Nigeria, the most populous country in Africa, has been a lucrative market for many multinational companies, especially in the pharmaceutical and consumer healthcare sectors. However, in recent years, some of these companies have decided to exit the country or scale down their operations, citing various challenges and difficulties. Two of the most prominent examples are GlaxoSmithKline (GSK) and Sanofi, two British and French giants that have been operating in Nigeria for over five decades.
The recent announcement by GSK and Sanofi that they are pulled out of Nigeria has sparked a lot of concern and criticism from various stakeholders in the health sector. The two pharmaceutical giants have cited economic challenges and regulatory uncertainties as the main reasons for their decision to exit the country.
GSK announced its plan to cease operations in Nigeria in August 2023, ending its 51-year presence in the country since it opened its first office in Lagos in 1972. The company said it would adopt a distributor-led model to supply the country with its products and return capital to its local shareholders. GSK is known for its popular brands such as Panadol, Sensodyne, Voltaren and Augmentin.
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Sanofi, on the other hand, has not officially confirmed its exit from Nigeria, but according to some reports, the company is plotting to do so as its local operation struggles to maintain its margins and profitability. Sanofi has been in Nigeria since 1969, and offers a range of products such as Flagyl, Lantus, Plavix and Allegra.
So, what are the reasons behind these decisions? Why are these companies leaving Nigeria after investing so much time and money in the country? Here are some of the possible factors that may have influenced their choices:
Foreign exchange crunch: One of the major challenges facing businesses in Nigeria is the scarcity and volatility of foreign exchange (FX). The country relies heavily on oil exports for its FX earnings, but the decline in oil prices and production since 2014 has reduced its FX inflows and reserves.
This has led to frequent devaluation of the naira, the local currency, and difficulty in accessing FX from official sources. Many businesses have to resort to the parallel market or other alternative sources to obtain FX at higher rates, which increases their costs and reduces their margins.
GSK Nigeria said in its 2023 H1 report that FX availability affected its ability to settle foreign currency-denominated trade payables with product suppliers, making it difficult to maintain consistent supply to the market. Sanofi also faced similar challenges, as it had to import most of its raw materials and finished products from abroad.
High cost of doing business: Another factor that may have discouraged GSK and Sanofi from continuing their operations in Nigeria is the high cost of doing business in the country. According to the World Bank’s Ease of Doing Business report for 2023, Nigeria ranked 131st out of 190 countries, indicating a low level of competitiveness and efficiency. Some of the factors that contribute to the high cost of doing business include poor infrastructure, unreliable power supply, bureaucratic red tape, multiple taxation, corruption, insecurity and social unrest.
These factors increase the operational expenses (OPEX) and capital expenditures (CAPEX) of businesses and reduce their returns on investment (ROI). For instance, GSK Nigeria reported a loss before tax of N1.6 billion in 2023 H1, compared to a profit before tax of N1.2 billion in 2022 H1.
Low demand and competition: A third factor that may have influenced GSK and Sanofi’s exit from Nigeria is the low demand and high competition for their products in the country. The demand for pharmaceutical and consumer healthcare products depends largely on the income level and purchasing power of consumers, which have been adversely affected by the economic recession and inflation that hit Nigeria in recent years.
Many consumers have switched to cheaper alternatives or generic products from local manufacturers or importers, reducing the market share and revenue of GSK and Sanofi. Moreover, the companies faced stiff competition from other multinational players such as Pfizer, Novartis, Roche and Johnson & Johnson, as well as regional players such as Aspen Pharmacare and Cipla.
However, this move will have serious implications for the availability and affordability of essential medicines and vaccines, as well as the quality and sustainability of health services in Nigeria.
Nigeria is one of the largest markets for pharmaceutical products in Africa, with a population of over 200 million people and a high burden of infectious and non-communicable diseases. According to the World Health Organization (WHO), Nigeria accounts for about 25% of the total health expenditure in the African region, but only 4% of the total pharmaceutical production.
This means that Nigeria relies heavily on imports to meet its domestic demand for medicines and vaccines, which exposes the country to supply chain disruptions, price fluctuations and counterfeit products.
GSK and Sanofi are among the leading suppliers of vaccines and medicines for diseases such as malaria, tuberculosis, HIV/AIDS, polio, meningitis, pneumonia, typhoid and diabetes in Nigeria. They also provide technical support and capacity building for local manufacturers, distributors, health workers and regulators.
Their exit will create a huge gap in the market that will be hard to fill by other players, especially in the short term. This will affect the access and affordability of life-saving drugs and vaccines for millions of Nigerians, especially the poor and vulnerable who depend on public health facilities and subsidized programs.
Moreover, their exit will undermine the efforts to improve the quality and delivery of health services in Nigeria. GSK and Sanofi have been involved in several initiatives to strengthen the health system, such as improving cold chain management, enhancing pharmacovigilance, promoting rational use of medicines, supporting research and development, and fostering public-private partnerships.
Their withdrawal will reduce the availability of resources, expertise and innovation that are needed to address the complex health challenges facing Nigeria. Therefore, it is imperative that the Nigerian government and other stakeholders take urgent steps to mitigate the negative impact of GSK and Sanofi’s exit on the health sector.
Some of the possible actions include, engaging with GSK and Sanofi to explore alternative options for their continued presence and operation in Nigeria, such as joint ventures, licensing agreements or contract manufacturing.
Providing incentives and support for local pharmaceutical manufacturers to increase their production capacity, quality standards and market share. Strengthening the regulatory framework and enforcement mechanisms to ensure the safety, efficacy and quality of medicines and vaccines in Nigeria. Enhancing the procurement and distribution systems to ensure adequate supply and equitable access to essential medicines and vaccines across the country.
Increasing public investment and mobilizing domestic resources for health financing to reduce dependence on external sources. Building strategic alliances and partnerships with other countries, regional bodies, multilateral agencies and civil society organizations to leverage their support and expertise for health development in Nigeria.
GSK and Sanofi’s exit from Nigeria is a reflection of the challenging business environment that many multinational companies face in the country. While Nigeria offers a huge potential market for pharmaceutical and consumer healthcare products, it also poses significant risks and uncertainties that require careful assessment and management. The companies’ decision to adopt a distributor-led model may be a way of reducing their exposure and liability while maintaining their presence and relevance in the country.
According to Nairametrics, prices of some drugs have gone up by 1,000% in Nigeria, “Following the recent announcement of GlaxoSmithKline’s (GSK) departure from the Nigerian pharmaceutical market, there has been a notable surge in the prices of GSK medications, with increases reported to be as high as 1000%. The significant rise in the cost of these medicines has sparked widespread concern among Nigerians, many of whom have expressed their frustrations on social media platforms.”