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Why GSK is leaving after 51 years of doing business in Nigeria

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GlaxoSmithKline (GSK), last Thursday announced plans to discontinue operations in Nigeria, ending its 51-year existence in the country after the company’s first office was opened in Lagos on July 1, 1972.

The British multinational pharmaceutical and biotechnology company is best known for household brands like Panadol and Sensodyne.

In a corporate filing, the pharmaceutical giant said it would now adopt a distributor-led model to supply the country with its products.

GSK Nigeria said it was working with its advisers to determine the next steps and intends to submit a scheme of arrangement to the Securities and Exchange Commission (SEC) for the possible return of capital to its local shareholders.

“In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialisation of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products,” the firm said.

“The Haleon Group has also separately informed the board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.

“For the above reasons, and having, together with GSK UK, evaluated various other options, the board of GlaxoSmithKline Consumer Nigeria Plc has concluded that there is no alternative but to cease operations.”

The company further advised shareholders to seek professional advice and continue to exercise caution when dealing its shares until a further announcement is made.

While GSK did not speak on reasons for the move, speculations abound regarding the factors that led to this drastic action.

TheCable will attempt a response based on interviews and the facts we have about the company’s challenges.

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FOREIGN EXCHANGE CRUNCH

GSK Nigeria’s sales in the first half (H1) of 2023 dropped to N7.75 billion from N14.8 billion in the same period a year ago.

In its 2023 H1 report, the company lamented that the business environment continued to be very challenging with foreign exchange (FX) availability affecting its ability to settle foreign currency-denominated trade payables with product suppliers.

“As a result, it remained difficult to maintain consistent supply to the market,” GSK Nigeria added.

An index analysis of the company’s financial results within the six-month period showed that the firm made more money (N5.25 billion) from the sale of its consumer healthcare brands than its pharmaceutical brands (N2.49 billion).

Between January and June 2022, the company generated a revenue of N10.59 billion from the sale of its pharmaceutical brands while it made N4.21 billion from its consumer healthcare brands.

Last year, at the 52nd annual general meeting (AGM) of GSK Nigeria, Edmund Onuzo, chairman of the board of directors, spoke of the impact of FX scarcity on their operations.

He said the company’s ability to secure essential foreign currency for importing products had been severely compromised.

“While we expect sustained economic growth in 2023, we cannot overlook some factors which must be duly considered in this quest for economic growth and development in Nigeria. The factors include foreign exchange availability for businesses, insecurity, unemployment, and high cost of doing business, coupled with the uncertainty around fuel subsidy removal,” Onuzo had said.

“The challenges ahead are quite significant, as some of you may have read reports from a few media houses regarding the supply constraints on GSK drugs in the market, we must mention that it continues to be very challenging with foreign exchange non-availability affecting our ability to settle foreign currency-denominated trade payables with product suppliers.”

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Recently, drug manufacturers appealed to the government to address the issue of FX scarcity as it could lead to drug shortages in the county.

INCREASED COMPETITION FROM LOCAL FIRMS AND GLOBAL IMPORTS

In addition to FX, TheCable understands that GSK faced increased competition from local companies and imports from India and China.

According to Ade Popoola, the managing director of Reals Pharmaceuticals, GSK exited the country due to the increasing crowding out of its products by competition from mostly India.

“It’s like being in the middle of an expressway. When you have too much traffic, the rate at which you will progress will be difficult no matter how good your car is,” Popoola explained.

“The look-alike from India crowded them out. You find out that if you have been selling 250,000 units per year, when cheaper alternatives come in, it will first of all reduce to 200,000, and subsequently to 150,000, and 100,000.

“Later you will find yourself struggling to sell 50,000 because the hospital buying from you prefers alternatives because the other companies too may be quality. Once they crowd you out, you find it difficult to maintain your volume, and when you can’t maintain your volume, you cannot pay your cost.

“The Indian will sell at 20 percent of your price. It has happened to me, so I know what I am saying.”

GSK’S STRATEGIC SHIFT IN AFRICA

In 2018, GSK made headlines when Emma Walmsley, its chief executive officer (CEO), unveiled plans to scale back operations in Africa as part of the company’s strategic realignment.

Walmsley said the company would no longer market medicines to healthcare professionals in 29 sub-Saharan African markets and instead adopt a distributor-led model.

