Insights may be gained by studying Africa’s food industry
November 19, 2013
Helpful insights may often be garnered from examining the way an industry like food manufacturing evolves in different parts of the world. That even includes a region like sub-Saharan Africa, which might seem at first glance totally beyond any relationship to what is happening in an advanced economy like America. Yet, a close look reveals valid points of comparison that provide guidance for U.S. food companies, either in taking steps domestically or in looking abroad in searching for investments outside of static at-home markets. The search for opportunities in Africa is increasingly happening as almost the capstone on the long time the huge area of that continent lying south of the Sahara Desert has been pointed to as a good place for a foreign trial of American food manufacturing.
Relative slowing of the over-all economies of North America and Europe has as much to do with this wave of interest in Africa as does the promise of a new market. Thus far at least, it’s not so much the hundreds of millions of Africans who do not have an adequate diet that are the attraction. Instead, it’s improvement in downtrodden economies that causes people to look to retail stores for their food.
Investment interest focuses on food manufacturing, largely because it stands as a bright spot in the growth of business in developing nations that have governments and legal systems favoring private enterprise. A few large investments have been made over the years by both American and European entities that grasped the chance for success in the food business. That is especially so in African nations enjoying domestic prosperity because of natural resources and freedom from the internal conflicts that may make business in Africa especially difficult.
Coincident with the expanding foreign interest in entering one phase or another of the food business in Africa has been the rapid growth in domestic participants. Africa’s richest man, Aliko Dangote, built his wealth with Dangote Flour Mills, followed by entry into the sugar business, and from these food operations into oil production and refining, fertilizer and construction. Just in the past year, Mr. Dangote sold his milling business to Tiger Brands, South Africa’s largest food maker, which has expressed a continent-wide interest in flour milling, bread baking and other aspects of food making. Mr. Dangote’s singular power in Nigeria is not necessarily replicated in other nations. For instance, a listing of the five most powerful families in Tanzania showed that three of the five operate flour milling businesses, as well as making a range of finished food products like biscuits and pasta.
Tanzania provides a superb example of the way a change in government promotes the expansion of locally-owned businesses with regional ambitions. After operating for years with state ownership of every company, Tanzania gave up on socialism in the 1980s. The latter included the sale to private owners of flour mills that had been built by the government. While freeing the domestic economy from government ownership was a plus undertaken several decades ago, it still required the further opening of the nation to competition from outside investors to stimulate domestic and foreign investing in food. This in turn leads to pride in the quality of domestic mills and factories.
Even as food manufacturing has expanded in many parts of sub-Saharan Africa, the vast land mass is still hugely deficient in producing raw materials. In Mr. Dangote’s Nigeria, weather prevents wheat from being a viable crop, and the government’s answer has been to require inclusion of a minimum 10% of cassava flour in each loaf. Reality limits cassava use to less than 3%, which starkly contrasts with the official long-term goal of 40%. Similar problems rule in other regions. This explains why food manufacturing in Africa is following a different course from what occurred in the Northern Hemisphere where plentiful domestic crops provided the foundation for the modern food industry.