Recent business news buzz in Ghana has been about the shutting down of operations of some businesses like E-commerce and food delivery platform, Glovo and French Bank, Société Générale. While the announcements trickled in, media coverage expanded into other multinational firms that have exited the Ghanaian market in the last two or three years. Mentions were made of BIC, Unilever’s Lipton tea productions, Supermarket Giant Game, and others.
The reasons for the exit according to the reports, are because of Ghana’s economic downturn and high taxes which are making it unprofitable for businesses to thrive.
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Those reasons are in fact valid, considering that 2022 was an economically difficult year for Ghana. Inflation was at a record high of 54% affecting prices of goods as the value of the cedi tumbled further to about 40% against major currencies. Recently, the Trades Union Congress (TUC) highlighted the issue, by stating that the Ghana currency (which in 2022 was the worst-performing currency) recorded a 250% depreciation in the last eight years, crippling living standards and fuelling a cost of living crisis. Currently, the cedi is falling again, as Bloomberg predicts it may hit GHC 16 to the US dollar by the end of the year.
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“The recent exit or planned exit from Ghana by multinational companies must be a worry for all Ghanaians. The environment is hostile and unsupportive of businesses,” said Economist Prof. John Gatsi.
Another businessman, Ken Thompson of Dalex Finance, also said on Sunday that the current state of affairs would eventually make businesses poorer in the next 10 years.
“The economic environment is weak and no longer conducive for businesses, the foreign businesses can see that they can no longer be profitable so of course they will leave. The causes of the current unconducive economic environment are poor financial management, weak fundamentals, corruption, overspending, exchange rate volatility, high interest rates, and others,” Mr. Thompson said in discussions on an X Spaces organised by NorvanReports and the Economic Governance Platform.
However, the issue does not appear to be just a Ghana problem, as across Africa, more countries have related experiences. As one Bloomberg article put it, Africa’s allure and the widely referenced Africa rising narrative seem to be fading.
Take, for instance, Société Générale. The company not only announced closing down operations in Ghana this week, but in about two other African markets as well, which quite connects to a growing trend of such exits by multinational banks. For six years now, major European banks, like Barclays and Standard Chartered have pulled out of many African markets, including Angola, Cameroon, the Gambia, Sierra Leone, Zimbabwe, Zambia, Rwanda, Botswana, and others. The decisions had been blamed on the high-risk, low-yield undertaking with retail banking in Africa.
Other global giants, such as pharmaceutical player Bayer, Nestlé, and Unilever, are cutting back operations in some of the continent’s big economies, like South Africa and Nigeria.
Unilever Nigeria Plc for one, exited the Home Care and Skin Cleansing categories of its production in Nigeria, citing currency fluctuations and Nigeria’s macroeconomic woes as the reason. Due to that “tough decision,” the company stopped producing the popular OMO, Sunlight, and Lux products.
“Discontinuing operations in some product lines is part of a global brand strategy for Unilever (i.e. the parent company) to improve profit margins,” said market intelligence company, Stears.
In South Africa and Kenya it’s a similar tale for Swiss multinational, Nestle. The company shuttered production of its Nesquik chocolate milk powder in August, pointing to a drop in sales and lower demand for the product in South Africa, while in Kenya, it cut down on production, and downgraded parts of its facility to packaging imported baby food like Cerelac.
When Game Stores in Ghana closed in 2022, they also stopped operations in East Africa, and West African countries citing financial losses.
According to Kuseni Dlamini head of the American Chamber of Commerce in South Africa, who is quoted in an article by Bloomberg, the current situation should serve as a wake-up call for many African leaders.
“Drawn by rapid growth, youthful populations, and increasing wealth, legions of top multinationals rushed into Africa in recent decades. But lately, the difficulties of doing business there have dimmed the allure,” he said.
Glovo’s exit and a growing volatility in the food delivery industry in Africa
Glovo’s situation has somewhat of a different dynamic as the food delivery business is absolutely unpredictable. When Jumia Food left all of its seven African markets, it cited the same reasons as Glovo did now – profitability issues, prevailing macroeconomic conditions, and competition. It was the same with Bolt Food when in December, it shut down operations in South Africa and Nigeria, despite market prospects.
The food delivery market in Africa is projected to reach US$13.75bn in 2024. Ghana’s market alone is projected to make at least US$29.9 million in revenue by the end of 2024, increasing by 19.6% over the next years. “The expected compound annual growth rate for the next four years (CAGR 2024-2028) will be 19.6%, resulting in a projected market volume of US$61.3 million by 2028,” said analytics platform, eCommerce Insights.
In two of Africa’s biggest markets – South Africa and Nigeria – that growth is far higher, as they hold a combined population of over 300 million, largely dominated by a growing middle class in urban centers. According to Statista, the online food delivery market in South Africa is projected to reach a revenue of US$2.40 billion in 2024, while Nigeria’s market is estimated to be worth $2.83 billion in 2024.
However, when the market is faced with challenges and risks, such as managing customer expectations, ensuring food safety and quality, coping with fluctuating market prices, and overcoming logistical and infrastructural barriers, some food delivery companies may eventually tank.
Moreover, with current economic downturns and the rising cost of living, more middle-class Africans, usually the targets of food delivery businesses, are looking at cheaper alternatives to reduce spending.
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And so when push comes to shove, multinationals always abandon the market, seeking better prospects elsewhere.
To not make the outlook all gloomy, Fitch predicted last week that the exit of multinational banks presents an opportunity for pan-African banks to expand, either organically or through mergers and acquisitions. Some analysts believe that to be true, but say African governments must approach the effects of the exits differently.
“Attaining prosperity is possible, but it will only happen when prosperity creation, not poverty alleviation takes central focus,” said San Francisco-based think tank the Clayton Christensen Institute.
“Prosperity can be achieved with market-creating innovations. These innovations create jobs, increase wealth, and generate taxes as they serve a whole new population who historically couldn’t afford products and services on the market. Relying on established multinationals to dictate and drive critical sectors does not appear to be a sustainable approach, given the recent exit of multinationals from Africa.”
