Kimberly-Clark, a leading manufacturer of diapers and sanitary pads, is set to announce the imminent shutdown of its production facility in Ikorodu, Lagos, Nigeria.
This decision comes just two years after the company invested $100 million to restart operations in the country. Sources within the company, quoted by Nairametrics, attributed the shutdown to severe economic conditions that have impacted production and profitability.
Kimberly-Clark first began operations in Nigeria in 2012, producing popular hygiene products such as Huggies diapers and Kotex sanitary pads. However, in 2019, the company ceased operations due to unfavorable economic conditions.
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In 2022, Kimberly-Clark inaugurated a new $100 million production facility in Ikorodu, marking a significant investment aimed at reviving its presence in the Nigerian market. Despite initial success, the company has struggled with several challenges since late 2022.
According to the sources, the Ikorodu plant has been operating below capacity from late 2023 into 2024 due to the harsh economic environment in Nigeria. The company has faced escalating energy costs, high raw material expenses, and reduced customer demand, leading to a substantial financial burden.
High Operational Costs
A source revealed that the company currently spends approximately N100 million monthly on power generation alone, aside from maintenance costs. Overall, the monthly fixed operational costs have risen to over N500 million.
“Running cost is extremely on the high side. Our fixed spend on a monthly basis is above N500 million, and we spend about N100 million on just gas consumption for powering the gas engine aside from maintenance. The company has two assets, and for last year, these assets didn’t run for like 90 days in 365 days,” the source explained.
Downsizing and Reduced Production
In response to these economic pressures, Kimberly-Clark has downsized its operations, reducing production from seven days a week to just Mondays to Thursdays. The company also cut its shifts from four to two earlier this year.
“We run 24 hours and seven days a week before, but currently, 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 costs since it is not making a profit,” the source added.
A significant factor contributing to the high production costs is the increased expense of raw materials, most of which are imported. Currency depreciation has further exacerbated these costs, making it difficult for the company to maintain profitability.
At the onset of operations, Kimberly-Clark had set aside funds for five years, expecting that revenue from the Nigerian market would sustain operations. However, the current economic conditions have derailed these expectations.
Kimberly-Clark’s planned closure is part of a broader trend of multinational companies exiting Nigeria due to similar challenges. Last year, Procter & Gamble (P&G) closed its production facility in Ibadan, after investing $300 million, citing high production costs and economic difficulties. Similarly, PZ Cussons recently announced that it is evaluating strategic options for its African business, with Nigeria being its largest market.
Potential Impact on the Diaper Industry
The baby diaper industry in Nigeria, estimated at $920 million with a CAGR of about 11% between 2024 and 2028, is highly competitive, with approximately 15 brands vying for market share. Leaders in the industry include Pampers (produced by P&G), Molfix, and Kimberly-Clark’s Huggies. The exit of two major players—P&G and now potentially Kimberly-Clark—within a year underscores the challenging business environment in Nigeria.
The planned closure of Kimberly-Clark’s Ikorodu facility is a significant setback for Nigeria’s efforts to attract foreign direct investment (FDI). It highlights the broader challenges faced by manufacturers in the country, including high production costs, currency depreciation, and weak consumer purchasing power.
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 products for Nigerian consumers. This shift would increase the country’s reliance on imports at a time when there is a strong drive to boost local production. Such a move could lead to higher prices for essential hygiene products, placing additional financial strain on households.