Exports to drive Egyptian FMCG sector

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Fast-moving consumer goods (FMCG) producers and retailers in Egypt face a somewhat mixed outlook in the short term, with limits on disposable incomes and high inflation making many Egyptians cautious about overspending. However, with such favourable demographics, long-term prospects appear more positive as the economy recovers, consumer confidence rises and export opportunities open up.

Following the civil unrest and political turnover of 2013, FMCG manufacturers reported a drop in sales and disruptions in production. While protests have ebbed and business activity is on the rise, future growth and a strengthening of investor and consumer confidence depend on both political, fiscal and economic stability being maintained.

According to a report issued by the Information and Decision Support Centre (IDSC), an advisory unit for the cabinet, consumer confidence climbed sharply in the beginning of the year, up 11.9% to 112.8 points in January. According to the IDSC statement in February, this jump into solidly positive sentiment was a result of Egyptians believing that income levels and living conditions had improved.

The shift upwards is a welcome one. Tamer El Araby, managing director for market information and research firm Nielsen in Egypt and the Levant, said that Egyptian consumer confidence had been fluctuating from one quarter to another, a reflection of spontaneous behavioural responses to the ongoing events and challenges.

El Araby was speaking after Nielsen released the results of its latest consumer confidence survey in late February, which showed a 7% dip in sentiment at the end of 2013, coming off a 6% rise in the third quarter. However, notwithstanding the retreat, El Araby said consumer confidence would rebound in the longer term.

“Egyptians’ faith for a better tomorrow is big. Despite challenges, the country is moving ahead with a high level of optimism and dedication,” he said.  

New investments, new opportunities

Among those moving ahead are some of the larger multinational FMCG firms. In early March, Coca-Cola International announced it would be investing $500m in Egypt, expanding its production base and increasing spending on community projects over the next three years. The soft drinks company is not only expecting higher demand in the local market but also hopes to build on exports from its Egyptian manufacturing facilities, from where it already ships to 40 countries.

Speaking to Reuters, Curt Ferguson, president of the company’s Middle East and North Africa business unit, said Coca-Cola’s investment not only will create jobs and opportunities but also sends “a strong signal about Egypt’s future”.

In a report issued at the end of March, HSBC predicted that Egypt’s economy would continue to gain momentum over the coming two to three years, in part driven by stronger exports. In its latest Global Connections Trade Forecast Report, the bank said exports would climb, “reflecting improved political stability, the benefit of inflows of Gulf aid, as well as a bounce-back from a low base”.  

Downside risks

Though longer-term prospects are brighter, there are a number of factors that will continue to impact FMCG sales over the short- and medium-term. According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), just over 26% of Egyptians live below the poverty line, meaning that many families are struggling to afford the most basic of necessities, let alone non-essential consumer goods.

Speaking to OBG, Mohanad Adly, country manager of Azadea Group, a retail firm that holds franchises for a number of multinational brands, said “In Egypt, like most of the other developing countries, low-income consumers represent the bulk of purchasing power in the market. This is not expected to change, and value-driven products will dominate the Egyptian market in the years to come.”

At the same time, Hani Berzi, chairman and CEO of Edita Foods, in discussions with OBG, said, “Consumer spending has become more selective.”

This leaves the pool of potential clients for many FMCGs somewhat shallow, though depth will be added if the Egyptian economy continues to improve, with the government still hoping GDP will expand by 3.5% in the fiscal year ending June 30.

A narrowed client base is not the only obstacle to increased FMCG sales. Though easing somewhat from 2013 highs, inflation is still in double digits, coming in at 10.2% in February. This is squeezing the disposable incomes of many Egyptians, especially those on a fixed wage. Inflation is also higher in urban areas, put at 15.7% by CAPMAS.

Employment levels also vary by region, with the jobless rate currently at 13.6% at a national level but as high as 50% in Upper Egypt. More significantly for producers of consumer goods, the unemployment rate among the country’s youth, a prime demographic for some FMCG products, is 69%, local media has reported.

The long-term outlook, given the country’s large consumer population, is extremely favourable, but until the effects of economic growth trickle down through society, high poverty and unemployment levels will limit growth for FMCG sales in the domestic market. However, for those producers who manufacture locally, this may be offset by increased exports, both to European markets and elsewhere in the Middle East and North Africa as companies based in Egypt ramp up production to meet demand as the economies in those regions recover this year.

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