thrive, other businesses too would,” he adds.

Abiola Gbemisola of Chapel Hill Denham, a leading Nigerian investment bank agrees that Shoprite’s plan to sell its business in Nigeria is an indicator of the country’s troubled investment terrain, noting that “Nigeria will continue to struggle to attract new long term FDI (foreign direct investments).  Shoprite’s exit may lead to loss of jobs and loss of local supplier’s contracts, unless the new owner(s) manage the business efficiently”.


How FG can fix the business environment

Dr. Nwani thinks that the Federal Government (FG) can summon the political will to fix Nigeria’s harsh business environment.

“Government must assure us first that Nigerians doing business in Nigeria can succeed before foreigners. Exchange rate fluctuation is also another problem, but finally the government is trying to harmonize the exchange rate,” he said.

The Federal Government can also fix the harsh business environment by ensuring macroeconomic stability and implementing policies that favour businesses.

“Improving Nigeria’s business attractiveness can be guaranteed via Stable fiscal policy environment, transparent and flexible management of exchange rates, improving the business operating environment vis-a-vis power supply, accessible roads, ports management, competitive import tariffs and duties that discourage smuggling incentives,” Gbemisola adds.

Shoprite is said to be discussing selling the majority or all of its holdings in Retail Supermarkets Nigeria Limited with a Nigerian real estate tycoon and two foreign investors. The potential buyers will negotiate hard to buy a business that has had negative growth in the last three quarters and amidst a global pandemic that has increased economic and business uncertainties even in kinder business environments. The potential buyers do not have a magic wand to wave away the Nigeria’s anti-business economic policies and chaotic business environment. What they are betting on is the immense growth that would be unleashed if Nigeria somehow gets its political act together and starts to improve both economic policy and more broadly, the quality of  key institutions.

Exit mobile version