Investment Opportunities for Growth in Africa: Food, Pharmaceuticals, Home and Personal Care Industries


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Investment Opportunities for Growth in Africa: Food, Pharmaceuticals, Home and Personal Care Industries

  1. 1. Investment Opportunities for Growth in Africa: Food,Pharmaceuticals, Home and Personal Care IndustriesBy Frost & Sullivan’s Chemicals Materials and Food (CMF) Research Analysts, Dr RichardOrendo Smith and Linda GanyekaAfrica is a continent of 54 countries; including the addition of the newly formed SouthSudan in 2011. In 2010, the urban population was estimated at 413 million inhabitants,or 40% of the total African population; making Africa more urbanised than India yet lessso than China. Analysts predict that by 2030, more Africans will be residing in urbanareas for the first time in the continent’s history. However, by 2050, this number isprojected to approximate 1.2 billion; representing almost 60% of the total population.Currently, the continent has 52 cities with more than one million inhabitants. Thisnumber is expected to grow to 75 cities in the future, writes CMF Research AnalystRichard Orendo Smith at Frost & Sullivan, global growth consulting firm.Many financial institutions, such as The African Development Bank (AfDB), GoldmanSachs, IMF, World Bank believe that Africa is the place to invest; and rightly so,because of the significant opportunities it presents. Africa is the fastest growing regionafter Asia, with better return on investments compared to most developed countries inEurope or the US. According to a recent World Bank report, Sub Saharan Africa’s(SSA’s) annual GDP growth is projected at 5.8% (excluding South Africa). However,most of the growth recorded, emanates from mining and oil and gas. Overall, there arevery few manufacturing activities that are currently taking place in Africa. Othercountries with an emerging manufacturing sector, however, include Egypt, Algeria andMorocco; South Africa; Nigeria, Ghana and Kenya. Consequently, foreign investors areattracted to infrastructure development projects, mining, oil and gas exploration andproduction, banking and agriculture. The rising consumer market also offers opportunityfor investment, mainly driven by rising economic growth across Africa (Figure 1) andsubsequently an increased middle-income class population. According to The AfricanDevelopment Bank (AfDB), Africa’s middle-income class had grown to 313 millionpeople in 2010, or 34% of the continent’s population, compared to 151 million in 1990.
  2. 2. Note: Chart reflects 2015 GDP growth figures at constant prices and GDP figures at current prices Figure 1 Projected figures and growth rates in Africa (2015) Source: IMF, World Economic Outlook Database (April 2012), Frost and SullivanLooking at the consumer market, SSA offers many opportunities to companies, eithermanufacturing and/or supplying consumer good products, such as food,pharmaceuticals and home and personal care, notes Frost and Sullivan. The recentexpansion of South African retail food stores, such as Shoprite, Spar and Pick ´ Pay,into SADC and West African countries (including Ghana and Nigeria) are proof ofpotential for growth in these markets due to the demand for higher quality food andcosmetics products by the growing middle income class. South African retail store,Massmart Holding Ltd, was recently acquired by the American giant retail store, Wal-Mart, as a point of entry for its strategic expansion into the rapidly growing Africanconsumer market. With their rapidly developing food processing industries, countriessuch as Morocco, Algeria, Egypt and South Africa, are likely to attract interests frommanufacturers or suppliers of ingredients used in fruit juices, confectionaries, dairyproducts and processed meat products. For example, the food industry in Morocco andAlgeria is quite sophisticated and accounts for 17% and 8% of the GDP respectively.The market value for ingredients was estimated at US$105 and US$200 million forMorocco and Algeria; respectively, with dairy products, meat processing,
  3. 3. confectionaries and fruit juices being the predominant money-spinning sectors (Figure2). 1,200 1040 1,000 Algeria ($ million) Morroco ($ million) 800 632 600 400 187 215 200 131 49 60 81 0 Dairy products Fruit Juices Confectionaries Meat processingFigure 2 Estimated markets for finished food processed products for Algeria and Morocco (in US$), 2011The size of the pharmaceutical market in Africa is estimated at more than US$10.00billion. Egypt, South Africa and Algeria are currently the biggest markets, both in termsof revenues as well as volume of products consumed. All three countries generatemarket revenues of more than US$2 billion each, followed by Nigeria, Morocco andTunisia respectively (Figure 3). A number of multinational pharmaceutical companies,such as Sanofi-Aventis, GlaxoSmithKline, Pfizer and Hikma pharmaceuticals, havemanufacturing facilities in Africa, with an equally significant number of emerging localproducers. The Sub Saharan African pharmaceutical market is driven by the highincidence of diseases such as those of HIV/AIDS, TB and malaria while in North Africathe prevalence of lifestyle diseases such as cardio-vascular diseases, cancer anddiabetes dominate.
