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March 2016 So much in store Prospects in the retail and consumer goods sector in ten sub-Saharan countries www.pwc.co.za/retail-and-consumer Project and editorial team Anton Hugo, PwC Africa Retail & Consumer Industry Leader Charmaine Haskell, Senior Manager Mandy Stroud, Senior Manager Catherine Ensor, Senior Manager Enbers Moodley, Senior Graphic Designer Jaco Maritz, Maritz Africa Intelligence Many other professionals within PwC reviewed the text and contributed local expertise to this publication and we thank them for their assistance. This report was written in cooperation with Maritz Africa Intelligence. Thank you to Dinfin Mulupi, Kate Douglas, Dianna Games and Darias Jonker for their contributions. www.maritzafrica.com The bulk of this research was conducted in 2015. 1000 | So much in store Contents Foreword 2 The big picture 3 Country profiles 16 1. Angola 16 2. Cameroon 24 3. Côte d’Ivoire 32 4. Ethiopia 39 5. Ghana 47 6. Kenya 55 7. Nigeria 63 8. South Africa 72 9. Tanzania 82 10. Zambia 91 Contacts 99 Key figures 100 PwC | 1 Foreword Despite some of the challenges there Although significant investment has businesses looking to expand in Africa. remains reason for optimism about doing gone into improving infrastructure in Sub-Saharan Africa remains one of the business in Africa. There are encouraging many countries on the continent the fastest growing regions in the world and economic growth rates predicted for 2016 quality of infrastructure remains mixed. the successful expansion of a number of and beyond in a number of countries Retailers need to assess each country global and African retailers and consumer in Africa and the growth expected in individually and ensure they understand goods companies across the region speaks Africa’s consumer market provides a how the quality of ports, roads and to the opportunities that exist. major attraction to retail and consumer energy infrastructure will impact their companies looking to the future. operations. Individual country profiles provide an overview of the demographic and However, Africa’s fortunes are very much Different strategies have been developed economic situation, challenges and tied into those of the global economy. The for expansion in Africa, including opportunities, as well as sharing insights fall in oil and other commodity prices has selecting a regional hub to facilitate about doing business from executives on seen pressure on government revenues expansion (such as Kenya into East and the ground. and the ability of governments to increase Central Africa and Nigeria into West social expenditure and wages in the Africa). A critical success factor for Meanwhile, the “big picture” section at public sector. In particular, countries such retailers and consumer goods companies the beginning of the report outlines a as Angola, Nigeria and South Africa are moving into many African countries has number of the major trends shaping the feeling this impact and this could impact been their ability to implement supply retail and consumer sector across sub- on the growth of the consumer market in chains that deal with the operational Saharan Africa. these and other African economies. challenges that exist. Given the size of Africa, companies often need to We hope this report will enhance your The relative weakness of many emerging make significant upfront investments understanding of some of the risks but market currencies has meant a higher risk in distribution centres and in many more importantly the opportunities of tightening monetary policy (with its countries upfront lease payments to that Africa has to offer, and provide the resultant impact on customer’s wallets), landlords covering a significant period groundwork for deeper conversations. exchange controls and of course increased may also be required. import costs for retailers. Managing the effect on their operations (in particular In this report, we focus our analysis on their cost base) of volatile currencies ten African economies that we believe will continue to be a focus for retailers in offer some of the most compelling Africa. opportunities for retail and consumer Anton Hugo Retail & Consumer Industry Leader PwC Africa 2 | So much in store The big picture Trends shaping the retail and consumer sector in sub-Saharan Africa Recent years have seen surging investor Macro developments interest in sub-Saharan Africa’s retail & consumer sector. Whereas the focus was Since the turn of the century sub-Saharan traditionally on extractive industries such Africa has undergone a number of as oil and mining, a growing consumer changes that have made it a more enticing class demanding everything from mobile investment prospect for consumer-focused phones to fast food have prompted many companies. The region’s economic retailers and consumer goods companies progress and the ‘Africa rising’ narrative to look with fresh eyes at opportunities in have been well-documented, and we will the region. not discuss it in depth. The purpose of this report is to