JOHANNESBURG – South African businesses are scaling back operations in Nigeria, citing the country’s unpredictable currency fluctuations and a challenging economic environment. A range of prominent South African companies, from retail giants to packaging manufacturers, have recently exited or downsized their operations in the West African nation, marking a significant shift in South Africa’s once-promising investment outlook for Nigeria.

Currency Instability Strikes Confidence

Business owners in South Africa recognize the potential of Nigeria, Africa’s most populous country, yet many are finding it difficult to navigate the volatile naira. “Nigeria is a large and attractive market, but the unpredictable swings of the naira make it scary to go in there,” said Stephane Cohen, a South African business owner.

Foreign Direct Investment (FDI) from South Africa into Nigeria has notably declined, dropping to $378.49 million in 2023—the lowest level in seven years. This marks a continued retreat from what was once a high-growth market for South African businesses.

Exit of Major South African Brands

Among the companies that have exited Nigeria are Shoprite Holdings, Nampak, Pick n Pay, and Famous Brands. Shoprite, the continent’s largest food retailer, announced its departure in 2020, citing not only the volatility of the naira but also challenges with supply chains and repatriating profits. Following its exit, Shoprite’s performance in South Africa improved, with the retailer reporting a 14% rise in trading profit for the six months to January 2022.

Similarly, packaging company Nampak sold its Nigerian unit, Bevcan, in May 2024 for $68.5 million. The sale was part of a broader debt-reduction strategy and followed significant losses linked to currency devaluation.

“Currency volatility and high inflation rates have made it increasingly difficult for businesses to operate profitably in Nigeria,” said Dianna Games, CEO of the South Africa-Nigeria Business Chamber.

The Naira’s Decline

Since 2004, the Nigerian naira has seen significant devaluation, particularly in recent years. In November 2024, the naira stood at 1,652 to the US dollar, a dramatic drop from approximately 136 to the dollar two decades ago. The currency’s volatility contrasts sharply with the more stable South African rand, which has only weakened by about 9% per annum over the same period.

Businesses operating in Nigeria have struggled with the challenge of managing costs, setting competitive prices, and dealing with inconsistent foreign exchange policies. A survey of South African firms operating in Nigeria revealed that currency instability was the top reason for retreat.

Currency Reforms and Their Impact

In response to the crisis, Nigeria has implemented a series of currency reforms aimed at introducing market-driven exchange rates. However, these changes have led to a sharp devaluation of the naira, which has lost over 80% of its value since reforms began in 2023. Critics argue that the reforms were rushed, with insufficient dollar inflows to stabilize the currency before its flotation.

These developments have made it increasingly difficult for foreign businesses to predict and hedge against currency risks. The Central Bank of Nigeria’s (CBN) frequent forex restrictions and fluctuating policies have further compounded the problem for companies trying to repatriate profits or price products competitively.

Continued South African Exits

Several other South African companies have also scaled back or exited the Nigerian market entirely in recent years:

  • Pick n Pay: The grocery retailer, which entered Nigeria through a joint venture in 2019, has now decided to sell its 51% stake in the partnership, citing restructuring needs and poor market conditions.
  • Famous Brands: This South African fast-food operator, which entered Nigeria in 2013, has begun selling off its restaurant holdings in the country.
  • Sun International: The gaming and hospitality giant sold its stake in Nigeria’s Federal Palace Hotel in 2024, as part of a broader strategy to focus on its core markets post-COVID.

Looking Ahead: A Mixed Outlook

Despite the ongoing challenges, some remain optimistic about Nigeria’s future. Dianna Games of the South Africa-Nigeria Business Chamber remains hopeful that ongoing reforms, particularly those focused on a more transparent, market-based foreign exchange system, will eventually restore investor confidence.

“While the situation is challenging right now, there is a sense of cautious optimism that Nigeria’s economic reforms could lead to a more predictable environment for foreign businesses in the future,” Games said.

However, for now, South African firms appear to be rethinking their African expansion strategies. As they pull back from Nigeria, many are focusing more heavily on their home markets, where conditions are more stable, and operational costs are more predictable.

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