  4. 4. Egypt $2.48 billion South Africa $2.43 billion Nigeria $0.74 billion Algeria $2.32 billion Morocco $0.71 billion Tunisia $0.68 billion Figure 3 Estimated markets for finished pharmaceutical products per country and revenues (in US$), 2011The African home and personal care market (which includes cosmetics) is characteristicof a growing market, and was estimated to be about US$12.90 billion, in 2011. Themarket is catered for by both imports from other continents as well as locally producedproducts. Local production is characteristic of high volume, low value products, whichrepresent about 50% of the volume of the total market. Local production is estimated torepresent 37% of the overall value of the total African Home and personal care market.This is due to the fact that the vast majority of the African population make use ofmultipurpose soap bars across all home and personal care applications, like skin care,hair care, dish care and toilet care. Local producers often use basic chemicals or rawmaterials, over specialty chemical raw materials used on other continents, writes Frostand Sullivan’s Chemicals Materials and Food Research Analyst Linda Ganyeka.The market is dominated by multinationals, which import more sophisticated home andpersonal care products. Multinationals usually have small manufacturing or repackagingplants in Africa and cater for the market through their global manufacturing hotspots.The biggest multinational players on the continent are Unilever, Procter & Gamble,Colgate, Palmolive and L’Oreal. These multinationals are responsible for the bulk offinished goods that enter the African market and often bring in low volume, high valuefinished goods compared to goods produced locally. Multinationals drive their productsto the market through intense advertising. Multinational companies are, therefore, thebiggest challenge that local market participants face, as well as counterfeits from other
  5. 5. regions like Europe and Asia. Cheaper products with multiple functions are also a threatto the local producers’ market share.The African market is expected to grow, driven mainly by the expanding Africanpopulation, increased urbanisation and a rising middle class on the continent with moresophisticated needs. South African and Nigerian home and personal care markets arevalued at about US$2.1 billion and US$1.2 billion respectively. South Africa has thebiggest home and personal care market in terms of local manufacturing, because mostmultinationals use South Africa as a gateway to the rest of the continent. In addition,most multinational companies with significant home and personal care manufacturingon the continent are based in South Africa and Egypt.The main source of supply of ingredients for home and personal care to the Africancontinent is through distributors. This is mainly due to the structure of the market andthe quantities of raw materials in demand. In most African countries, local raw materialsmanufacturing is limited and more than 90% of the ingredients required are, imported.The biggest chemical raw materials demanded on the continent are of a basic nature,which include mainly solvents and surfactants, among other raw materials. Theregulatory environment for chemical raw materials in the African market differs vastly incomparison to that of other continents. The manufacturing sector in Africa is challengedmainly by lack of poor infrastructure, which has resulted in slow growth of the Africanhome and personal care sector.Many global ingredients manufacturers and suppliers develop distribution networks,through partnering with local distributors, in order to get their products into the Africanmarket. An in-depth understanding of overall African market dynamics, however, mayprove to be critical in order to gain significant market share going forward, concludesFrost and Sullivan.Contact:Samantha JamesCorporate Communications AfricaP: +27 21 680 3574F: +27 21 680 3296E: samantha.james@frost.com