Fast-Moving Consumer Goods: Challenges and Opportunities in Africa

LAGOS, Nigeria, Capital Markets in Africa — Africa represents a large and growing opportunity for fast-moving consumer goods companies and retailers with the rapid expansion of Africa’s consumer class. At an average 5% growth, African countries’ booming consumer demand outspans the developing world. The average GDP per capita in Africa over the last five years has grown by over 11%. According to a report by McKinsey, GDP per capita is the single most important driver of global growth in the consumption of fast-moving consumer goods, and Africa’s consumer-facing industries are expected to grow by more than $400 million by 2020.

While the potential of the African market is very real, there remain many challenges for FMCGs and trade in general on the continent. It is mainly incoming multinationals that are maximizing the potential of African markets. African countries and companies are largely missing out on the consumer boom on their proverbial stoep.

According to UN statistics published in the report “Economic Development in Africa Report 2013 – Intra-African Trade: Unlocking Private Sector Dynamism”, the average African country exports just over 10% of its total merchandise within the continent, this is compared to 50% in developing Asia, 21% in Latin America and the Caribbean and 70% in Europe over the same period.

This problem is compounded by regulations imposed across the spectrum of African jurisdictions that actively inhibit regional trade. In a recent speech delivered at the World Trade Organisation round table in Nairobi, Senior Director of the World Bank Group Global Practice on Trade and Competitiveness, Anabel Gonzalez, stated that while regional trade integration has long been a strategic objective for Africa, and despite some success in eliminating tariffs within regional communities, the African market remains highly fragmented. A range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders throughout Africa. She bemoaned the fact that barriers to trade continue to limit the growth of trade throughout all African regional groupings. By imposing unnecessary costs on exporters these barriers raise prices for consumers, undermine the predictability of the trade regime, and reduce investment in the region.

 The nascent Tripartite Free Trade Area Agreement which has been on the cards since 2008, and the AU dream of an eventual Continental Free Trade Area, promises some hope for an up-tick in intra-Africa trade. So far, however, African leaders have been dragging their feet, with only 16 out of 26 countries having signed the Tripartite Free Trade Area Agreement and none having ratified it.

Another risk for the growth of the FMCG industry is that many African customs authorities, such as SARS in South Africa, are increasing the use of risk profiling procedures in order to speed up time delays at borders and merchants in the FMCG industries have been earmarked as being high risk from a customs and trade perspective.

In mid-2015, SARS issued a stern warning to the FMCG industry after identifying extensive non-compliance within the formal and informal cash merchants’ environment. SARS uncovered many forms of non-compliant behaviour, such as customs fraud; the illicit expatriation of funds off-shore; and VAT fraud, including the claiming of undue VAT refunds; and so called ‘Ghost Exports’. SARS has further identified the involvement of organised syndicates with sophisticated organisational structures that further this non-compliant behaviour.

What this means from a trade and customs perspective is that the turn-around times of cross border trade of FMCGs may be significantly slower than other trade, considering the new and ever more sophisticated risk profiling systems being rolled out at the borders in South Africa and other African countries. 

Featured in the INTO AFRICA April 2016 edition by Virusha Subban and Yonatan Sher, Bowman Gilfillan Africa Group