Emerging Markets Business Summer 2016 | Page 62

CASE STUDY OUT of Africa? A s the growth of Africa’s middle-class falls short of expectations and foreign firms lose out to local competition, the African fate of a leading multinational hangs in the balance. “Let’s celebrate! Finally, our $1.4 billion-dollar investment to expand production capacity in Africa shows we’re getting serious about the last frontier.” They were the words of the regional president of one of the world’s largest food and drink multinationals back in 2011. More precisely, they were my words. And in my opinion, the decision couldn’t have come soon enough. Many called the huge investment a bold move, but from where I was sitting—a bright and airy office at our European lakeside HQ—it seemed perfectly rational. Across our many F&B brands, African sales were recording strong double- The Growth Story Back in 2011, all indications pointed to a positive outlook. The question was not ‘should we take the step?’ but ‘how could we afford not to?’ At the time, though our Africa revenue was increasing apace, just one third of our multi-billion dollar sales were actually being generated from developing countries—countries that housed a staggering 90% of the world’s population. The continent was—and indeed still is—home to more than 1.1 billion people, and that figure was forecast to rise to onequarter of the world’s population by 2050. As such, it was a no-brainer that Africa should feature prominently as a center for our corporate growth. True, income levels were very low, but they were rising, with more and more people entering into what we call the “emerging consumers” category. For the first time, this group of African consumers could afford to buy basic packaged food and beverage products—our products, we hoped. In the context of this swelling consumer bracket, our investment plan was inspired by the much-talked about economic revival of Africa and its rising middle-class. A survey from the African Development Bank put the continent’s middle-income group (those earning between $4 and $20 a day) at 330 million people in 2011, with the figure expected to climb to 1.1 billion by 2060—that’s 42% of the population. 60  Emerging Markets Business  Summer 2016 • Issue No. 1 digit growth and had already reached $3.5 billion, replicating the trend across emerging markets and outpacing growth in developed nations. In the latter category, our revenue was growing at a mere two percent or less. With the irrefutable numbers in front of us, it was time to fulfill the potential we had been overlooking for too long. But that was then. Fast-forward five years and our Africa turnover has fallen woefully short of our initial growth forecast, with operations yielding disappointment after disappointment. As a result, our company chief has decided to step away from the investment, turning our back on the very fundamentals which led us to Africa in the first place. Several years ago, I didn’t understand what was taking us so long to make the leap into Africa, and now, despite the tough situation, I can’t comprehend the retrenchment. The tone from the International Monetary Fund (IMF) was equally optimistic. Reports from the organization indicated that rising household expenditure in sub-Saharan Africa specifically, may help the region’s economy grow almost three times faster than that of Europe. Investment Is Commitment So, it was against a backdrop of attractive forecasts that our company felt bullish about its African endeavors. Historically we’ve invested for the long-term, generating employment opportunities and developing facilities in many of the countries in which we operate—a sign of dedication to the nations in question and to our own corporate growth. For us, Africa was no different. In sub-Saharan Africa, we managed to build three new factories and create 750 new jobs. At the opening of one of those sites in Nigeria a few years back, our CEO declared that the facility would bring the company closer to our consumers, allowing us to better adapt our products to their needs and preferences. This latest investment, he said, was “proof of our commitment to Africa.” With the inaugural ribbon cut, the new 12-hectare factory promised to double our production of culinary goods to meet growing demand, not just in Nigeria, but in other key countries across central and west Africa. Of course, we had been present across the continent for years, but the $1.4 billion pledge paved the way for us to expand our