Nigeria’s economy has continued on its downward spiral that has seen a horde of companies shutter or exit the country. Another multinational corporation, Indian steel manufacturer Aarti, announces its departure from the country’s manufacturing sector, BusinessDay has reported.
This exit adds to a growing list of companies that have been forced to abandon their Nigerian operations due to insurmountable economic challenges.
According to BusinessDay the Ota, Ogun State-based steel maker is currently up for sale, with bids ranging from $50 million to $100 million.
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The reasons behind Aarti’s exit are multifaceted, involving a high rate of indebtedness, a struggling economy, a depreciating currency, soaring inflation, and escalating energy costs. According to a source, who spoke on the condition of anonymity, these factors have created an untenable business environment for the steel maker.
“We are aware that Aarti Steel Nigeria has been put up for sale but we are yet to make our bid,” revealed a representative from one of the bidding companies, who requested anonymity.
Major players such as African Industries and Bharti are among those bidding to acquire Aarti, with the transaction expected to be finalized in the coming months. Another source indicated that Aarti’s management is looking to hand over the company to a credible investor, inviting potential buyers to submit their profiles.
A Growing Trend of Corporate Exits
Aarti’s decision to leave Nigeria is part of a broader trend of multinational corporations exiting the country. In the first half of 2024 alone, companies like Microsoft Nigeria, Total Energies Nigeria, PZ Cussons Nigeria PLC, Kimberly-Clark Nigeria, and Diageo PLC have all ceased operations in Nigeria. This exodus is alarming for Nigeria’s investment climate and its $1 trillion gross domestic product (GDP) ambitions.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, expressed deep concern over this trend, highlighting its adverse effects on employment and Nigeria’s reputation as an investment destination.
“The continuous exit of multinationals from the economy is a serious cause for concern,” Yusuf stated. “It negatively impacts employment and the country’s perception as an investment destination.”
Aarti’s Initial Investment and Subsequent Struggles
In 2017, Aarti invested between $20 million and $30 million to establish a 120,000-capacity cold-rolled mill in Ota, Ogun State. This facility was designed to support Nigeria’s downstream industries by producing home appliances, roofing sheets, metal furniture, and more. However, the economic conditions have since deteriorated, diminishing the initial promise of this investment.
G.C. Tripathi, a director at Aarti Steel Nigeria, claimed ignorance of the sale process, noting that strategic decisions are made at the company’s Indian headquarters. Nonetheless, he acknowledged that the business is seeking additional finance and bank commitments to increase production.
A senior management official confirmed to BusinessDay in March 2024 that the company was indeed seeking investors due to high levels of debt and growing concerns from suppliers about missed delivery deadlines.
“We are seeking a lifeline,” the official told BusinessDay.
Sectoral Decline and Broader Economic Challenges
The exit of Aarti is symptomatic of the wider issues plaguing Nigeria’s manufacturing sector. The basic metal, iron, and steel subsector experienced a decline in growth, slowing to 0.57% in the first quarter of 2024 from 1.1% in the fourth quarter of 2023. Year-on-year, the subsector grew by a mere 0.11%, from 0.46% to 0.57%.
Manufacturers attribute this downturn to Nigeria’s increasingly hostile business environment and rising insecurity, which are eroding profits and depleting shareholders’ funds. Segun Ajayi-Kadir, Director General of the Manufacturers Association of Nigeria (MAN), pointed to rising energy costs, foreign exchange volatility, accelerating inflation, and worsening insecurity as primary challenges.
Ajayi-Kadir also highlighted the impact of uncleared forwards by the Central Bank of Nigeria (CBN), which have resulted in significant financial losses for several operators.
“The escalating costs of power, low consumer spending, and limited access to competitive credit, along with high rates of unplanned inventory and the depreciation of the naira, are severely affecting the country’s steel industry,” Ajayi-Kadir explained.
Earlier, Oluyinka Kufile, former chairman of MAN Steel Group and CEO of Qualitec Industries, criticized government policies and the lack of seriousness in addressing the challenges faced by the steel sector.
“Poor policies and lack of seriousness by the government are killing steel companies in Nigeria,” Kufile told BusinessDay.