Shoprite, a South African retail giant with subsidiaries in fourteen other African countries made its entry into Nigeria’s market in December 2005. After fifteen years of growth into twenty-six outlets across seven states and the FCT, it announced on Monday, August 3rd that it has commenced a formal process to discontinue and divest its operation in the country.
Despite the retail conglomerate’s trading update for year ended June 28, 2020 showing 6.4 percent increase (R156.9billion), sales in its non-South Africa franchise declined by 1.4 percent, which can be partly blamed on COVID-19 lockdown restrictions like transport and movement restrictions, store closure and cutback on trading hours. However, its planned exit from Nigeria’s market is also influenced by recurring economic and technical issues such as fluctuation in currency exchange rate (dollar to naira and naira to rand); strained process of profit repatriation (same situation as MTN); high prices for clearance and transport of imported goods and produce; and strong competition from indigenous retail stores & online shopping platforms.
Shoprite’s planned exit was met with mixed reactions from Nigerians, as it is bound to happen. This is how the retail stores’ planned exit will hurt and benefit the Nigerian economy.
The potential loss
In 2018, the global food fraud estimate was $40 billion, and Nigeria is steadily gaining ground as a haven for food produce counterfeit, theft, adulteration, tampering and unauthorised refilling. NAFDAC as a regulatory and control agency is saddled with combating food fraud in the country. Its capital punishment includes seizure of these fake or counterfeit products and shutting down supermarkets that peddle them.
In all of these, Shoprite remains a leading retail store that Nigerians trust when it comes to authenticity and product quality which has made its imminent exit become a source of concern for product quality enthusiasts.
In some circles, Shoprite’s divestment could setback Nigeria’s fight to combat food fraud and fake products in retail stores, if certain measures are not put in place to maintain quality control after the transfer of ownership.
This planned exit also affects the country’s foreign investment portfolio. For instance, Woolworths was the first South African multinational retail company that left Nigeria in 2014 while Mr Price announced its exit in June 2020. This compounds Nigeria’s investment. A report for the third quarter of 2019 showed that twenty-nine states did not have a new foreign investment portfolio while just four states got above $5 million.
The divestment of Shoprite could be an impending doom, taking into cognisance the long-suffering history of indigenisation of foreign companies. Nigerians are skeptical that the retail store’s post-indigenisation lifespan may not pass the five to ten years mark.
Meanwhile, over 2,000 workers on Shoprite’s payroll are wobbling on the fringes of unemployment, if the change in management leads to layoff, that doesn’t speak well for Nigeria’s current unemployment statistics.
The perceived gains
Nigeria’s current economic reality has forced many businesses and enterprises to liquidate. Nigerian Bureau of Statistics, NBS data revealed that medium enterprises (worth between 50 to 100 million naira) decreased from 4,670 in 2013 to 1,793 in 2017. But Shoprite’s exit will shift the bulk of retail services in the country to local companies, and help reposition the food supply chain to include local farmers and producers.
Several billions of naira will continue to circulate within Nigeria’s economy, and this will help in creating economic opportunities for more people.
But we should not forget that Shoprite’s exit from Nigeria’s market will not put a stop to Nigeria’s continued foreign exchange problem, neither will it make the issues surrounding goods importation and clearance at Nigerian ports or exorbitant taxes on businesses to magically disappear. These are consequences of bad government policies and poor administration of critical institutions; and these will continue to affect both local and foreign businesses if unchanged.
This article conveys the views of the author(s) and not necessarily that of the trustees, staff or members of Ominira Initiative.