Top 5 food markets in sub-Saharan Africa

By Kurt Davis

The food sector is the focus of investors who are seeking to capture the opportunity of a rising middle class in Africa. 

They were lost in Luanda, Angola's bustling capital, until they found the McDonalds. Being American in a familiar place in a foreign country is home until you see the price for the burger meal: $14. 

This being Africa means there must be a local twist, says the American tourist John, and sometimes the twist is the price.

Investing in the sub-Saharan African market is the right move at the right time. Call it the “last frontier” or the “last big opportunity.” Either way, the numbers speak to great prospects.

The International Monetary Fund’s (IMF) latest Regional Economic Outlook for sub-Saharan Africa projects GDP growth to reach 5.5% in 2014 from around 5% in 2013. The accelerating growth is expected to be buoyed by large investments in infrastructure and mining, maturing investments in transport and telecommunications, and a rebound in agricultural output.

The sustained boom creates more consumers. Global management consulting firm Mckinsey & Company projects that more than half of African households will have discretionary income by 2020, rising to 130 million households from 85 million today. Restaurants want a piece of the pie.

Kentucky Fried Chicken (KFC) and McDonalds are the big first movers. Other American brands, including Burger King and Pizza Hut, are salivating at the growing opportunity. But franchises are not the only players as local brands, including South Africa's Debonairs Pizza and Nando’s, continue to expand across the region.

Here are the top 5 countries for restaurant expansion in sub-Saharan Africa:

Nigeria

It has a Johnny Rockets! But the entrance of lesser known brands Johnny Rockets and Dominos underline two big things about Nigeria: (1) its approximate 170 million-plus population (biggest in sub-Saharan Africa) and (2) its GDP, which stands north of US$520-billion - the largest in sub-Saharan Africa.

Nigeria’s population is likely to overtake the United States by 2045, according to the United Nations, and its GDP is likely to surpass US$1.6-trillion by 2030 with a yearly growth rate of 7.1%, propelling it into the top 20 for economies by GDP. In a similar time frame, global management consulting firm Accenture in a recent report projects consumer spending to grow to $167-billion by 2020.

Tapping into this market is obviously imperative to gaining market share in sub-Saharan Africa. But creativity is necessary – for example, throw in jollof rice or seafood okra to excite the local palate. Nigerian tastes span local delights to British adoptions and American transformations.

Kenya

Kenya is a favored destination for investment in Africa. It is sub-Saharan Africa’s sixth largest economy and population. And its birthrate remains in the top quartile globally. The IMF projects the Kenyan economy to grow 5% in both 2014 and 2015, compared to 4.7% in 2013. All this being said, the underlining numbers in Kenya indicate more spending consumers in one of Africa’s biggest food-loving countries.

Accenture projects consumer spending to grow to US$38-billion by 2020. back in 2012, an Africa-focused private equity firm invested in Nairobi Java House, a local Kenyan coffee house and restaurant, signifying a new focus of investment firms. A large expansion by Kentucky Fried Chicken (KFC) only further underlines the opportunity. And Subway has entered and likely confronting Subzone, a healthy eating alternative in Nairobi that has a similar look and appeal of Subway.

The Kenyan palate, to a distance observer, initially seems fulfilled by the simple presence of meat – ideally chicken. But locals will suggest that you have only tapped the surface if you leave with that belief. Asian influence, British and American influence (from Kenyans studying abroad), and a well-travelled middle class undoubtedly implies greater diversification.

South Africa

The former “largest economy” in sub-Saharan Africa is still trying to get its growth back on track. The IMF projects the economy to grow 2% in 2014, only barely surpassing the 1.9% growth in 2013. Weaker economic numbers worry investors and politicians alike. Yet consumer spending remains strong with untapped potential.

Consumer spending, projected at US$315-billion in 2020 by Accenture, will be approximately double that of Nigeria. The South African palate is nuanced accompanied by larger pockets. Local brands, including Spur and Ocean Basket, compete strongly against Western brands inside (and outside) South Africa. It is also easy to find a McDonalds and a KFC in country.

Skeptics routinely suggest that the food service business is approaching saturation in South Africa. Yet all the numbers indicate growing competition, but nowhere near any level where investors cannot snag great returns.

