GSK’s announcement to cease direct business operations in Nigeria reflects a significant decision with potential implications for stakeholders, the stock market, and the Nigerian economy.
The drugmaker said on Thursday, August 3, 2023, that it had informed GSK Nigeria, its local affiliate, that it will stop distributing its prescription medicines and vaccines itself and move to use third-party Nigerian companies.
This decision marks the end of a business presence that spans over half a century.
While GSK did not explicitly state the cause for its departure, the reference in its H1 report to a “challenging environment with foreign exchange availability” strongly indicates the impact of Nigeria’s macroeconomic headwinds, as reflected in the decline in revenue. In the first half of 2023, the company witnessed a decline of nearly 50% in revenue, amounting to N7.75 billion.
The company’s financial notes shed light on the revenue downturn.
The report elucidates that the revenue contraction was a consequence of a demanding scenario characterized by the scarcity of foreign exchange.
This scarcity significantly impaired GSK’s ability to settle financial obligations denominated in foreign currencies with its product suppliers.
As a result, the company encountered considerable challenges in maintaining a consistent flow of products to the market, ultimately impacting its top-line performance.
GSK’s exit carries worrying implications, particularly when juxtaposed with the actions of other companies.
In a parallel development, Unilever’s Nigerian division disclosed in March it’s intent to cease manufacturing household cleaning and skincare products.
GlaxoSmithKline (GSK) began adopting a local distributor model across its African markets in 2018, but its departure from the Nigerian market now is indeed of concern.
The departure is poised to exacerbate the unemployment situation. Reports suggest that the pharmaceutical company has communicated that around 160 employees will bear the brunt of this shift in business strategy in Nigeria.
Beyond its implications for unemployment, this exit will reverberate through the stock market. UK-based GSK owns 46.4% of GSK Nigeria with the rest held by local investors.
As of the close of trading yesterday, shares in the listed company concluded at N8.10 per share, marking a notable 9.5% increase from its previous closing price of N7.40.
So far this year, the share price has witnessed a 31.7% increase, contributing approximately N9.8 billion to the total market capitalization of the NGX.
This exuberance could be short-lived. The departure of a significant player like GSK could result in a decrease in the market capitalization of NGX, especially given the substantial stake that GSK holds in its Nigerian subsidiary.
Furthermore, this departure is likely to impact the investment landscape, resulting in a reduction in the investment portfolio. Minority shareholders, who hold a stake in GSK Nigeria, will take their capital.
Moreover, this move might test investor confidence. Locally, it could be perceived as a reflection of challenges or uncertainties within the Nigerian business landscape.
On the global stage, questions might arise about the attractiveness of the Nigerian market and its ability to retain foreign investment.
