Wednesday, September 14, 2016 11:49am/ Nielsen
Ongoing turmoil and volatility in many of Africa’s markets are reflected in the ranking indicators of Nielsen’s third Africa Prospects report, with six of the top nine countries shifting in position over the past six months. The top three ranked countries, Cote d’Ivoire, Kenya and Tanzania, remain unchanged in overall position, but show some interesting changes in the dynamics determining their overall ranking.
Ghana, Cameroon and Uganda’s comparative conditions – based on a combination of Macro Environment, Business, Consumer and Retail prospects – have improved moving them up the rankings, as Nigeria, Zambia and South Africa’s have declined as reflected by their weaker positions.
Overall Ranking Trend
The results reported in the third edition of the Africa Prospects indicator (APi) are based on multiple, weighted data as at Quarter 1, 2016. The report covers multi dimensional, comparative indicators for nine of Africa’s leading markets, where common measurement information is available, and is representative of 70% of Sub Saharan Africa’s GDP and 48% of the population. Macro Economic and Business Prospects are included for a further 17 countries where extended metrics are available.
Zambia’s four place decline to 9th position is the outcome of worsening Consumer and Retail prospect indicators which plummeted due to sky-rocketing inflation, electricity shortages and a poorer macro-economic environment which is heavily reliant on the resources sector. The growth outlook reported by Zambian retailers declined substantially as they indicate a deterioration in the ease of doing business and a sharp fall in consumer spending versus Quarter 4, 2015 due to food inflation increasing from 7.8% in Quarter 3, 2015 to 26.4% in Quarter 1, 2016.
On the other end of the scale, there is a positive shift in Ghana’s performance. While the Consumer and Retailer indicators remain comparatively weak there are signs of general mood improvement as power supply, exchange rates and inflation stabilizes. This is due to retailers perceived view on improvements in the ease of doing business in Ghana, an increase in consumer spend in-store and growing consumer willingness to try new products. Ghanaian consumers also display a more positive sentiment around job prospects, but do remain price conscious in the high inflation environment, where 60% of consumers base their product choice on price and affordability. Coupled with this, are stable GDP growth outlook and business views at their most favorable levels since Quarter 2,2014.
Prospect Hotspots: Cote D’ivoire, Kenya and Tanzania
Cote d’Ivoire, Kenya and Tanzania maintain the first, second and third place on the latest prospects ranking and currently provide more stable investment destinations than the larger economies of Nigeria, South Africa and Angola that have lower expectations. Cote d’Ivoire’s top position on the APi ranking offers strong Macro and Retail development dynamics. The IMF has forecast Cote d’Ivoire to be Africa’s fastest growing economy in 2016, as the country has benefitted from government policies and structural reforms, which have resulted in strong, inclusive growth. In East Africa, Kenya and Tanzania feature highly for the Business sector’s focused growth opportunities.
Nigeria topped the inaugural list in Quarter 1, 2015, but has subsequently dropped to a more moderate fourth position in the second half of 2015, and currently falls a further three places to seventh position. Its Retail, Macro and Business prospects have deteriorated, with the Macro and Business indicators, ranking eighth and sixth respectively.
Nigerian market conditions remain extremely constrained, following the slump in commodity prices, in particular oil. Fuel and power supply issues have also plagued the economy as well as the foreign exchange crisis and the Naira’s devaluation. In April this year, the IMF revised the Nigerian 2016 growth rate down from the original forecast of 3.2% to 2.3%. The five main reasons for this were: lower oil price, shortfalls in non-oil revenues, deterioration in finances of state and local governments, increased disruptions in the private sector activity due to constraints in access to foreign exchange, and a resurgence in security concerns.
Within the overall rankings, South Africa slips one place to eighth position. Economic uncertainty, political tension and lower business and consumer confidence have slowed investment in Africa’s most industrialized economy. In addition, rising inflation due to severe drought, high unemployment, a weakened currency and increased lending rates have put a squeeze on disposable income. Despite this, retail spending has kept favorable momentum.
After an extended period of bouyancy, the 2016 growth expectations of 2.5% (World Bank) for Sub-Saharan Africa is at its weakest level in nearly two decades. However, growth levels are expected to recover to 4% in 2017, helped by a slight recovery in commodity prices. The slowdown is particularly pronounced for oil exporters (Nigeria and Angola) but also non-energy exporters (South Africa and Zambia). Interestingly, some oil importing countries (Ethiopia, Rwanda and Tanzania) continue to register strong growth reflecting their more diverse economic base. Unfortunately electricity shortages, the Ebola epidemic, drought, conflict and political uncertainties have also hindered economic activity in several countries.
The markets topping the Business Prospects list in terms of overall country growth expectations, are: Ethiopia, Ghana and Namibia. Ethiopia’s leading position remains unchanged for the third successive survey, indicating the Business sector’s acknowledgement of the country’s impressive overall development. Interestingly, companies do not recognize their own growth potential quite as highly as they struggle to overcome various operational challenges to reach consumers in urban and the extensive rural areas.
