Bloomberg News

Nestle Plans to Invest $1.4 Billion in Africa, Buy Local

July 05, 2011

(Updates with comment from Van Dijk in the second paragraph.)

July 5 (Bloomberg) -- Nestle SA, the world’s biggest food company, said it plans to spend 1.2 billion Swiss francs ($1.4 billion) by 2015 to expand production capacity in Africa, where sales growth is outpacing that of Europe and North America.

“We are very bullish about the African continent,” Frits van Dijk, executive vice-president who heads the company’s business in Asia, Africa, Oceania and the Middle East, said in an interview in Nairobi, Kenya, today. “The continent will soon have a billion people, and while admittedly income levels are very low, they are rising” alongside economic growth.

While the company’s sales in Africa are increasing at “strong double-digits” to $3.5 billion last year, replicating the trend across emerging markets, revenue in developed nations is growing “at 2 percent or less,” Van Dijk said.

Rising household expenditure in sub-Saharan Africa may help the region’s economy grow almost three times faster than Europe, with expansion projected at 5.5 percent this year and 5.9 percent the next, from 4.9 percent in 2010, the International Monetary Fund said in April. Nestle’s sales in Africa, which account for about 3 percent of global group revenue, are expected to surge from a low base, Van Dijk said.

“More and more people are coming from the very lowest income levels, into what we call the emerging consumers category,” Van Dijk said. “For the first time they can afford to buy basic packaged-food and beverage products.”

Factory Revamps

Nestle is investing 150 million Swiss francs to boost production volumes in eastern and central Africa, including revamping factories in Kenya and Zimbabwe, the company said in an e-mailed statement yesterday.

The company opened its second plant in Nigeria, built at a cost of 90 million francs, earlier this year, while construction of a new facility in the Democratic Republic of Congo is complete, and two more are planned in Mozambique and Angola. The company is focussing on internal growth on the continent, though it may consider acquisitions, Van Dijk said.

“We are continuously studying projects and looking at opportunities, but the bulk of our growth is coming from internal growth through innovation and renovation,” he said.

Nestle has reduced the size of items in its product range to boost sales in Africa, acknowledging that about 46 percent of people live in extreme poverty on less than $1.25 a day and more than two out of every 10 people are under-nourished, according to United Nations data. It’s introducing smaller packaging, such as Maggi seasoning powder, which is sold in Kenya by the cube for as little as 2 shillings (2 U.S. cents), and single-serving Nescafe instant coffee packets at about 5 shillings apiece.

Nutrition

The company is also adding micronutrients to its processed foods to address nutritional deficiencies and is continuing to expand its purchases of ingredients from domestic farms as part of a strategy to support the agricultural industry.

Tea from Kenya, the world’s largest exporter of the black variety of the leaves, is used in Nestea iced tea made at Nestle’s Nairobi plant, while the company is working with dairy farmers in the East African nation to bring the quality of milk to an acceptable standard to buy, the statement said.

Nestle is willing to take on manageable investment risks in Africa in exchange for the rewards, Van Dijk said.

The company’s two factories and research and development center in the Ivory Coast were hit by a four-month political crisis following a disputed November presidential vote in which 2,000 people died. Nestle is now scaling up production and “recovering what we lost earlier in the year,” Van Dijk said. The West African nation is the world’s biggest cocoa producer.

“If we would not be willing to take risk we would lose out on a lot of opportunities,” he said.

--With assistance by Thomas Mulier in Geneva. Editors: Paul Richardson, Ana Monteiro.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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