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Diageo is selling its majority stake in subsidiary Guinness Nigeria, becoming the latest Western company to scale back its presence in Africa’s most populous country due to a prolonged currency crisis and economic downturn.
The spirits giant will sell its 58 percent stake in the Lagos-listed company to Singaporean conglomerate Tolaram for 81.60 Nigerian naira per share or about 103 billion Nigerian naira ($70 million).
“The acquisition of Guinness Nigeria marks a pivotal moment in Tolaram’s journey of growth and diversification,” said Haresh Aswani, the group’s managing director in Africa. “We are thrilled to welcome a company with such a rich heritage and strong consumer loyalty to our ecosystem.”
Western consumer groups including Unilever, GSK and PZ Cussons have withdrawn from Nigeria in the past year due to a chronic shortage of foreign exchange and a steep decline in the value of the local naira currency.
Tolaram, which has joint ventures with several leading consumer goods multinationals such as Kellanova and Colgate-Palmolive, is one of the largest consumer goods companies in Africa, with combined investments of over $1 billion in Nigeria.
It is one of a growing number of largely non-Western groups benefiting from the withdrawal of their Western competitors. Others, including Singapore-listed Olam and Turkey’s Hayat Kimya, continue to invest in Nigeria. Analysts say they offer cheaper alternatives to the Nigerian market and often have a higher risk appetite.
Diageo said it would retain ownership of the Guinness brand in the country and continue to license it to Guinness Nigeria. Nigeria represents between 1 and 2 percent of Diageo’s global net sales value.
Bernstein analyst Trevor Stirling said the deal addressed the fact that Diageo has lost market share in Africa’s mainstream beer market as it focused on Guinness and spirits. “Does this portend an eventual complete exit from beer in Africa?” he asked, pointing to the company’s sale of Guinness Cameroon to Castel in 2022.
The Nigerian subsidiary produced and distributed brands including Baileys and Smirnoff until Diageo and Guinness Nigeria terminated their international spirits licensing agreement last October, allowing Guinness Nigeria to focus on local brands such as Harp beer, Orijin and Captain Morgan Gold.
Because fixed costs, such as those for raw materials and other supplies, are largely billed in dollars, companies have to pay with a plummeting currency that is among the worst performing in the world.
Foreign companies have also found it difficult to repatriate their earnings in recent years and a $7 billion arrears owed by the central bank to business groups were only resolved in March.
Nigeria, with its 200 million inhabitants, was once considered an attractive growth market for global brands looking to expand internationally. But the country is experiencing its worst cost-of-living crisis in a generation, with inflation at 33.7 percent at its highest level in three decades.
Kimberly-Clark Corporation, maker of popular diaper brand Huggies, said last month it would end its operations in Nigeria just two years after restarting a $100 million factory in Lagos. It succeeded Unilever, which last year stopped manufacturing home care and skin cleansing products in Nigeria.
GSK’s Nigerian subsidiary also ended direct drug distribution last year and switched to third-party Nigerian distributors. Germany’s Bayer and French vaccine giant Sanofi are also among those that have pulled out, while US group Procter & Gamble halted production in the country in favor of importing to Nigeria.