North Africa Food and Drink Report Q3 2012

Algeria Food consumption in Algeria is expected to rise steadily over the next five years. The authorities are also aiming to improve government spending, while simultaneously improving the business environment and strengthening the private sector. On the negative side, youth unemployment remains elevated (in fact, the figure is as high as 70% in some areas) and a cause for simmering tensions, thus posing downside risk to our GDP growth forecasts. While Algeria has the benefits of hydrocarbon wealth and a willingness to make compromises, which together indicate a relatively safe position for the country’s political stability, political unrest could derail economic activity and reduce foreign direct investment inflows.

Headline Industry Data

Per capita food consumption is forecast to grow by 8.5%. To 2016, per capita food consumption is forecast to grow at a compound annual rate of 5.1%.

Mass grocery retail sales are forecast to increase by 20.3% in 2012. To 2016, compound annual growth of 21.9% is forecast.

Key Industry Trends And Developments Casino and Al Meera Investing In Retail – In February 2012, French retailer Casino signed a joint venture agreement with Qatari retail group Al Meera Holding, with plans to open outlets in North Africa and Jordan. The joint venture, called ALGE Retail, is looking at expansion in Tunisia, Libya and Egypt. It will be headquartered in Geneva, with Casino owning 49% and Al Meera 51%.

Nestlé Launches Milk Powder Factory Amid Rising Demand – In October 2011, Swiss food conglomerate Nestlé launched a milk powder factory in Algiers to exploit rising domestic demand. The firm’s second plant in the country will help to expand its presence, while also enhancing the local industry, according to the managing director of Nestlé Algeria, Bertrand Sigwalt. The new facility is likely to generate 50 jobs and will allow Nestlé to distribute other brands like Nescafé and Nesquik from 2012.

Key Risks to Outlook Downside Risks Prevail – The risks to our current consumer outlook are currently mostly to the downside.

For example, a sudden drop in global energy prices, prompted by a double-dip recession in the West or other phenomenon, poses a downside risk to our GDP and fiscal budget forecasts, which would also trickle down to consumer spending. Such a scenario would also limit the government’s ability to respond to future protests, thus denting investor confidence in the country, which currently remains underserved in organised retail terms. We also stress that potential large-scale unrest also poses downside risks to Algeria’s political risk profile in the longer run.

Libya BMI Industry View: Libya near-term growth outlook was given a slight boost in late December following reports that the resumption of oil production was proceeding more quickly than previously expected, and that the United Nations and US and EU governments had decided to lift sanctions against the central bank. Given the faster-than-expected ramp up in oil production in late 2011, we expect to see a strong rebound in growth in Libya's hydrocarbon economy in 2012. However, despite an ample financial arsenal and large-scale reconstruction needs, a lack of institutional capacity and a tenuous security environment mean that growth in non-hydrocarbon sectors will lag.

Headline Industry Data

Per capita food consumption is forecast to grow by 12.3%. To 2016, per capita food consumption is forecast to grow at a compound annual rate of 8%.

Mass grocery retail sales are forecast to increase by 26.6% in 2012. To 2016, compound annual growth of 15.70%.

Key Regional Company Trends Casino and Al Meera Investing In Retail – In February 2012, French retailer Casino signed a joint venture agreement with Qatari retail group Al Meera Holding, with plans to open outlets in North Africa and Jordan. The joint venture, called ALGE Retail, is looking at expansion in Tunisia, Libya and Egypt. It will be headquartered in Geneva, with Casino owning 49% and Al Meera 51%. Dabur India To Establish New Manufacturing Plants – In February 2012, Fast-moving consumer goods major Dabur India announced it is set to make a INR1bn (US$20.1mn) investment for the establishment of new manufacturing plants in Africa over the next two years in a bid to expand its global footprint.

According to a company official, the fund will be utilised primarily to construct plants in places such as Morocco and Southern and Eastern Africa. The official added that the new plants will support its existing factories in Nigeria and Egypt.

Key Risks to Outlook Political Risks Remain Elevated – The risks to our current consumer outlook and to the wider market for food and beverages are mostly to the downside. Libya's combination of oil wealth, tribal divisions, weakto- non-existent institutions and the prevailing security vacuum portend to significant instability and potential for violent conflict over the coming years. This will translate into a highly risky operating environment, which will continue to detract investment in new and existing capacities for food and beverage production. In the meantime, the economy's growth potential will remain dependent on three key variables: the speed and scale with which oil production can be brought back online; the state of the underlying security environment; and the state of the utilities sector – in particular, the provision of a stable supply of electricity.

