28/06/2017 – Independent / Trends in Trade / Africa / Nielsen
Shifting Sands: Altering prospects for African economies
If 2016 proved to be a year of change characterised by the volatility of Africa’s variable markets, then 2017 will likely prove a period of reshuffling opportunities and focus. Such insight stems from the latest Nielsen Africa Prospects Indicator (APi) Report, which delivers proprietary data, trending the country-level prospects accross Africa based on macro, business, consumer and retail dynamics.
Average growth in Sub-Saharan Africa is expected to have reached its lowest level of 1.5 per cent in 2016, after slowing from three per cent in 2015, buffeted by global turmoil. Yet the slowdown experienced in Africa was not uniform in nature. Oil and mining-reliant economies were hurt by the global commodity price declines. South Africa and Nigeria, which together account for about half of Sub-Saharan Africa (SSA)’s GDP, were both affected. In contrast, East Africa and the oil-importing economies in Francophone West Africa, such as Cote d’Ivoire, managed robust growth rates.
Africa’s economic lions, it seems, are still moving forward. Nonetheless, there have been noticeable shifts in the momentum of those individual nations that make up the world’s second fastest growing region today.
The latest results of Nielsen Africa Prospects Indicator (APi) Report reveal that seven of the eight markets studied have changed rankings, with Kenya now in first place and Cote d’Ivoire second, while Tanzania remains steadfast in third position. Other top prospects identified in the report include South Africa, Ghana, Cameroon and Uganda – ranked fourth to seventh respectively. Behind them is Nigeria, whose overall deterioration in prospects has seen it experience a significant drop (down from the top spot in Q12015).
Growth shift from West to East
Kenya, now in top position, has been in the upper echelons of the APi ranking since the report’s inception. As East Africa’s most prominent economy, Kenya is pivotal for the success of the region, as growth prospects shift from West to East. The World Bank forecasts Kenya’s 2016 GDP growth at 5.6 per cent – a robust performance against the 1.5-per-cent average for
Sub-Saharan Africa. Strong agricultural output, a resurgence in tourism, as well as increased FDI resulting in infrastructure projects have spurred this more diversified economy.
The challenge in Kenya is the retail rank, pointing to in-trade executional challenges compounded by the capping of interest rates, resulting in loans being extended to only the most established and safest borrowers. Truly informal small- and medium-sized enterprises, as well as new start-ups, have been negatively impacted, which has in turn hindered growth and employment opportunities. However, elevated consumer purchasing power due to growth in per capita GDP has resulted in a bigger base of more affluent consumers who can maintain retail resilience, creating an upbeat outlook for Kenya’s retail sector.
Cote d’Ivoire’s drop to second position is due to negative shifts in consumer prospects. Despite strong macro, business and retail prospects, Cote d’Ivoire’s consumer prospects remain the biggest challenge. This should, however, be seen in the context of improvements in the ease of doing business, strong GDP growth, a doubling of the banking sector, low inflation, stable currency, solid infrastructure and good education. In addition, Francophone Africa’s largest economy has faced a growing wave of public sector strikes as the substantial reform and growth is yet to be reflected in consumer discretionary income.
An unexpected option
Prospects for South Africa, relative to other Sub-Saharan countries, have been reconsidered, as investors refocus on more established markets where it is usually easier to execute in known consumer and retail environments. South African businesses have not expressed a confident view of the country’s future – however, as conditions in many Sub-Saharan Africa (SSA) countries have deteriorated at varying rates, South Africa has started to outshine many faster growing or more politically stable African counterparts. Unfortunately, this may be short-lived in the face of recent political and financial turmoil, and uncertainty within the country.
“The South African opportunity must be evaluated in comparison to the fates of the other SSA countries,” commented Aisla Wingfield, Nielsen’s Head of Emerging Markets Thought Leadership. “SSA’s most industrialised economy still has the potential to be viewed favourably during increasingly tough economic times, but this must be in a cautionary light given recent events.”
Nigeria’s oil woes
Nigeria, in eighth position, has been particularly hard hit by lower oil prices compounded by low oil production resulting in a forex shortage, depreciation of the Naira and a curb on imports. This created a stranglehold on the economy which has resulted in sky-rocketing inflation and tougher conditions for businesses and consumers alike. Predictions are that the worst is over and it will not take much to drive the Nigerian economy into positive growth levels in 2017. Commodity prices, including oil, are recovering, oil production is on the up and an improved outlook is foreseen in the country’s non-oil economy.
Despite a drop in the Nielsen recorded Consumer Confidence Index, Nigerians have remained more positive than Kenyans, South Africans and Ghanaians, in terms of their job prospects and personal finances. As the macro, business and retail prospects recover, an improvement in the country ranking is expected. Meanwhile, businesses will need to adjust to altered consumer coping strategies in tough market conditions – namely reduced consumption and purchases made on an immediate need basis only – with flexible product offerings and agility in packaging and pricing.
Businesses refine outlook
From a business perspective, while 2017 is likely to bring cyclical recovery to the Sub-Saharan Africa region, there will not yet be a return to robust growth rates seen in previous years. Many SSA markets will continue to present robust prospects at a macroeconomic level, and well ahead of other developed and emerging markets. For businesses’ own growth priorities, only five countries in SSA – Ethiopia, Cote d’Ivoire, Ghana, South Africa and Kenya – are acknowledged as having ‘good’ growth prospects (scored at six or higher out of 10), compared to eight countries a year ago, and 13 countries in total over the past two years which have been recognised in this range. This points to businesses refining their focus to fewer countries that are deemed critical to their success.
Looking to the future, new investors may see the cost of investment as more financially viable, given lower exchange rates, or an opportunity to develop products more suited to consumer wallets. The key to success will be the overriding need to focus on consumers, competitiveness and execution.
There is still a significant opportunity for improvement in working with retailers, particularly affected by the tough trading conditions to retain sales rates. It is therefore imperative for manufacturers to support retailers to optimise retail execution to sustain diminishing consumer demand. The common denominators are: Matching the consumer coping strategies with optimal product assortment; Price and packaging flexibility to meet shopper missions; Maximising visibility of new products; Efficient distribution to regulate stock supply.
Whilst 2017 is likely to bring recovery to SSA, there won’t be an immediate return to the higher growth rates as seen in previous years – indeed, growth is predicted to be lower than that experienced in the past 10 to 20 years. Many SSA markets will nonetheless continue to present robust prospects, and well ahead of other developed and emerging markets. However, with the volatility and turmoil experienced in 2016 set to continue, businesses will require resilience, relentless adjustment and adaptation to meet consumers altered needs, said Ms Wingfield. “To stay abreast of the rapidly evolving trends in 2017, businesses will need to adapt short-term and long-term country strategies to maintain relevance in fluctuating market cycles.”