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.

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.

Nigeria’s Debt Management Office (DMO) has announced a substantial increase in the nation’s total public debt, which has surged to N121.67 trillion (approximately $91.46 billion) as of March 31, 2024.

This significant rise comes against a backdrop of declining oil production, the country’s primary revenue source, and escalating economic challenges.

The latest figures reveal a significant increase in the total public debt recorded at the end of 2023, which stood at N97.34 trillion (approximately $108.23 billion). This represents an increase of N24.33 trillion or 24.99% within just three months. The primary driver behind this sharp rise is the devaluation of the naira, which has effectively reduced the debt in dollar terms by $16.77 billion or 18.34%.

Breakdown of Domestic and External Debt

As of March 31, 2024, Nigeria’s domestic debt accounted for 53.96% of the total debt, amounting to N65.65 trillion (approximately $46.29 billion). The external debt component stood at N56.02 trillion (approximately $42.12 billion). Excluding the impact of naira exchange rate movements, domestic debt saw a notable increase from N59.12 trillion at the end of December 2023 to N65.65 trillion in March 2024, an increment of N6.53 trillion or 11.05%.

The DMO attributed the increase in domestic debt to new borrowing aimed at part-financing the 2024 Budget deficit and the securitization of a portion of the N7.3 trillion Ways and Means Advances from the Central Bank of Nigeria (CBN).

The DMO’s statement elaborated: “Excluding Naira exchange rate movements in Q1 2024, only the Domestic Debt component of Total Public Debt grew from N59.12 trillion on December 31, 2023, to N65.65 trillion on March 31, 2024. The increase was from new borrowing to part-finance the 2024 Budget deficit and securitization of a portion of the N7.3 trillion Ways and Means Advances at the Central Bank of Nigeria.”

Declining Oil Production

The burgeoning debt profile comes at a time when Nigeria is grappling with a significant decline in oil production, its major source of revenue. In May 2024, Nigeria’s total oil production saw a slight uptick, rising by 1.45% to reach 1.46 million barrels per day (mbpd), compared to 1.44mbpd in April. Despite this increase, the production level still fell short of the country’s OPEC quota of 1.5mbpd and the 1.7mbpd benchmark set for the 2024 national budget. The drop in oil output has exacerbated the country’s economic vulnerabilities as it limits government revenue.

Bayo Onanuga, a presidential spokesman, highlighted the severity of the situation, noting that the government currently spends an alarming 96% of its revenue on debt servicing. This staggering figure underscores the immense financial strain on the country and raises questions about the sustainability of its debt management strategy.

Recent Borrowings

Nigeria’s public debt has also been fueled by recent borrowings totaling $4.95 billion from the World Bank over the past year. These loans, aimed at addressing critical infrastructure and social issues, include:

• A $750 million loan was approved on June 9, 2023, to enhance Nigeria’s power sector performance.
• A $500 million loan was approved on June 27, 2023, to scale up the Nigeria for Women Programme.
• A $700 million loan was granted in September 2023 for the Adolescent Girls Initiative for Learning and Empowerment project.
• A $750 million loan was approved on December 14, 2023, to boost electricity access through distributed renewable energy solutions.

The latest funding, totaling $2.25 billion, includes $1.5 billion for economic stabilization reforms and $750 million to enhance non-oil revenues and protect oil and gas revenue. Additionally, the Nigerian government anticipates further loans, including a $500 million loan to improve connectivity and market access, a $750 million loan contingent on the reintroduction of previously suspended taxes, a $500 million loan to address challenges faced by Internally Displaced Persons (IDPs), and a $2.7 billion loan from the African Development Bank (AfDB) for economic and budget support.

While the rising public debt profile has been defended by the government, referring to other countries equally borrowing, critics have argued that there is nothing tangible to show for it. They said most of the loans taken by the Nigerian government have been used to service debt, pay salaries, and fund the extravagant lifestyle of public office holders.