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.

PamelaWadiDirector+442037271742pamela.wadi@fticonsulting.com

MaxGebhartManagingDirector+272142402max.gebhart@fticonsulting.com

FTI_Article_4pp_Africa FMCG_2017.indd 2 13/02/2017 14:55

About FTI ConsultingFTI Consulting is an independent global business advisory firm dedicated to helping organisations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centres throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities.

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.