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She said GSK would continue to run local operations in Kenya and Nigeria while retaining representative offices in Cote d’Ivoire and Ghana.

However, in 2022, GSK announced that it would adopt a third-party distribution model for its drugs and vaccines in Kenya from next year (2023).

While the cessation of operations in Nigeria may come as a shock to many, it aligns with the firm’s overall goals for the African region.

SHAREHOLDERS REACT TO GSK NIGERIA’S EXIT

Speaking on the development, Bisi Bakare, the national coordinator of Pragmatic Shareholders Association, said the scarcity of forex has made things difficult for GSK in the country, thus prompting the move to stop operations.

She also expressed her unhappiness at the impact the exit would have on unemployment in the country.

“We are not happy about it. We feel very bad. But when you look at the challenges the company is also going through, we know we can’t force them to stay. Shortage of forex is really affecting their business even though the problem is not peculiar to them,” Bakare said.

“Our children and elderly people working with them will also have to leave their jobs. Jobs are scarce now. Their decision to leave Nigeria will add to unemployment in the country.”

On his part, Godwin Anono, president of Standard Shareholders Association, said the lack of a conducive environment for doing business prompted GSK’s departure from Nigeria.

”A foreign company cannot be prevented from leaving if they have made up their mind. Nigeria will remain Nigeria. For shareholders, if the value of a share is N3, then with our interest, they pay us N5, we will collect it and move on,” Anono said.

 

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Petrol production delayed due to fire incident, says Dangote

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Aliko Dangote, chairman of Dangote Industries Limited, says petrol production was disrupted due to a fire incident that occurred at its refinery.

 

On May 18, Dangote said the refinery would begin producing petrol that month, adding that Nigeria would not have to import the product again.

 

However, on June 11, he said due to a minor delay, the commencement of petrol supply has been postponed to July.

 

Speaking to journalists at his refinery in Lagos on Saturday, Africa’s richest man said premium motor spirit (PMS) will be ready by August.

 

“PMS was supposed to be out by July but we had a fire incident,” the billionaire said.

 

“The incident disrupted us for a few days but latest 10 or 12 of August, PMS will be ready.”

 

A section of the Dangote Petroleum Refinery caught fire on June 26.

 

Anthony Chiejina, a spokesperson at Dangote Industries Limited, told TheCable that the incident occurred at the effluent treatment plant (ETP).

 

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An ETP is a type of wastewater treatment method which is specifically designed to purify industrial wastewater for its reuse — to release safe water to the environment from the harmful effects caused by the effluent.

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Dangote halting proposed investment in steel to avoid ‘monopoly’ accusation  

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Aliko Dangote, chairman of Dangote Industries Limited, says the company will no longer continue with plans to enter Nigeria’s steel industry.

 

Dangote’s threat comes two months after his company said it was making plans to invest in the steel industry and expand the economy.

 

Addressing journalists at his refinery in Lagos on Saturday, the billionaire said the organisation’s board decided to avoid the steel industry “to prevent accusations of being branded a monopoly”.

 

Dangote also said the claim in some quarters that his group of companies enjoy monopoly is not true.

 

“You know, about doing a new business which we announced, that is, steel. Actually, our board has decided that we shouldn’t do the steel because if we do the steel business, we will be called all sorts of names like monopoly,” he said.

 

“And then also, imports will be encouraged. So we don’t want to go into that.

 

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“If you look at all our operations at Dangote (Group), we add value; we take local raw materials and turn them into products, and we sell.

 

“We have never consciously or unconsciously stopped anybody from doing the same business that we are doing.

 

“When we first came into cement production, it was only Lafarge that was operating here in Nigeria… Nobody ever called Lafarge a monopoly,” he said.

 

He said labelling his group of companies as monopolistic is disheartening.

 

“Monopoly is when you stop people, you block them through legal means. No, it is a level playing field whereby whatever Dangote was given in cement, for example, other people were given because some of them even got more than us,” he added.

 

Dangote, however, encouraged Nigerians to invest in the industry to help boost the country’s economy.

 

“Let other Nigerians go and do it. We are not the only Nigerians here. There are some Nigerians with more cash than us,” the billionaire said.

 

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Dangote said people “should bring that money from Dubai and other parts of the world and invest in our fatherland”.

