Major global firms like Nestlé and Unilever are scaling down in Africa amid rising taxes, weak currencies, and infrastructure woes.
Global giants such as Nestlé SA and Unilever Plc are scaling back operations in Africa, with many citing declining demand, rising operational costs, and regulatory uncertainty. In August 2023, Nestlé halted production of its Nesquik chocolate milk powder in South Africa, attributing the move to shrinking consumer demand.
A year earlier, Unilever shut down its home-care and skin-cleansing manufacturing operations in Nigeria to “sustain profitability.” Meanwhile, pharmaceutical leaders like Bayer AG and GSK Plc have outsourced product distribution in Kenya and Nigeria to independent firms to cut overheads.
Growing Retreat from Africa
Over the last two decades, multinationals have targeted Africa, drawn by its young population and rapid GDP growth. However, new hurdles—plummeting currencies, red tape, erratic electricity, and clogged ports—have dulled the continent’s allure.
“It doesn’t justify the effort,” says Kuseni Dlamini, former chairman of Walmart Africa and current chair of the American Chamber of Commerce in South Africa. “Without a conducive environment to grow and scale businesses, Africa risks being left behind.”
The pullback is most pronounced in Kenya, South Africa, and Nigeria—home to 44% of sub-Saharan Africa’s economy and nearly one-third of its population.
Manufacturing Under Threat
President William Ruto has said that boosting manufacturing is vital to Kenya achieving middle-income status by 2030. Yet, deteriorating infrastructure and stricter regulations are discouraging investment. Nestlé, which once mulled expanding its Kenyan operations, is now downsizing. It will continue to produce Maggi noodles but downgrade parts of its facility to repackage imported Cerelac baby cereal.
In January 2024, Neumann Gruppe GmbH, the world’s largest coffee trader, announced it would shut its Kenyan mill and financial support arm for smallholders—citing a 2022 law that bans firms from both marketing and processing coffee beans.
Tax Pressure and Industry Woes
Kenya’s high taxes on essential imports like cement, paper, and metals are also stifling manufacturing. The Kenya Association of Manufacturers (KAM) revealed that by September 2023, 53% of members were operating at 25% capacity or less, and 42% foresaw job cuts within six months.
“Production spaces are now empty,” said KAM CEO Anthony Mwangi. “Warehouses are importing finished goods instead.”
South African retailers such as Mr Price, Shoprite, and Truworths have also exited Nigeria since 2016. Unilever followed suit, ceasing local production of Omo detergent, Sunlight liquid, and Lux soap in favor of imports. Nestlé Nigeria recorded its first nine-month loss in 12 years in March 2024, following a sharp currency devaluation.
South Africa’s Economic Decay
South Africa—long considered Africa’s most advanced economy—is struggling with deteriorating infrastructure. Daily blackouts, severe water losses (up to 40% in cities), and bureaucratic immigration processes have shaken investor confidence.
The South African-German Chamber of Commerce warned in 2023 that visa delays were disrupting 100,000 German jobs in South Africa. “It affects all tiers of German industry here,” the chamber said.
To cope, Shoprite is increasing inventory and constructing new distribution centers. CEO Pieter Engelbrecht noted:
“There’s very little investment in production capacity in South Africa. The multinationals have stopped entirely.”
Currency Chaos and Market Realignment
Currency depreciation has crippled repatriation of profits. In the past 10 years, Nigeria’s naira has lost 88% of its value against the dollar, Kenya’s shilling 34%, and South Africa’s rand 44%. As imports become costlier, local spending power shrinks, shifting demand to more affordable alternatives.
In response, local firms are stepping in. Bliss Brands in South Africa now sells MAQ detergent in upscale stores at 30% below the price of Unilever’s Omo and Skip brands. “Our structure is more nimble,” said Bliss director Moaz Shoaib Iqbal.
Rise of Emerging Market Rivals
Africa’s retreat by Western firms is creating openings for new competitors. In Nigeria, Turkish-made diapers are outperforming Pampers, while a Singaporean ramen brand is gaining ground on Maggi.
“The market for premium items is shrinking,” said Alec Abraham, analyst at Sasfin Securities. “Firms are adjusting ranges to meet more basic consumer needs.”
Keywords:
Multinationals in Africa, Kenya economy, Nigeria manufacturing, Unilever retreat, Nestlé in South Africa, infrastructure decline, currency depreciation, Shoprite, MAQ detergent, economic challenges Africa