Uganda and Tanzania

This grouping will not excite Tanzanians and Ugandans – the countries are definitely different in many ways. But they do have a lot in common too. As the 5th and 7th most populated countries in sub-Saharan Africa, Tanzania and Uganda already possess large consumer bases. This base will only expand with birthrates in the top 20 globally – Uganda at the 3rd highest and Tanzania is the 18th highest.

Tanzania and Uganda embody the East Africa boom. Underpinned by recent natural resource discoveries, both countries possess fast-growing economies. The IMF projects the Tanzanian economy to grow 7% in 2014, compared to 6% in 2013 while the Ugandan economy grows at 6.25% in 2014, compared to 5.75% in 2013. As commercialisation of these resources take hold and pipeline projects mature, these growth figures may very much be higher in a few years.

If not for the supply chain challenges, many investors think these two countries would rise to the top as investment destinations for the food service industry. Yet a lack of commercial quality inputs, ranging from potatoes typically for French fries to meats (i.e. chicken and beef) stymie operators and create deficiencies throughout the value chain. Focused efforts on agriculture from central governments and local investors will continue to improve the industry’s prospects.

Honorable mention: Angola and Ethiopia

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Ventures Africa chronicles business and investment news, and the success stories of African entrepreneurs and business leaders.

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Top property markets in Africa

Andrew Golding, the chief executive of Pam Golding Properties, tells Frontier why he is optimistic about the property sector in Africa.

Which African countries have the best opportunity for property investors?

Each African country has its own specific dynamics and opportunities. Pam Golding operates in all the SADC countries, and in Kenya and Uganda in East Africa. 

Mozambique is 'the flavour of the month' at the moment, due to its booming resources sector. There is a lot of activity across all the segments of the property sector, with cranes dominating the skyline of Maputo. One can find upmarket leisure developments just south of Maputo that cost US$10-million a unit. Two years ago this would have been unthinkable. Mozambique has a shortage of A grade residential accommodation, but this area is developing rapidly. We are very optimistic about the extent that this is going to happen.

The same thing is happening in Nairobi (Kenya) where the market is really doing well, and has similar characteristics as South Africa's. There is shortage of stock and yet there are many buyers with purchasing power.

We are seeing more investment in residential and commercial market segments across the board. There is a culture in many countries of investing in residential property - the buy-to-let market. Nairobi has strong buy-to-let developments. There is definitely a strong but small residential market in Lusaka (Zambia). Namibia, Zimbabwe and Swaziland are enjoying quite a strong residential market characterised by shortage of stock, moderate to good price growth (depending on the focus market), and a strong buy-to-let market.

The two countries with massive growth opportunities that we are now targeting are Angola and Nigeria. The Nigerian market is huge (150 million people) and potentially an enormous opportunity, but with a lot of potential pitfalls.

Uganda is an interesting market. We have just been appointed to do a project there - a residential golf estate located between Entebbe and Kampala, a beautiful site on Lake Victoria. The developer who is associated with a hotel which is already operating is now launching 100 residential units at an average cost of US$1-million per unit. All indications are that the project will be finished successfully. In Uganda and several other countries, there is a lot of demand for upmarket property.

Other notable markets are the Indian Ocean Islands of Mauritius and Seychelles. They continue to tag along remarkably well. The Marina development in Seychelles that we are involved in is almost complete. We have sold 450 out of 550 properties, to the value of more than US$500-million. The country continues to attract buyers looking for that sort of lifestyle, whether it is leisure or permanent. There is a big cross-section of nationalities that have bought property here. 

We are about to launch a new big development in the north of Mauritius. We have been involved in this project for the last 10 years. There is also potential of at least 500 units in the form of an integrated resort scheme in the south. The scheme will allow owners to buy in at an entry level of between US$1 -1.5m.

What is your strategy for entering new markets?

We have a few models. In Zambia we have a franchise in which we are shareholders. In Kenya, it is a 100% franchise. It depends on the individual operator that we find in a specific country. The key to success is finding somebody who fits into our corporate culture and who we believe we can have a long-term relationship with. In Nigeria, we are an equity participant in a business. Our entry strategy is guided by various factors such as the appetite of the investors - whether they want us there or not, or whether they would benefit from our participation as shareholders as opposed to being an operator.

What are the trends in South Africa’s property market?

Two years ago and 18 months ago someone turned on the lights, and suddenly the stock started to dry out in one or two pockets. Now most of the metros are characterised by the same phenomenon - a critical shortage of stock, buyers competing with each other, and property starting to sell at asking prices or even above asking price...

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