Manufacturer To Shutdown $100m Investment In Nigeria After Two Years

Manufacturer To Shutdown $100m Investment In Nigeria After Two Years
  • PublishedMay 30, 2024

Kimberly-Clark will soon shut down its Ikorodu production facility due to economic challenges despite a $100 million investment two years ago.

According to Nairametrics, Sources revealed that the plant has been producing below capacity from late 2023 into 2024 due to the harsh economic environment within the country.

Following a thorough business review in 2019, the company temporarily ceased operations but made a successful comeback in 2022 with the unveiling of a cutting-edge $100 million production facility in Ikorodu, Lagos state.

Kimberly-Clark, a multinational consumer goods corporation, initially established its presence in Nigeria in 2012. However, due to unfavorable economic conditions, the company halted its operations in 2019 after five years of operation. Nevertheless, Kimberly-Clark resumed its Nigerian operations in 2021, demonstrating its commitment to the market.

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The company’s product portfolio in Nigeria includes Huggies diapers, Kotex sanitary pads, and other hygiene and personal care products. As a listed entity on the New York Stock Exchange, Kimberly-Clark’s majority shares are held by institutional investors such as Blackrock Inc., Vanguard Group, Morgan Stanley, and others. This underscores the company’s global reach and financial stability, which has enabled it to navigate challenges and continue serving the Nigerian market.

A source who claimed anonymity told Nairametrics that the company since late 2022 has battled with high energy costs, raw materials, and reduced demand from customers due to the prevailing economic situation.

As a result, this has led to downsizing and reduced production time from every day of the week to just Mondays to Thursdays.

The company currently spends around N100 million on power generation monthly aside from maintenance costs and its monthly fixed spend on operations has risen over N500 million.

According to the source, “Our first two years were fantastic in terms of sales growth and market shares within the diaper industry. Fast forward into late 2022 and 2023 was (sic) really bad years (sic) for the coy due to economic (sic) situation.

“Running cost is extremely on the high side. Our fixed spent on a monthly basis is above N500 million and we spent about N100 million on just gas consumption for powering the gas engine aside maintenance. The company has two assets and for last year, these assets didn’t run for like 90 days in 365 days.

“Earlier this year, the coy had to downsize to 2 shifts from 4 shifts. We run 24 hours and 7 days and 365 days before but currently (sic) we don’t run on Friday, Saturday, and Sunday anymore because of the economic situation. There is already an embargo on external recruitment. The company is looking for ways to reduce cost since it is not making a profit.”

The source also disclosed that the high production cost stems from the increased raw material cost since it is import-based.

When Kimberly-Clark commenced operations in Nigeria about three years ago, it allocated funds to sustain its activities for an estimated five-year period. The company anticipated that by the end of this period, revenue generated from its Nigerian operations would be sufficient to support its continued presence in the country.

However, according to a source with first-hand knowledge of the situation, the company is unlikely to resort to importing products, unlike its competitor Procter and Gamble. This suggests that Kimberly-Clark will not be engaging in official transactions in Nigeria.

The planned closure of Kimberly-Clark’s operations in Nigeria is reminiscent of the exit of other manufacturers from the country in recent years. The reasons cited for this decision are also familiar, including high production costs, currency depreciation affecting the import of raw materials, and the weak purchasing power of the population.

These challenges have collectively contributed to an unfavorable business environment, making it difficult for companies like Kimberly-Clark to sustain their operations in Nigeria. The closure of the company’s production facility in Ikorodu, Lagos state, marks a significant setback for the country’s manufacturing sector, which has been grappling with these issues for some time.

Last year, Procter and Gamble (P&G), a US-based personal care company, closed its production facility in Nigeria, despite investing $300 million in the country. This investment was the largest non-oil investment by a US company in Nigeria.

Similarly, PZ Cussons, another company in the personal care industry, announced last month that it is evaluating strategic options for its Africa business, with a focus on maximizing shareholder value. The company has also restarted asset disposal in Nigeria after a brief halt due to forex liquidity issues.

The baby diaper industry in Nigeria is a significant market, estimated at $920 million, with a compound annual growth rate (CAGR) of 11% between 2024 and 2028, according to Statista. The industry is led by brands such as Pampers, Molfix, and Huggies, but faces intense competition with around 15 brands vying for market share.

The planned closure of Kimberly-Clark’s production facility in Nigeria is a significant setback for the federal government’s efforts to attract foreign direct investment. It also highlights the challenges faced by players in the real economy.

Furthermore, the closure of operations by Kimberly-Clark means that two of the three leaders in the diaper and personal care industry in Nigeria (P&G and Kimberly-Clark) have ended production in the last one (sic) year. This could have significant implications for the industry and consumers.

If Kimberly-Clark follows P&G’s lead and transitions to an import-based business model, it could exacerbate the cost of diapers and sanitary materials for households, particularly given the significant depreciation of the Naira. This could also increase the country’s imports, which is contrary to the government’s drive for local production.

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