Businesses rank their own growth prospects highest in Botswana, followed by Ethiopia and Namibia/Mozambique. This measure represents the ability to which businesses can execute in-market and achieve sustainable growth, considering the various country conditions. South Africa has the biggest divergence in country growth versus own business expectations. Own business potential is scored as Fair to Good at 5.6 (out of 10), whereas business views on the overall country growth is scored at a more moderate 4.1.
TOP 10 BUSINESS PROSPECTS
Ghana has seen one of the biggest recoveries in overall business outlook, moving up six places to fifth position with a score of 6.13, as a result of improved scores for the country’s overall growth as well as the Business sector’s growth potential. This positive position is in contrast to the more moderate views expressed for the combined SSA countries at 5.2, which is reflected in lower combined business prospect scores for sixteen of the twenty six countries.
The most recent scores see Ivorian businesses revising their growth outlook down mainly in terms of their own growth ability. Cote d’Ivoire is still ranked seventh for overall country growth, but only 16th for own business growth.
Angola’s successive drops from 12th to 18th to current 21st place, signifies a weaker investment climate with more subdued macro economic indicators. In terms of country growth expectations, South Africa dropped eight places from 14th to 22nd position, but still ranks a more favorable 12th for own business potential.
Consistent with the macro environment and business trends, the Nielsen Consumer Confidence Index also reflects a fall in consumer confidence levels for both Nigeria and South Africa. In Nigeria, all three confidence indicators declined on the previous quarter (Quarter 4, 2015). The percentage seeing a positive outlook for jobs in the next twelve months dropped eight points to 65%, the share expressing favorable personal finance sentiment declined three percentage points to 79%, and the share with immediate-spending intentions declined eight percentage points to 42%. Despite this, Nigerians continue to display an openness to trying new products, although this trend has slowed in recent times.
In contrast, the South African consumer psyche is more pessimistic. All three confidence indicators dropped versus the previous quarter. Positive outlook for job prospects is at 19%, favorable personal finance sentiment at 49%, and only 22% of South African consumers currently view it as a good time to buy the things they want and need. Despite consumer sentiment, South African retail spend does not reflect a picture quite as pessimistic.
Consumer Confidence Index
Subdued Consumer Spending
The mounting pressure on consumers’ wallets has constrained consumer spending in-store. In Quarter 1,2015, on average, 29% of SSA retailers, felt that spend in their stores was increasing, by Quarter 3,2015 this had dropped to 26%, and has now fallen to less than a quarter (24%) of retailers who view spend on the increase.
Although the positive sentiment for increasing consumer spend is highest in Nigeria at 30%, the outlook has declined from 43% a year ago, as macro effects have filtered through into the consumer and retail environments. Zambia reflects the biggest drop in positive spending sentiment as compared to a year ago.
The greatest improvement in the outlook for consumer spending is in Cote d’Ivoire and Ghana where 23% (up eight percentage points) and 20% (up six percentage points) view spend as increasing.
Retailer View on Consumer Spending
Angolans & Zambians Face Soaring Prices
In terms of pressure on consumers’ pockets, Zambia’s inflation rate reached an all-time high in Quarter 1’ 2016 of 22.9%. This is due to the country being buffeted by global headwinds and domestic pressures that have strained the Zambian economy. These include its weak currency the Kwacha, a six-year low in copper prices, increasing power outages and El Nino-related poor harvests.
In Angola, inflation almost doubled to 14.3% in 2015 and rose sharply to 20.3% in the first quarter of 2016. This against the backdrop of a sharp drop in international crude oil price and a lack of growth in Angola’s non-oil economy, due to delays in the execution of key electricity and industrial investments.
In tougher times consumers are less likely to try out new products, 39% of retailers currently feel that consumers are increasingly willing to try new products versus 44% a year ago, and 54% two years ago. Consumers are resorting to risk averse decision making rooted in familiarity, trust and previously tried brands, outstripping choices based on affordability alone.
Performance in-store is the most indicative yardstick for success of brands in market. In cash strapped times, brands often rationalize investment in marketing, sales and distribution to maintain profitability. In modern, branded retail environments such as South Africa, promotional intensity increases in an effort to maintain sales velocity. Consumers implement a combination of coping mechanisms such as reduced shopping frequency, switching to cheaper brands or smaller sizes, eliminating non-essential products from their basket and delaying replenishment.
When consumers are prudent with spending, it is imperative for manufacturers to work jointly with retailers to optimize retail execution to sustain diminishing demand. The common denominators are: matching the consumer coping strategies with optimal product assortment and price/promotion in the right stores, maximizing visibility and efficient distribution networks that regulate stock supply. There is still a significant opportunity for improvement in working with retailers, particularly affected by the tough trading conditions to retain sales rates.
Retailer View on Ease Of Doing Business
When comparing actual retail sales trends in SSA’s two biggest economies there are some remarkably diverse trends. In the Nigerian market, consumers are incredibly positive, but are reprioritizing spend. With inflation spiking to double digit levels (16.5% in June 2016) overall sales of Consumer Packaged Goods (CPG) are declining, both in units and value, as consumers are forced to restrain spending.
In contrast, South African inflation is within single digits and branded modern trade retailers have endeavored to deliver value to shoppers by not passing on the full extent of inflationary pressures, especially on staple food items. Despite the more negative consumer sentiment, retail spend is more positive.
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