Morocco Private consumption patterns continue to look promising, bolstered in particular by a good harvest. Agriculture accounts for around 40% of Morocco’s total workforce, leaving the broader economy highly dependent on grain yields. Private consumption has been further boosted by a sharp increase in government subsidies of food and fuel. We expect public spending on subsidies to come to MAD54.9bn (US$7.0bn) by the end of 2012, up from MAD27.2bn in 2010. Public sector wages rose by 11.0% in May, which should further increase household consumption. Our generally positive outlook is backed up by government surveys that show consumer confidence is around its highest level since early 2008.

Headline Industry Data

Per capita food consumption is forecast to increase by 1.60% in 2012. Through to 2016, compound annual growth of 1.80% is forecast

Mass grocery retail (MGR) sales are forecast to increase by 8.90% in 2012. To 2016, compound annual growth of 10.30% is forecast

Key Regional Company Trends Casino and Al-Meera Investing In Retail: In February 2012, French retailer Casino signed a joint venture (JV) agreement with Qatari retail group al-Meera Holding, with plans to open outlets in North Africa and Jordan. The JV, called ALGE Retail, is looking at expansion in Tunisia, Libya and Egypt. It will be headquartered in Geneva, with Casino owning 49% and al-Meera owning 51%. Dabur India To Establish New Manufacturing Plants: In February 2012, fast-moving consumer goods major Dabur India announced it will invest INR1bn (US$20.1mn) establishing new manufacturing plants in Africa over the next two years to expand its global footprint. According to a company official, the funds will be used primarily to construct plants in places such as Morocco and Southern and Eastern Africa. The official said the new plants will support its existing factories in Nigeria and Egypt.

Key Risks to Outlook Government Expenditure Levels Under Scrutiny: We are pessimistic about the government’s ability to maintain the current level of spending because of the weakness of its fiscal position. Although we continue to expect the short-term political situation to remain relatively stable, the worsening outlook for inflation – and its budgetary consequences – will restrict the government’s ability to respond to any deterioration in domestic stability if it occurs.

Tunisia The Tunisian consumer was badly affected by the political crisis. With inflows of foreign investment and tourism being hit by the uncertain security situation, activity in the private sector was sluggish throughout 2011 and we estimate household spending grew by just 1.5% as a result. We see little room for a quick recovery in private consumption in 2012. Unemployment remains stubbornly high, running at over 15%, while the anticipated pick-up in foreign investment will take time to feed through to consumer spending. Moreover, much of the foreign aid that has been pledged to the government will likely be tied to specific infrastructure projects. Although this will have benefits in terms of employment, it will also limit the government’s room to implement populist spending policies such as public sector wage hikes or increased subsidies for food and fuel, which would boost consumer spending more directly.

Headline Industry Data

Per capita food consumption is forecast to grow by 8% in 2012. Through to 2016, compound annual growth of 8.0% is forecast

Mass grocery retail (MGR) sales are forecast to grow by 13.2% in 2012. Through to 2016, compound annual growth of 12.3% is forecast.

Key Regional Company Trends Casino And Al-Meera Investing In Retail: In February 2012, French retailer Casino signed a joint venture agreement (JV) with Qatari retail group al-Meera Holding, with plans to open outlets in North Africa and Jordan. The JV, called ALGE Retail, is looking at expansion in Tunisia, Libya and Egypt. It will be headquartered in Geneva, with Casino owning 49% and al-Meera owning 51%.

Spanish Dairy Firm Investing: In December 2011, Spanish dairy firm Kaiku announced the purchase of Tunisia-based CLM-Vitaliat, the country’s second-largest dairy producer with revenues of around EUR70mn. Kaiku and CLM-Vitaliat previously collaborated on yoghurt products for five years and the acquisition will give Kaiku increased exposure to this immature market.

Key Risks To Outlook Lacking Stability of Operating Environment: The agreement reached in September 2011 by Tunisia’s 12 largest political parties, which set out a roadmap for democratic transition, bodes well as they managed to restart dialogue with the main Islamist party Ennadha. That said, the deadline for a general election by March 20 2013 bodes badly for the economy, which will continue to suffer from a lack of security and legislative framework governing business and investment.