offer Many sub-Saharan Africa countries insight into the make-up of sub-Saharan have emerged among the world’s fastest Africa’s retail and consumer goods growing economies. For example, industries, and provide an outlook for the between 2000 and 2014, GDP in Angola, coming five years. However, with each Ethiopia and Nigeria grew at average country at its own stage of development annual rates of 9.2%, 8.8% and 7.7% and stark differences in culture and respectively. consumer behaviour, one cannot paint the entire region with one brush. While significant work remains there has also been some progress on the We have therefore focused our research governance and political front, with on 10 countries – Angola, Cameroon, many countries moving towards better Ethiopia, Ghana, Ivory Coast, Kenya, administration and deepening democracy. Nigeria, South Africa, Tanzania and For example, Nigeria’s March 2015 Zambia. In choosing these territories election was the first time since 1999 that we considered a variety of factors, the country had a democratic transition including the size of their economies of political power. The polls also defied and attractiveness from a consumer predictions of security problems and perspective, while aiming to provide a unrest. good geographical spread. These developments, coupled with To give readers a broad snapshot, we urbanisation and an increasingly have identified significant trends likely to connected and demanding consumer class impact the development of the region’s have given investors a lot to be positive retail and consumer goods industries over about. the coming years. A growing consumer class demanding everything from mobile phones to fast food have prompted many retailers and consumer goods companies to look with fresh eyes at opportunities in Africa. PwC | 3 Countries analysed in this report Nigeria Ethiopia Côte Ghana d’Ivoire Cameroon Kenya Tanzania Angola Zambia South Africa 4 | So much in store Economic factors Figure 1 Commodities at USD-indexed prices (Annual average prices, 2007=100) Despite this underlying optimism, many sub-Saharan economies have also been 250 impacted by a string of external and internal challenges that are already 200 having a negative impact. 150 Softer demand from Europe and China, lower commodity prices (most 100 significantly the oil price, which is severely impacting crude producers such as Angola and Nigeria) and security 50 threats in countries such as Nigeria and 0 Kenya have all had a harmful impact on 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP growth. Crude oil, average Coal, South Afican Iron ore, cfr spot In its January 2016 World Economic ($/bbl) ($/mt) ($/dmtu) Outlook Update, the IMF revised forecasts Copper ($/mt) Gold ($/troy oz) Platinum ($/troy oz) for global growth down by 0.2 percentage points for both 2016 and 2017, reflecting Aluminum ($/mt) a weaker pickup in emerging economies than previously expected. Despite the Source: World Bank Commodity Price Data (The Pink Sheet) challenges, the outlook for sub-Saharan Africa remains positive and significantly ahead of the global average Figure 2: GDP growth: Global vs sub-Saharan Africa 7 6 5 4 3 Despite a string of external and 2 internal challenges having a negative impact on its growth 1 rate, Africa’s prospects remain significantly better than the global 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 average. Sub-Saharan Africa World Source: IMF, World Economic Outlook, January 2016 PwC | 5 Figure 3 GDP growth in profiled countries (%) 15 12 9 6 3 0 -3 -6 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Angola Ethiopia Nigeria Cameroon Ghana South Africa Côte d'Ivoire Kenya Tanzania Zambia Source: IMF World Economic Outlook Database, latest release October 2015 Many African currencies have also weakened against a strong US dollar, which The strong US dollar has inflated has inflated the costs of imports and raw materials. Furthermore, fresh electricity the costs of imports and raw generation problems in many countries, particularly South Africa and Ghana, means materials, putting added pressure companies have to rely on generators during periods of electricity load shedding. This on local economies. is expensive and adds to the cost of doing business, which has seen some companies having to lay off staff. Figure 4 Real effective exchange rates for profiled countries (annual average index, 2007 = 100) 160 150 140 130 120 110 100 90 80 70 60 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 Angola Ethiopia Nigeria Côte d'Ivoire Ghana Tanzania Cameroon Kenya South Africa Zambia Source: Bruegel, Real effective exchange rate database, updated 26 November 2015. Acessed at http://bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-new- database 6 | So much in store Demographic changes Urbanisation Africa’s young population is expected to The world, including sub-Saharan Africa, drive consumption and economic growth is undergoing the largest wave of urban Africa’s population is expected in the coming decades.

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