The FMCG indusTry in AFriCA: Navigating Between ...
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FTI Consulting, Inc. 1 THE FMCG INDUSTRY IN AFRICA: Navigating Between Opportunity and Uncertainty Financial Slowdown Whilst economic growth rates across Africa have accelerated over the past decade (GDP growth per capita has been approximately 2% per annum since 2000, according to the World Bank) this expansion has slowed significantly in recent times due to the continued decline of oil and other commodity prices, as well as weakened demand for natural resources from China and the strengthening of the US dollar. The resulting impact on the FMCG sector is manifold and complex. On the one hand, falling oil prices mean that oil-importing countries, like Kenya and Tanzania, have experienced lower inflation and increased consumer purchasing power, leading to a rise in the demand for FMCG goods. Indeed, the World Bank’s Global Consumption database forecasts household expenditure on FMCG goods in Kenya to increase from $23 billion in 2010 to $37 billion in 2020. However, elsewhere the weakening of local currencies, particularly the South African Rand and the Nigerian Naira, has hit consumer confidence and had a knock-on effect for a sector which relies on high sales volume to counter low profit margins. However this is a precarious and complicated industry and its success is threatened by an uncomfortable trinity of financial and political instability, poor supply chains and the difficulties posed by counterfeiters. In this article, we examine the various issues facing the FMCG sector in Africa, and the opportunities that exist for potential investors should these risks be mitigated. Amid continued uncertainty in global oil and commodity prices, and its adverse impact on the extractive industries in many African countries, the continent has turned to other areas to support its ongoing economic growth. One such industry is the Fast Moving Consumer Goods (FMCG) sector. Pamela Wadi is a Director in FTI Consulting’s Global Risk and Investigations Practice in London, where she advises clients on a range of business intelligence, due diligence and litigation support assignments, with a particular focus on sub-Saharan Africa. FTI_Article_4pp_Africa FMCG_2017.indd 1 13/02/2017 14:55
Transcript of The FMCG indusTry in AFriCA: Navigating Between ...
FTIConsulting,Inc.1
The FMCG indusTry in AFriCA:
Navigating Between Opportunity and Uncertainty
Financial SlowdownWhilsteconomicgrowthratesacrossAfricahaveacceleratedoverthepastdecade(GDPgrowthpercapitahasbeenapproximately2%perannumsince2000,accordingtotheWorldBank)thisexpansionhasslowedsignificantlyinrecenttimesduetothecontinueddeclineofoilandothercommodityprices,aswellasweakeneddemandfornaturalresourcesfromChinaandthestrengtheningoftheUSdollar.
TheresultingimpactontheFMCGsectorismanifoldandcomplex.Ontheonehand,fallingoilpricesmeanthatoil-importingcountries,likeKenyaandTanzania,haveexperiencedlowerinflationandincreasedconsumerpurchasingpower,leadingtoariseinthedemandforFMCGgoods.Indeed,theWorldBank’sGlobalConsumptiondatabaseforecastshouseholdexpenditureonFMCGgoodsinKenyatoincreasefrom$23billionin2010to$37billionin2020.However,elsewheretheweakeningoflocalcurrencies,particularlytheSouthAfricanRandandtheNigerianNaira,hashitconsumerconfidenceandhadaknock-oneffectforasectorwhichreliesonhighsalesvolumetocounterlowprofitmargins.
Howeverthisisaprecariousandcomplicatedindustryanditssuccessisthreatenedbyanuncomfortabletrinityoffinancialandpoliticalinstability,poorsupplychainsandthedifficultiesposedbycounterfeiters.Inthisarticle,weexaminethevariousissuesfacingtheFMCGsectorinAfrica,andtheopportunitiesthatexistforpotentialinvestorsshouldtheserisksbemitigated.
Amid continued uncertainty in global oil and commodity prices, and its adverse impact on the extractive industries in many African countries, the continent has turned to other areas to support its ongoing economic growth. One such industry is the Fast Moving Consumer Goods (FMCG) sector.
Pamela Wadi is a Director in
FTI Consulting’s Global Risk
and Investigations Practice
in London, where she advises
clients on a range of business
intelligence, due diligence and
litigation support assignments,
with a particular focus on
sub-Saharan Africa.
FTI_Article_4pp_Africa FMCG_2017.indd 1 13/02/2017 14:55
THeFMCGINDUSTRyINAFRICA:NAvIGATINGBeTWeeNOPPORTUNITyANDUNCeRTAINTy
Political InsecurityInextricablylinkedwiththecausesandeffectsofthecommodityslowdown,arethelocalandregionalgeopoliticalenvironmentswhichcanalsoplacelimitingfactorsontheFMCGsector.
