Analysis: African Growth Offers Wide Opportunity to SA Consumer Goods Firms

Cape Times (South Africa), June 6, 2014 | Go to article overview

Analysis: African Growth Offers Wide Opportunity to SA Consumer Goods Firms


BYLINE: Nompumelelo Magwaza

The growing populations and economies of countries elsewhere in Africa present an opportunity for South Africa's fast-moving consumer goods (FMCG) companies to lift their returns faster than they would locally.

This is one of the insights shared by John Geel, the head of transactions and restructuring at KPMG, with Business Report this week.

Geel said factors influencing these trends included increasing urbanisation and stronger gross domestic product (GDP) growth, which over time would trickle down into higher income of the growing middle class and have an impact on consumption patterns.

The FMCG categories that could benefit ranged from food, clothing and personal care products to entertainment, Geel suggested.

He added that local companies interested in doing business elsewhere in Africa should know that these countries were "complex, with different elements in each country". For example, Nigeria had a population of about 174 million in 36 states each with a different economy.

He said it was estimated that, in 2016, the east African region, which included Kenya, Tanzania, Uganda and Ethiopia, would have more than 240 million people.

"If South African FMCG companies can capture these new markets, they will be able to grow their returns faster than they can locally."

According to KPMG's sector report on FMCGs in Africa, poverty levels, especially in sub-Saharan Africa, are still quite high, so food and other necessities dominate household budgets.

"For this reason, the food sub-sector of FMCG has a very large market to cater for, while penetration rates in the other categories still have significant room to expand," the report states.

A number of South African retailers and food companies, such as Shoprite, Spar, Edcon, Mr Price, Tiger Brands and Pioneer Foods, have made inroads in some of these countries, it said. However, trading has not been a smooth road. Woolworths and Shoprite have pulled out of Nigeria and Tanzania, respectively, citing difficulties in market penetration.

Regarding political upheaval in Nigeria, Mr Price has stated that it would limit its business to the south.

KPMG's report singles out Shoprite and SAB Miller as two companies that have been able to extend their presence on the continent.

According to another report by KPMG, titled "Africa's consumer report", alcohol is another product category, in addition to food, that is likely to see strong growth in Africa over the next few decades.

KPMG said beer and spirit producers were among the largest listed companies in many African countries, with multinational beverage companies such as SAB Miller, Diageo and Heineken already having a presence. For example, Nigerian Breweries and Guinness Nigeria had market capitalisations of around $6.7 billion (R72bn) and $1.7bn, respectively, which was equivalent to a combined 11 percent of the Nigerian stock exchange's total market capitalisation. …

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