In the last 6 years, the only certainty which Nigeria has offered businesses is “policy is bad today and the business environment is weak, rest assured things will be worse tomorrow”. It is increasingly difficult for multinational businesses to justify continued presence in Nigeria. ShopRite has over 500 stores in 14 African countries. In 2018, sales in South Africa, its home market, was 78% of overall sales and rose by 8.7% while sales outside South Africa, excluding Nigeria, declined by 1.4%. Indigenous investors may suffer Nigeria’s “follicies” more gladly and patiently because they have more limited options.
Africa’s biggest supermarket business, ShopRite, last August was said to be looking for a buyer for its Nigerian business as it prepared to exit Africa’s largest economy due to poor performance and dim growth prospects. Eight months after ShopRite first disclosed its plan to divest from ShopRite Nigeria, Persianas Group, a real estate company led by Tayo Amusan, a Lagos businessman and developer of The Palms Mall which houses ShopRite’s first Nigerian store in Lekki Lagos, has emerged buyer. ShopRite’s exit from Nigeria was thus confirmed two days after Twitter, the microblogging and social media behemoth, chose Ghana over Nigeria for its first African office.
Reuters confirmed from banking sources that Persianas is currently arranging a buyout through debt. Neither Persianas nor ShopRite has offered any comment on the deal.
“MBO Capital and KPMG advised Persianas while FBN Quest, a unit of FBN Holdings, is arranging the debt”, the sources disclosed, adding that Investec advised Shoprite on the deal.
Why Shoprite decided to exit
The divestment is connected to disruptive foreign currency exchange management, declining purchasing power, inclement business environment and growing competition in the modern retail sector.
Naira’s Unending Woes: In 2002 when ShopRite opened its first store in Nigeria, the naira exchanged for about N110 to the dollar. The exchange rate today is N380 to the dollar at the official Central Bank of Nigeria rate and N480 at the “black market”. Each cycle of devaluation, triggered by a fall in international oil prices, has decimated purchasing power and “scarred” several parts of the economy.
Nigeria has not learnt to delink its exchange rate, investment flows and economic output from the price of oil; the CBN makes forex available at unsustainable rates when the oil price is high and restricts access to forex to individuals and firms when oil prices fall. Business planning is much more difficult when prices of inputs and their own prices change constantly and they cannot even predict when they will be able to buy forex from the CBN (when it decides to ration supply rather than devalue the naira).
Businesses can adjust to a timely and orderly devaluation, accompanied by a transparent and predictable system of allocating diminished foreign exchange inflows to individuals and firms. Nigeria consistently has chosen opacity, rationing and uncertainty which makes planning near impossible for businesses.
A Dark Horizon for Business: The policies and “body language” of Nigerian policymakers do not show that they have any understanding of the policies required to accelerate investment, productivity and job creation and of the environment that businesses require to invest, hire and expand. The harmful policies that the Nigerian authorities have clung to are clear signals to businesses that the economy and business environment will not improve soon.
Weak economic management has increased poverty in Nigeria, feeding into the country’s problems of insecurity. Nigeria now has the second highest unemployment rate in the world. Shoprite has over the years sourced more of its stock from Nigeria. Insecurity in vast parts of the country not only restricts the scope of expansion but slowly and steadily increases the cost of domestic sourcing. Opportunistic urban mobs have also looted malls during protests over xenophobia in South Africa and the #EndSARS protests over police extortion and brutality.
Competition: In 2002, ShopRite stores, situated in shinny air-conditioned malls, was such a novelty to Nigerians they doubled as leisure centres and domestic tourist attractions. Over the years, innovative competitors such as Ebeano has sprung up. Spars, a British supermarket brand is also expanding in Nigeria.
In the last 6 years, the only certainty which Nigeria has offered businesses is “policy is bad today and the business environment is weak, rest assured things will be worse tomorrow”. It is increasingly difficult for multinational businesses to justify continued presence in Nigeria.
ShopRite has over 500 stores in 14 African countries. In 2018, sales in South Africa, its home market, was 78% of overall sales and rose by 8.7% while sales outside South Africa, excluding Nigeria, declined by 1.4%.
Indigenous investors may suffer Nigeria’s “follicies” more gladly and patiently because they have more limited options.
Tayo Amusan and his Persianas Group
Amusan has over 25 years of experience in trading and real estate in Nigeria. Persianas is founded partly on the back of family wealth. Amusan’s parents are Abeokuta-born traders who migrated to Lagos in the 1950s, importing and trading a wide array of consumer goods. Persianas floated The Palms, Nigeria’s first shopping mall in Lekki Lagos where the first ShopRite store remains the key anchor tenant. Without a track record in the organised retail sector, Persianas may have to rely on ShopRite for technical support; it is not known if this is part of the deal to sell to Persianas.
Amusan’s bet may be that the ShopRite chain will become more valuable when Nigeria returns to more orthodox, pro-business policies, possibly after the 2023 elections. For now, Persianas must be content with the low returns and slow growth ShopRite has fled from.