The FMCG indusTry in AFriCA: Navigating Between ...
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.
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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.
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MaxGebhartManagingDirector+272142402max.gebhart@fticonsulting.com
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