Fast-growing markets mean new opportunities for international firms

Facing saturation and elusive growth prospects in more established markets, multinational fast-moving consumer goods (FMCG) companies are turning their attention to sub-Saharan Africa, a growing region that, with some exceptions, has been undersupplied when it comes to branded, mass-produced consumer products. A 2012 report by the global consultancy McKinsey Africa Consumer Insights Center forecasts Africa’s consumer-facing industries to be the fastest growing of any industrial grouping, expanding more than $400bn by 2020. Ghana, in a 2012 report by global financial service group UBS, was ranked with Nigeria, Zambia, Kenya and Tanzania as one of the most attractive countries for FMCG investments in sub-Saharan Africa.

Local Set-Up

To penetrate an enticing market such as Ghana, multinational FMCGs must weigh the advantages of establishing local manufacturing over the associated risks and costs. While an unreliable power supply and tax legislation present challenges, penetration levels are low enough and growth potential large enough that local production is worthwhile for firms hoping to establish a larger footing. Being on the ground also affords the opportunity to customise the product to local tastes and habits. “Foreign retailers are starting to realise that they cannot replicate the same concepts they do in their home markets. There are big efforts to produce more locally and diversify the product mix away from only selling products from their home market by introducing Ghanaian-centric products,” said Imad Wolley, managing director of Wolley Group, a Ghanaian retail distribution company.

Home Brew

Perhaps no consumer goods product in Ghana serves as a case study towards localisation more than beer, where the world’s two largest brewers have scaled up their local manufacturing commitments to take advantage of government incentives and incorporated indigenous ingredients to manage costs and meet local price points and tastes. In 1997 SAB Miller acquired a 70% stake in local brewer Accra Brewery Limited (ABL). It has since taken full ownership of ABL, and its operations consist of two breweries and four bottling plants distributing six main brands. In 2009 the company diversified into bottled water through the acquisition of local market leader Voltic. In 2013 SAB’s managing director for Africa announced plans towards a $100m extension of its main brewing site to raise production volumes of its local brands and add additional distribution capacity for handling some of its international brands. UK’s Diageo, the world’s largest alcoholic beverage company, has had a presence in Ghana since 1960 and operates through its subsidiary Guinness Ghana Breweries Limited (GGBL).

Locally Grown

While the brewing industry had attempted to use home-grown ingredients in the past, they tended to rely on imported hops and barley because neither ingredient can be grown locally. The local agriculture sector is dominated by smallhold rather than commercial farming, presenting difficulties in attaining supply chain control and consistency. In 2010 the government also raised the excise tax on alcoholic beverages, increasing the duty for beer to 47.5%, but in 2012 it then granted a graduated concessionary excise tax on alcoholic beverages based on the amount of local raw materials used in production. According to Peter Ndegwa, GGBL’s managing director, the new tax gave GGBL the impetus to “innovate and develop serious local capacity throughout the supply chain”. He said, “The government has put itself out there in terms of creating an enabling environment for local procurement. It is now up to the private sector to determine how local procurement can make sense for their business.”

GGBL and ABL have since introduced cassava-based beers to the market. Consideration is now being given towards the plant’s potential as a bio-fuel. Kasapreko, an indigenous beverage producer that currently imports over 25m litres of ethanol each year to produce its beverages, has formed a partnership arrangement with Caltech Ventures, owners of a 3000-ha cassava farm in the Volta Region, and are planning to produce 3m litres of alcohol a year from cassava starting in 2015.