A major consumer goods company, Henkel, is facing a tough and challenging operating environment in Nigeria. Currency volatility and other challenges threaten stability, but the Managing Director of the company, Rajat Kapur, in this interview, remains optimistic about the country’s long-term potential.
Excerpt
How are the challenges in the Nigerian operating environment affecting Henkel’s operations in the country?
That is a tough question to start with, but I think that there is no disputing the fact and I think that everybody in Nigeria knows that it is tough not just because of the Naira devaluation, but also because of the volatility of the Naira, which does not enable easy planning.
But I think what is most important is that in the end, we must realize that this is a country of over 200 million people. So, there is vast potential and opportunities and as the government drives to fix the volatility, opportunities still exist on the ground.
To navigate this, the easiest thing is to look at two bouquets. The first bouquet is your cost structure and how you can be more efficient when it comes to energy, usage of materials and the way you are doing business on the ground.
That is one of Henkel’s global goals of doing sustainable business by reducing not only energy consumption but by being able to produce at the same quality. Henkel is the first company in Nigeria to move to a fully dissolvable formula. That has two benefits.
One, it means that you will get the full benefit of the formula. The second benefit is that because it dissolves fully, it will not harm marine lives. This is giving two benefits at the same time: sustainability and better efficiency. The second bouquet is more on the consumers.
You need to understand the consumers’ needs. You can divide Nigerian consumers into two categories: the mass consumers and the premium consumers. For the mass consumers, you need to have the right offering: efficiency at value cost. For the premium consumers you need to come up with other things that they need on top efficiency and cost.
So, is diversification of your portfolio and looking at the Nigerian landscape ways of tackling the challenge of volatility in the market. Is it going to be 100 percent easy? No! But always keeping it in the back of your mind that you have 200 million plus consumers on the ground will make it easier for you to survive the volatility and wait for better times to come.
Are you considering expansion to other markets beyond Nigeria or across the West African market?
I can answer this in a simple way. We came to Nigeria in 2016 and the entire rationale of coming to the country was that we will take the strongest place as the base for expansion into West and Sub-Saharan Africa.
And we want to continue on that vision that we use Nigeria as a base to offer operations, which will expand first into the West African markets like Ghana, Senegal, Ivory Coast and Burkina Faso and even to Cameroun, which is not part of the Economic Community of West African States (ECOWAS), but is close to Nigeria.
How far have you achieved this vision of producing in Nigeria and exporting to other countries?
There are products going into Chad and Ghana. But in the coming weeks, hopefully we will have a formula for people in other countries like Ghana that will increase the efficiency of our manufacturing and also help us to get more foreign exchange into Nigeria at a much higher rate.
Are we there 100 percent? No! Absolutely not! Are we still moving in that direction? The answer is yes. We are making partners on the ground in the relevant countries to further expand in a very formal setting.
Are you meeting your timelines in realizing this vision?
We were able to meet most of the timeline in 2022 despite COVID-19 being on the ground and causing some challenges. Our manufacturing footprint is being utilized at nearly 100 percent capacity level.
The recent volatility that we have seen has impacted us to some level so there have been some delays in the past one year. But if you ask in the past eight years, I will say that we are practically on time though we have seen some delays because of the recent challenges.
So, I am sure that we will catch up on the timelines. But in 2022 we were pretty on the timeline, especially at the expansion. Imagine that we were operating virtually at 100 percent capacity utilization, which is a dream for most manufacturers. There had been some setbacks in the last year but I am hopeful that with all the measures being put on the ground that we will get the whole thing going again.
What are your sustainability goals?
We do a lot of things that have societal impacts on the ground. But I will talk about two that we focus on. We have a global programme that has been brought to Nigeria that targets primary school kids by teaching them STEM skills. What is interesting there is that they will contribute to the economy in a better way if you can get them to get interested in science, technology and mathematics and they pursue this line to become engineers, scientists and researchers.
This programme has already impacted on about 2,000 students. We started with Ibadan and have come to Lagos and are preparing to expand to other parts of Nigeria.
The other project that we do in a big way is the “Peer to Peer (P2P)” that gives opportunities to unemployed youths to become entrepreneurs. They are youths that want to do something positive and gainful, but do not get the opportunity. What we do in this case is to invest in them by training them on how to sell in the market, providing them with mobile shops, teaching them accounting on how to manage cash flow and we give them the skills.
We are letting them start their own business at zero cost to themselves. As they sell and make money we can give them credit lines from our distributors to pick more products so that they can sell more. We started with two youths in 2018. Today, we have over 250 such P2P entrepreneurs.
For me, this is the classic example of turning job seekers into job makers. I have a lot of examples when a person who started with us as a jobless person is today a retailer with people working under him. These are our two main initiatives, but we are also working on a project in an orphanage in Ibadan to help the people in the orphanage.
We have an international world giving day where employees and team members donate their time to go and help on the ground or cleaning the street or doing something else.
How are you managing to stay afloat?
The only way to do this is to stay close to the consumers and to launch innovations fast enough. Also, invest strongly on the structures that are on the ground, keep looking at the macro trends, keep adapting and focusing on innovations. Over the past year, we have launched new technologies like the anti-bacterial detergent that cleans and removes bacteria from clothes.
We have been in existence for 147 years. We have a huge global portfolio, which we can bring into Nigeria and adapt them for the needs of Nigerians. That gives us two approaches. One is coming up with local ideas that we launch for Nigerians. The other is to look at our global portfolio and adapt it to local needs as much as possible. That is the way we keep addressing the changing needs of Nigerians.
How has it been getting the appropriate workforce for your operations in Nigeria?
There is high availability of human resources on the ground. But at the same time you need to invest a lot in their training on vocational skills. We invest properly and systematically to bring up the local talent.
The challenges of finding the right talent here are similar to challenges in any country. But the advantage we have is a legacy of knowing how to build within the organization. Whether it is in Germany or the 73 countries where we operate, we have a systematic way of building available local talents. The arrangement is such that at the end of the day the organization is running sustainably.
Looking ahead, what do you think is the future for Henkel Nigeria?
We are pioneers at heart for the good of generations. This is what we believe in. At the end of the day what is critical is that we are not thinking short-term but for the future in the long-term.
What is important for us is to have a sustainable manufacturing footprint on the ground, including efficiency in energy utilization built on sustainability. We are conscious that what we want to achieve will be beneficial for the oncoming generation. We will not be a business that is there for only 10 or 20 years.
We should be a business that lives for hundreds of years. Because of this, having the right people, having the right processes and having the right manufacturing footprint on the ground are very important.
That is what we want to do. We believe that our products should appeal to the changing needs of Nigerians and we ensure that the company is able to deliver them very sustainably with profitable results irrespective of challenges and volatility on the ground. Our idea is a volatility proof operating system.
What percentage of local inputs do you have in your products?
On raw materials, 70 percent are sourced locally and that is critical to our cost efficiency also. Imagine we are to import all these raw materials and everything from outside when foreign exchange (FX) is very volatile? If we have been doing that, we will be far more exposed to FX volatility. It is in our own benefit to source more inputs locally as much as possible. Only patent raw materials that cannot be made locally that we are importing currently.
How are you positioning your organisation for the emerging AfCFTA market?
We are still at step one, which is expanding and taking advantage of the ECOWAS sub-region, which is where we are currently. And we have not taken the full advantage of ECOWAS yet. Once we have achieved our step one then we will leverage the Africa Continental Free Trade Area (AfCFTA) on step two and expand the base further.
