Brand owners target Africa

01 December 2010

JOHANNESBURG: Major companies such as Coca-Cola, Nestlé and Wal-Mart are aiming to enhance their position in Africa, despite the variety of challenges facing firms in the region.

Coca-Cola began trading in Africa in 1929, and now boasts 65,000 staff and 160 factories locally.

The soft drinks giant will dedicate $12bn (€9.3bn; £7.7bn) to the continent in the coming ten years, with fruit juices attracting particular attention.

"Africa is the untold story, and could be the big story, of the next decade, like India and China were this past decade," said Muhtar Kent, Coke's ceo.

"The presence and the significance of our business in Africa is far greater than India and China even today. The relevance is much bigger."

Africa's expanding middle class, predicted to surpass 100m people in 2014 by management consultancy McKinsey, is a considerable draw, but obstacles do remain.

"You've got an incredibly young population, a dynamic population. Huge disposable incomes. I mean, $1.6tr of GDP, which is bigger than Russia, bigger than India," Kent said. "It's a big economy, and so rich underground."

"Whether the next decade becomes the decade of Africa or not … will depend upon one single thing - and everything is right there to have it happen - and that is better governance. And it is improving."

Meanwhile, Standa Vecera, Procter & Gamble's general manager, southern and eastern Africa, suggested stronger consistency in this area would stimulate growth.

"The key for manufacturing is to have stable policies and economies," he said. "The worst for us is if we wake up and there is a change in tariffs, or in policies."

Healthcare group PZ Cussons yields most of its African revenue from Nigeria, and has found infrastructural problems can actually extend to marketing.

"In Nigeria electricity doesn't always run, so half the time you are paying for advertising that no one will see," Alex Kanellis, PZ Cussons' ceo, told the Financial Times.

The industry landscape also differs when measured against other emerging markets, according to Kanellis.

"Growing Asia is difficult because you have everyone competing. In Africa the Japanese, apart from the car companies, are not really there," he added.

"It's mainly just the Indians, Chinese and the multinationals that have been there for ages."

Nestlé currently derives less than 5% of sales from Africa, where it plans to invest almost $1bn in three years.

"Africa entails some risk because there is tension but ... I see crystallisation of some stability," Paul Bulcke, Nestlé's ceo, said earlier this year.

"You are going to have countries on this continent that are always accelerating, then pause for a year... But I see good growth potential [among] one billion consumers."

Elsewhere, Nestlé is regularly sourcing goods locally, and has substituted the potato used in Maggi stock cubes for indigenous alternatives like cassava.

"We started with 14 farmers in a village. Today we have over 1,000 farmers supplying cassava of the right quality," Fritz van Dijk, Nestlé's zone director, Asia, Oceania, Africa and Middle East.

Wal-Mart, the retailer, has also made a £1.5bn bid to take a majority share in Massmart, its South African counterpart.

"We continue to view Sub-Saharan Africa as an important market and are pleased with how the process is going so far," said Doug McMillon, ceo of Wal-Mart's International.

McMillon argued Massmart was a "good cultural fit" for Wal-Mart, and could provide substantial possibilities.

"We see the opportunity to increase value for Massmart customers and reach even more customers together. We remain excited about this potential investment," he said.

Data sourced from Financial Times, Business Day, Bloomberg, Seeking Alpha; additional content by Warc staff