GSK’s recent declaration to halt its direct business operations in Nigeria signifies a momentous choice that could hold far-reaching consequences for various stakeholders, the stock market, and the Nigerian economy.
In an announcement made on Thursday, August 3, 2023, the pharmaceutical company conveyed its decision to GSK Nigeria, its local counterpart, indicating its intention to discontinue the independent distribution of its prescription medications and vaccines. Instead, the company plans to collaborate with third-party Nigerian enterprises for these distribution efforts.
This pivotal decision brings an end to GSK’s extensive business presence in Nigeria, which has endured for more than fifty years.
GSK decline in revenue
Although GSK did not directly specify the reason behind its exit, allusions within its H1 report to a “demanding environment due to limited foreign exchange availability” strongly suggest the influence of Nigeria’s adverse macroeconomic conditions, as evident from the decline in earnings.
Over the initial half of 2023, the company experienced a significant drop of approximately 50% in revenue, totaling N7.75 billion.
The company’s financial documentation provides insights into the decline in revenue.
The report clarifies that the decrease in revenue can be attributed to a challenging situation marked by a scarcity of foreign exchange.
The scarcity notably compromised GSK’s capability to fulfill financial commitments denominated in foreign currencies with its product suppliers.
Consequently, the company confronted substantial obstacles in upholding a reliable product supply to the market, ultimately influencing its top-line results.
The departure of GSK raises concerning implications, especially when contrasted with the actions of other firms.
Simultaneously, Unilever’s Nigerian division revealed its intention in March to discontinue the production of household cleaning and skincare items.
GSK exit would raise unemployment
GlaxoSmithKline initiated the adoption of a local distributor model in its African markets back in 2018. However, the current exit from the Nigerian market raises legitimate concerns. This departure has the potential to worsen the unemployment scenario. It has been reported that the pharmaceutical company has indicated that approximately 160 employees will be affected by this change in business approach in Nigeria.
The exit effect on stock market
Apart from its impact on unemployment, this departure will send ripples through the stock market. GSK, headquartered in the UK, possesses a 46.4% stake in GSK Nigeria, while local investors hold the remaining portion.
At the end of yesterday’s trading session, shares in the publicly listed company settled at N8.10 per share, signifying a significant 9.5% surge from its previous closing price of N7.40. Throughout this year, the share price has recorded a noteworthy 31.7% increase, contributing an estimated N9.8 billion to the overall market capitalization of the NGX.
This sense of excitement might prove to be fleeting. The exit of a major participant such as GSK might lead to a reduction in the market capitalization of NGX, particularly considering the significant ownership GSK has in its Nigerian affiliate.
Moreover, this departure is anticipated to influence the investment environment, potentially leading to a contraction in the investment portfolio. Smaller stakeholders, who maintain a share in GSK Nigeria, may withdraw their investments.
Furthermore, this action could challenge investor trust. Within the local context, it might be interpreted as indicative of obstacles or ambiguities within the Nigerian business arena. Internationally, inquiries could emerge regarding the appeal of the Nigerian market and its capacity to retain international investments.
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