The stories out of Africa at present tend to be bullish tales of consumer-lead growth and investment opportunities; however, African economic development has stymied the operations of many of the world’s most recognizable names, including Cadbury, Nestlé and Coca-Cola.
Nestlé, the world’s biggest food and drinks company, is set to slash its African workforce by 15 percent across the entire continent. The move comes as the company struggles with the public relations disaster that was the Maggi lead scandal in India and represents a serious challenge for the famous brand. Cornel Krummenacher, chief executive for Nestlé’s equatorial Africa region, claimed that the company had overestimated the size, and potential growth, of the African middle class, “We thought this would be the next Asia, but we have realized the middle class here in the region is extremely small and it is not really growing,” he said. Krummenacher’s region is comprised of 21 countries, including Kenya, Angola and DR Congo.
Krummenacher claimed that the company had invested approximately $1bn in its Africa operations over the last decade and that the region had failed to attain growth targets. In the last ten years Nestlé had significantly increased the size of its operation and opened several factories and was previously aiming to double its business every three years. Analysts have put Nestlé’s failure down to the difficulties of entering a new market without fully understanding it, and have highlighted how Africa is often noteworthy for the large number of small, local companies against which newcomers are forced to compete.
Despite bombastic claims about the potential creation of a vast middle class in Africa, the reality is that it does not exist, at least in a state recognizable to big business. Significant sections of the households that are categorized as middle class exist on less than $400 per month and a recent report put the total figures for middle class families across 11 countries at a low 15 million. Recent years have seen firms like Cadbury, Coca-Cola, and of course Nestlé, suffer lower than expected growth and ultimately closures. Nestlé’s story merely reiterates the importance of local knowledge when entering new markets.