Kimberly-Clark To Shut Down Factory In Nigeria Over $100m Failed Investment

0
Kimberly-Clark To Shut Down Factory In Nigeria Over $100m Failed Investment
Kimberly-Clark To Shut Down Factory In Nigeria Over $100m Failed Investment

Two years after investing $100 million in Nigeria, Kimberly Clark, a manufacturer of sanitary pads and diapers, will soon announce the impending closure of its Ikorodu production site.

A sources within the company disclosed that the factory has been operating below capacity from late 2023 into 2024 as a result of the challenging national economic climate. The company reopened operations in 2022 with the opening of a $100 million production facility in Ikorodu, Lagos state, following a similar shutdown in 2019 as a result of a strategic assessment of its operations.

After five years, in 2019, Kimberly-Clark halted operations in Nigeria because to adverse economic conditions. The company plans to resume operations in 2021.

The company makes Kotex, Huggies diapers, sanitary pads, and other personal care and hygiene goods. The bulk of the shares in KC, a worldwide company listed on the New York Stock Exchange, are owned by institutional investors, including Morgan Stanley, Blackrock Inc., and Vanguard Group.

The insider, who wished to remain anonymous, claimed that the company has been struggling since late 2022 with rising energy and raw material costs as well as decreased client demand as a result of the current economic climate.

Continuing, as a result, there have been layoffs and a reduction in production hours from Monday through Thursday. Aside from maintenance expenses, the company now spends about N100 million a month on power generation, and its fixed monthly expenditure on operations has increased to over N500 million.

“Our first two years were fantastic in terms of sales growth and market shares within the diaper industry. Fast forward into late 2022 and 2023 was really bad years for the coy due to economic situation,” he stated.

“Running cost is extremely on the high side. Our fixed spent on a monthly basis is above N500 million and we spent about N100 million on just gas consumption for powering the gas engine aside maintenance. The company has two assets and for last year, these assets didn’t run for like 90 days in 365 days.”

Adding, “Earlier this year, the coy had to downsize to 2 shifts from 4 shifts. We run 24hrs and 7days and 365 days before but currently we don’t run on Friday, Saturday and Sunday anymore because of the economic situation. There is already an embargo on external recruitment. The company is looking for ways to reduce cost since it is not making a profit,” he said.

The source noted that the high production cost stems from the increased raw material cost since it is import-based.

At the initiation of operations about three years ago, the company set aside some money for operations which it estimated would last five years after which revenue from Nigeria could sustain the operations.

The local news got informed by an additional source with direct knowledge of the situation that the corporation is not likely to import, unlike its competitor Procter and Gamble, indicating that it will not be conducting official business in the nation.

Exit from Nigeria

The reasons given for Kimberly-Clark’s intended shutdown of operations in Nigeria are similar to those of other manufacturers that have left the nation in recent years.

High production costs, a weak purchasing power of the general public, and currency depreciation hurting raw material imports.

After investing over $300 million—the largest non-oil investment by a U.S. corporation in Nigeria—into a production plant in Ibadan, another U.S.-based company in the personal care industry, Procter and Gamble (P&G), ceased production in Nigeria in a similar manner last year. In a similar vein, PZ Cussons announced last month that it is considering methods to optimise shareholder value while assessing strategic options for its Africa division, of which Nigeria is the largest. The corporation has also resumed asset disposal in Nigeria following a pause brought on by problems with foreign availability. Similar to this, Procter and Gamble (P&G), a U.S.-based corporation in the personal care industry, shut down operations in Nigeria last year after making the single largest non-oil investment of over $300 million.

According to Statista, the Nigerian baby diaper market is expected to be worth $920 million with a compound annual growth rate (CAGR) of roughly 11% between 2024 and 2028. The market is highly competitive, with approximately 15 brands vying for market share, and the market leaders are P&G’s Pampers, Molfix, and Kimberly-Clark’s Huggies.

What this means

A major setback to the federal government’s efforts to draw foreign direct investment into Nigeria is the anticipated shutdown of Kimberly-Clark’s Nigerian facility, which reflects the difficulties faced by participants in the actual economy.

Moreover, the cessation of operations signifies that P&G and Kimberly-Clark, two of the top three companies in Nigeria’s diaper and personal care sector, have discontinued their manufacturing within the past year