 

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IMF downgrades Nigeria’s economic growth forecast to 3.1%

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The International Monetary Fund has cut its forecast for Nigeria’s economic growth in 2024 to 3.1 per cent.

 

The downgrade is contained in a newly released report ‘in the July 2024 World Economic Outlook’ published Tuesday.

 

The IMF cited a weaker growth recorded in the first quarter of the year, Q1’24 as reason for the new forecast.

 

The downgrade represents 0.2 percentage points below the earlier forecast of 3.3 per cent.
The downgrade followed weaker-than-expected Gross Domestic Product, GDP, and growth recorded by the country in Q1’23.

 

The IMF however retained its 3.0 per cent forecast for Nigeria’s economic growth in 2025.

 

It would be recalled that Data from the National Bureau of Statistics (NBS), showed that Nigeria’s Gross Domestic Product (GDP), growth dropped, quarter-on-quarter, QoQ to 2.98 per cent in Q1’24 from 3.46 per cent in the fourth quarter of 2023, Q3’23.

 

As a result of the lower forecast for Nigeria’s economic growth, the IMF also downgraded its forecast for Sub-Saharan economic growth in 2024 to 3.7 per cent from the April WEO forecast of 3.8 per cent. It however raised its economic growth forecast for the region in 2025 to 4.1 per cent from 4.0.

 

“The forecast for growth in sub-Saharan Africa is revised downward, mainly as a result of a 0.2 percentage point downward revision to the growth outlook in Nigeria amid weaker than expected activity in the first quarter of this year,” the IMF said.

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For the global economy, the IMF retained its growth forecasts of 3.2 per cent in 2024 and 3.3 per cent in 2025.

 

The IMF said: “The Global Economy in a Sticky Spot Global growth is projected to be in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2 per cent in 2024 and 3.3 per cent in 2025.

 

“However, varied momentum in activity at the turn of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential.

“Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalization. Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty.

 

“To manage these risks and preserve growth, the policy mix should be sequenced carefully to achieve price stability and replenish diminished buffers.”

 

The development comes on the heels of Nigeria’s inflation figure reaching a new high, hitting 34.19 % for June 2024, according to the latest data from the NBS.

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This is an increase of 0.24% compared to the inflation figure for May 2024 released by the NBS.

“In June 2024, the headline inflation rate increased to 34.19% relative to the May 2024 headline inflation rate which was 33.95%. Looking at the movement, the June 2024 headline inflation rate showed an increase of 0.24% points when compared to the May 2024 headline inflation rate,” the NBS said in its Consumer Price Index (CPI) – which measures the average change over time in the prices of goods and services consumed by people for day-to-day living – released on Monday.

 

“On a year-on-year basis, the headline inflation rate was 11.40% points higher compared to the rate recorded in June 2023, which was 22.79%.”

 

According to the NBS, the headline inflation rate, year-on-year basis, jumped in June 2024 when compared to the same month in the last year.

 

It said on a month-on-month basis, the headline inflation rate in June 2024 was 2.31%, 0.17% higher than the rate recorded in May 2024 (2.14%).

 

“This means that in the month of June 2024, the rate of increase in the average price level is higher than the rate of increase in the average price level in May 2024,” the agency said.

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As expected, there was a rise in food inflation for June 2024 in comparison with the figure recorded in May 2024.

 

“On a month-on-month basis, the Food inflation rate in June 2024 was 2.55% which shows a 0.26% increase compared to the rate recorded in May 2024 (2.28%),” the CPI report read.

 

According to the NBS, this hike was triggered by a rise in the average prices of food items such as groundnut oil, palm oil, etc (oil & fats class), water yam, cocoyam, cassava, etc (potatoes, yam & other tubers class), tobacco, catfish fresh, croaker, mudfish fresh, snail, etc, (fish class).

 

The Federal Government had in the wake of the galloping prices of essential commodities, reeled out a raft of measures to address the challenge. It recently suspended duties, tariffs, and taxes on the importation of maize, husked brown rice, wheat, and cowpeas through the country’s land and sea borders, for 150 days.

 

It also approved the procurement of 2,000 tractors, and 1,200 trailers and set up a committee to help in proffering solutions to the food crisis rocking the nation.

 

Experts have blamed insecurity, lack of equipment, and other issues as major challenges affecting food production in Nigeria.

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