Investing in Africa requires long-term approach

3rd November 2015 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Investing in Africa requires long-term approach

Photo by: Bloomberg

Companies wanting to make short-term investments for short-term returns should not invest in Africa, fast-moving consumer goods (FMCG) producer Kellogg sub-Saharan Africa CEO Gerald Mahinda said on Tuesday.

Speaking during a panel discussion at the EY Strategic Growth Forum Africa 2015, he noted that long-term investments were needed on the continent and that although there were risks, these could be mitigated.

In September, the international cereal maker entered into a long-term partnership with food company Tolaram Africa to produce snacks and breakfast foods for the West African market.

Through the partnership, Kellogg acquired a 50% stake in food sales and distribution company Nigeria-based Multipro, owned by Tolaram, for $450-million.

Asked by moderator Standard Chartered Bank Africa and Middle East regional CEO Sunil Kaushal if this was not “a big bet, considering current economic stability”, Mahinda explained that Kellogg did not have a strong presence in Africa and, as such, it adjusted its emerging market growth strategy to focus on this growing market.

“When you look at the demographics and data of the continent, you cannot leave it out of your growth strategy. We went behind what the latest data is saying, as it is very easy to make assumptions about opportunities based on the bigger picture. With Nigeria, we took the size of the population into consideration, the size of the economy. We can see that its FMCG market is growing in a very diverse economy.

“Once you understand the local economy, a key to being successful is to get the product to the consumer at a price they can afford, ensuring that your backward linkage is well secured and this investment we have done covers exactly that. What we bought into also covered power, raw materials and packaging. When you get down to the basics, investing in Africa makes complete sense,” he asserted.

With African economies being some of the fastest growing in the world in the last 15 years, local and international companies had many opportunities to invest in infrastructure and institutions, but some challenges remained.

Mahinda pointed out that, when doing business in Africa, companies would always be faced with the same challenges, including talent, infrastructure, governance and corruption. “How you deal with each one of these challenges, that will determine your success.

“With regard to talent, are companies looking at talent that fits the model of what works in Europe, or are you focusing on developing talent in a local way?” he asked.