Monday, May 17, 2021

Nigeria’s infrastructures nightmares, toxic business environment spark ShopRite exit plans as unemployment soars

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Godwin Okafor
Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

Collapse in Nigeria’s economy that’s solely depends on crude oil exports and Delays in clearing goods from Nigerian sea ports, traffic congestion and poor road accessibility have made it difficult for the Cape Town-based supermarket to consider Africa’s largest economy exit.

Shoprite Holdings Ltd., once Africa’s behemoth Pushing for expansion On the continent now plans to exit Nigeria after the continent’s largest food retailer struggled with supply-chain disruptions and faced challenges in getting money out of the country.

Talks between interested partners have started to sell the operations come after several other South African retailers that have left the continent’s most-populous country to focus more on their home market. Nigeria’s economy is being ravaged by a slump in oil prices that have dried up dollar supplies and a naira that was devalued earlier this year.

Shoprite, the owner of supermarket chains such as Checkers and U-Save opened in Nigeria 15 years ago and the company has been growing in 15 countries outside South Africa to become a continent-wide superpower with 2,319 corporate-owned food and liquor retail stores.

In 2013, Shoprite’s former Chief Executive Officer Whitey Basson said Nigeria could eventually carry about the same number of stores as the about 800 outlets Shoprite had in South Africa at the time. Even so, Shoprite’s expansion in Nigeria has been hampered, with its latest count at 25 corporate stores. That compares to South Africa’s 1,957.

‘Hard Decisions’

Chief Executive Officer Pieter Engelbrecht said in November that he was not “scared to take the hard decisions,” and the grocer would consider exiting certain African countries if that would help reverse regional sales declines. It also recently closed a store in Kenya’s second-biggest city, Mombasa, following a few months of trading in a difficult economic climate.

“Shoprite is voting with its feet as the Nigerian business environment becomes more toxic, the middle class shrinks and the government harasses businesses to fill dwindling coffers,” Cheta Nwanze, an analyst at Lagos-based SBM Intelligence, said by email. “With the state of the naira, prices need to go up. Problem is that they also see that purchasing power is tanking, even among their aspirational middle-class segment.”

In South Africa, Shoprite’s second-half sales climbed as it gained market share, even as its main lower-income customers battle with the impact of an economic slowdown. The stock rose as much as 12% in Johannesburg on Monday.

ShopRite was an early investor in Nigeria, opening its first supermarket there in 2005, but the country is heading for its deepest recession for decades on the back of the pandemic, which has sent oil prices cratering.

By contrast Cape Town-based ShopRite said that it increased its market share and boosted revenues in its home market even as South Africa entered one of the world’s strictest lockdowns in March, including a prohibition on sales of alcohol. The group recorded particularly strong sales in the weeks before the lockdown, it said.

Shoprite’s sales in South Africa grew more than 8 per cent for the year but in other markets excluding Nigeria they fell 1.4 per cent on a reported currency basis “due to equally, if not more difficult circumstances resulting from Covid-19 lockdown regulations”, it said. Including Nigeria, the fall was 2 per cent.

The drop in oil prices has crippled Nigeria’s budget and forced the Central Bank of Nigeria to devalue the naira twice this year. Analysts said the currency had much further to fall, and inflation hit 12.6 per cent year on year in June, a high for the year.

Cheta Nwanze, partner at SBM Intelligence, a Lagos-based consultancy, said Shoprite’s move was a reflection of how “toxic” Nigeria’s business environment had become as “the middle class shrinks, and the government harasses business more to fill dwindling coffers”.

“Shoprite’s margins in Nigeria are thin — costs of [importing items] have been getting worse. With the state of our currency, prices need to go up,” Mr Nwanze said.

“Problem is they also see that purchasing power is tanking, even amongst their small aspirational middle-class segment. So who will buy when they raise prices?” he said.

ShopRite stores in Nigeria were attacked last year in protests against xenophobic violence in South Africa. Other South African-owned businesses such as telecoms group MTN were also targeted.

Mr Price, the South African clothing group, announced plans to exit Nigeria last month. Other South African retailers have left the country in recent years.

ShopRite signalled last year even before the pandemic that it was reviewing supermarket businesses outside South Africa, as regional sales were hit by falls in local currencies. Angola and Zambia in particular have suffered steep currency falls.

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