Sub-Saharan Africa fit for growth

by Morton I. Sosland
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It was fascinating observing the speed with which Nestle moved recently to correct the impression it may have created about what it thinks of the opportunities for investing in Africa. The negative impression came when it cut back on its staff in five countries of Equatorial Africa. Pointing out that the staff changes involve fewer than 1% of the 11,000 people the Swiss food and drinks group employs in sub-Saharan Africa, it emphasized that the southern region of Africa is one of its fastest growing markets and that it continues optimistic about the medium-term outlook in Equatorial Africa. The statement concludes by declaring that Nestle wished to correct any idea that it was “somehow pulling back from Africa.”

Interpreting all of this to mean Nestle is enthusiastic about the food business in Africa may be overstepping. Yet, it is important to note that the pace of investing is on the increase and that the food industry is attracting more than its traditional share. Nestle has succeeded around the world by producing consumer foods meeting the specific needs of the regions it is serving. Whereas in the United States and in other parts of the developed world, the group’s research focuses on health and well-being requirements popular with consumers, its attention in Africa is to products using native ingredients and offering easy food preparation to consumers without modern kitchens.

Food industry investing in sub-Saharan Africa has been a mixed lot, often contending with African entrepreneurs who gain a foothold by taking over businesses that western investors might have founded. Western control still defines many leading flour milling enterprises but large groups of locally owned mills, including several with public stock ownership, are growing. A marked difference rules in who controls many parts of the food industry from country to country. South Africa is either the founding nation or the target of many of the largest food-related enterprises that look to promising markets wherever located.

When the potential for flour milling or other industries popular in western nations is reviewed, the lack of sub-Saharan ingredients typically surfaces. That deficiency is striking when it comes to flour milling’s need for wheat. Most of the region below the Sahara Desert is unsuited, or ill-suited, for producing wheat. This accounts for Nigeria, the most populous nation of the continent, being one of the world’s largest wheat importers, with takings near 5 million tonnes likely in 2015-16. All of sub-Saharan Africa is projected to import 7.5 million tonnes, whereas North Africa, with a quarter as many people, will take 19 million tonnes. This difference is explained by the proximity of the former to Europe.

It is the minimal per capita consumption of wheat foods in the major region of Africa — a situation duplicated in many other western foods — that makes Africa such a favored target for western food manufacturers seeking areas ripe for development. It is with exceptional caution that food manufacturers headquartered in the western world have sought to follow what Nestle and a few other companies have done to establish manufacturing in Africa. In light of disappointing domestic food business, all that may be swiftly changing. Word from food companies in the sub-Saharan region tells of the active pursuit of investment opportunities, often in the form of private equity investors and also as companies themselves search for every chance to expand markets.

As word spreads that Africa has become the primary target of private-equity investors, the chances of commercial ventures gaining a foothold shrink. It is apparent that much of the caution that guided such undertakings in the wake of the horrific 2008 financial crisis is swiftly melting away. Whether these new investments bring great success or not is no longer the issue, especially in the food industry. Here is a region of the world with 800 million people ripe for making great progress by pursuing the readily available goal of improving what they eat.