Africa continues to navigate through global economic headwinds
Activity in East Africa will primarily be driven by three major external factors:
1. China’s transition from a major industrial/manufacturing economy to a consumer and service-based economy that will reduce global demand for commodities.
2. The US Federal Open Market Committee (FOMC) beginning the process of normalising its monetary policy and increasing interest rates and its impact on emerging and frontier markets causing reducing capital inflows to Africa and rising sovereign debt costs due to a rising dollar.
3. The robust fall in crude oil prices and glut in oil supply (increased by lifting sanctions on Iran) impacting new major oil and gas investments in Africa. Although the macroeconomic outlook from global forces is uncertain for 2016, there are positive movements happening within Africa such as a greater shift towards a service-based economy in Kenya reducing the exposure to global commodity drop-offs that have impacted global industrial and manufacturing based economies.
Furthermore, although the “rising” middle class story in Africa can be somewhat exaggerated from an absolute standpoint, the relatively low economic base that Africa has grown from allows these middle class consumers to spend more of their disposable income than they would have previously. Coupled with the impact of mobile money services driven by exponential uptake in mobile connectivity are enabling new users to shop and socialise just as in any advanced economy. This is driving Fast-Moving Consumer Goods (FMCG) activity and increasing the number of multinationals growing in Africa, and furthermore, East Africa. Companies such as Diageo, SABMiller, Unilever, and Carrefour are targeting rapid population growth with huge potential in penetration rates for expansion.
"Over 400,000 companies registered in 2014."
The size of the FMCG market in Kenya
With consumption in Kenya rising, East Africa continues to attact FMCG multinationals.
Companies such as Diageo have benefited from local partnerships and distribution networks including its acquisition of East African Breweries Limited (EABL). EABL have been able to sell Diageo products through supermarkets, wholesalers and retailers and thousands of independent kiosks and street vendors.
This has allowed EABL to achieve sales of over $900m in Kenya and is an example of improving market entry strategies that is growing FMCG activity in the East Africa region.
Source: Diageo, EABL, AC Nielson, How We Made it in Africa
Perhaps the most fascinating statistic Sunbird has seen this year on Africa, is that a rising middle class, growing potential for gas in Tanzania and Mozambique boosted by increased cellular activity that is driven by the impact of Mobile Money services has seen almost 400,000 new companies registered in Africa in 2014. Through on-ground research in Kenya, Sunbird has discovered that mobile money has significantly boosted consumer spending, reduced delinquencies for debt-servicing, and furthermore, has allowed entrepreneurs to shift away from agriculture, and open up a business. Finally, Africa is slowly closing the chapter on a continent requiring aid to a ripe market seeking investment. Advances in technology have enabled savvy young African entrepreneurs who through their own coping mechanisms of day-to-day life in Africa have crafted incredible companies like M-Kopa that has the potential to bring 1million people power by 2018. In fact, 30 of Africa’s top entrepreneurs in 2015 are less than the age of 30, all of whom are creating innovative technologies that are rapidly solving day-to-day socioeconomic problems. These are African innovations with foreign investment.
In conclusion, despite all the negative press pointed towards Africa, activity on the ground is real, and despite global economic headwinds, Africa will continue to grow faster and increased business activity that is driving the requirement for infrastructure construction and support services, will continue to push Africa towards developing into a service-based economy.
For more exciting information, please view our 2016 Market Reports available below.