Atalocallevel,investorsmustbeawareofdomesticproductprotectionregulations,whichcanoftenbestringent.Forexample,onlycertaintypesofpastacanbeimportedintoNigeria,andSouthAfricahashadwell-publiciseddisputesovertheimportationofBrazilianandAmericanpoultry.Awarenessofvaryinggovernmentrestrictionsandtariffregimesisthereforeessentialforinboundcompanies,asisanappreciationofthecorruptionriskswhichcanbeattachedtoimportprocesses.
Inaddition,regionalstability,whilegenerallylessvolatile,caninfluencethepricingandavailabilityofsuppliesand,inturn,affectthevolumeofachievablesales.
Supply Chain ChallengesDifficultiesinthesupplychainanddistributionlines,bothlocallyandcross-border,areamongthemostseriouschallengesfacedbycompaniesoperatinginthesector.
Thetransportationofrawandmarket-readygoodsisoftenproblematicduetothepoordistributioninfrastructure,andFMCGcompaniescanfacegreatdifficultiesinfindingastrongroutetotheiridentifiedmarket.Acrossthecontinent,urbanisationrateshavesoared,andthephysicalinfrastructureisnotinplacetosupporteffectivelocalandregionaltransportationanddistributionofsuchgoods.
ManyFMCGcompanieshaveadoptedCocaCola’sMicroDistributionCentre(MDC)modeltoovercomethedifficultyofusinglargedeliverytrucksonpoorroadinfrastructure.MDCoperatorsemploylocalstosellanddistributegoodstoretailersusingbicyclesorpushcarts.
Awell-managedandefficientdistributionnetwork,supportedbysafetransportroutesandreliablepowerandcommunicationnetworks,iscrucialtothecontinuedgrowthoftheFMCGsector.Ofcourse,thisneedstobesustainedbypoliticalwillandregionalcooperation.
Brand Integrity IssuesAnundoubtedchallengetothesuccessoftheFMCGsectoristhethreatfromcounterfeiters.Popularconsumergoodsarepronetobeingcopiedandthesaleofpoorquality,fakeproductsisasignificantproblemacrossthecontinent.Forexample,demandforcheaperspiritshascreatedanactivemarketforfalsely-brandedalcohol.Asaresult,internationalcompaniessuchasDiageo,SABMillerandHeinekenareforcedtoinvestadditionalcapitaltodevelopnewtechnologiestocombatthesecriminalactivities.
However, clear opportunities remain Althoughthisarticlehighlightssomeundoubtedthreats,therecanbenodoubtthatthepotentialforgrowthintheAfricanFMCGsectoristremendous.TheWorldBankanticipatesAfrica’sGDPtoincreasetoanaverageof4.4%and4.8%in2016and2017,andpartofthisincreasewillbedrivenbyprivateconsumption,therebycementingafuturefortheAfricanFMCGsector.Globalfirmsareincreasinglykeentotakeadvantageofsub-SaharanAfrica’sburgeoningmiddleclassanditshigh-growthpopulationsbyacquiringstakesinlocalFMCGcompanies.
Suchpartnershipscanbehighlyadvantageous–localcompaniesarefamiliarwiththeirmarkets,bothculturallyandpractically.However,thesepartnershipscomehand-in-handwithhazards.Choosingthewronglocalpartnercanexposeaninternationalbrandtohigh-stakesrisks.Inparticular,internationalcompaniesneedtobemindfulofthesevereeconomicandreputationalsanctionsresultingfrominternationalanti-corruptionlegislationsuchastheUKBriberyActandUSForeignCorruptPracticesAct.
Whilealltheissuesoutlinedabovemaypresentadauntingenvironmentforpotentialinvestors,thefutureoftheAfricanFMCGsectorremainspositiveasthenumberofconsumerscoupledwithrisingincomesincreases.UltimatelycompaniesseekingtoentertheFMCGsectoronthecontinentcanenhancetheirsuccessbyhavinganinformedawarenessofthecurrentlimitationsattachedtodistribution;theshiftingpoliticalenvironmentsandthepotentialforeconomicuncertainty.Iftheydoso,thenconsiderableopportunitieslieahead.
A well-managed and efficient distribution
network, supported by safe transport routes,
and reliable power and communication
networks, is crucial to the continued growth
of the FMCG sector.
www.fticonsulting.com ©2017 FTI Consulting, Inc. All rights reserved.
MaxGebhartManagingDirector+272142402max.gebhart@fticonsulting.com
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The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.
