Wednesday, 17 May 2017

Shifting Prospects Illuminated in Nielsen’s 4th Africa Prospects Indicator

If 2016 proved to be the year of change due to the volatile nature of Africa’s variable markets, then 2017 will be the year for a reshuffling of opportunities and focus. This insight stems from the latest Nielsen Africa Prospects Indicator (APi) Report which delivers proprietary data, trending the country-level prospects of pan-African countries based on Macro, Business, Consumer and Retail dynamics.

The latest results reveal seven of the eight markets have changed rankings with Kenya now in first place and Cote d’Ivoire second while Tanzania remains steadfast in third position. Nigeria’s overall deterioration in prospects has seen it experience a significant drop.

Nielsen Head Emerging Markets Thought Leadership Ailsa Wingfield comments; “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.  In this 4th edition of the Africa Prospects report, the longer-term, trended movements highlight the more significant shifts being experienced.”

Africa’s top prospects

Kenya, now in top position, has been in the upper regions of the APi ranking since inception.  As East Africa’s most prominent economy, Kenya is pivotal for success as growth prospects shift from West to East Africa.  The World Bank forecasts Kenya’s 2016 GDP growth at 5.6%, a robust performance against the 1.5% average for Sub Saharan Africa.  Strong agricultural output, a resurge in tourism, as well as increased FDI resulting in infrastructure projects has 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 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, 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 SSA countries have deteriorated at varying rates, South Africa 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.

Comments Wingfield: “The South African opportunity must be evaluated in comparison to the fates of the other SSA countries. 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 .”

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, creating a strangle hold on the economy which 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 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 their outlook to fewer countries

From a Business perspective, while 2017 is likely to bring cyclical recovery to SSA 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 thirteen 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 which are critical to their success.

What 2017 holds?

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 optimize retail execution to sustain diminishing consumer demand.  The common denominators are: matching the consumer coping strategies with optimal product assortment, price/packaging flexibility to meet shopper missions, maximizing visibility of new products and efficient distribution to regulate stock supply.

With predictions for growth lower than those experienced in the previous ten to twenty years and the volatility and turmoil experienced in 2016 set to continue, business will require resilience, relentless adjustment and adaptation to meet consumers altered needs.

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