Manufacturer ready for EA market challenges
As the newly-appointed Tiger Brands managing director, Mr Polycarp Igathe is charged with the responsibility of overseeing the company’s operations in eastern Africa in consultation with local shareholders and partners, including businessman Chris Kirubi and Mr Bizenu Buswayo of Ethiopia.
He spoke to the Business Daily on the challenges facing him and the company at a time when local firms are coming under increasing pressure from cheap counterfeit imports and high cost of electricity.
But regional integration, especially the East African Community (EAC), also offers opportunities, which have increased the market for manufacturing companies to export their goods.
Here are the excerpts:
How has Haco Tiger Brands performed after the 51 per cent acquisition of Haco Industries by Tiger Brands of South Africa in June 2008?
The performance has been good. Shareholders are happy. We have achieved real earnings growth and a return on investment, which exceeds the company’s cost of capital.
Consumers, customers, employees and the government also acknowledge that value has been added – thanks to the teamwork and effort by Haco Tiger Brands people.
Haco Tiger Brands set up shop in Ethiopia last year. Why did you choose this market rather than EAC countries?
Ethiopia has a population that exceeds 85 million. It is the second-most populous nation in Africa after Nigeria.
Its gross domestic product has been growing at above 10 per cent rate in the past seven years.
It has security, land, political stability and a forward looking stable government focused on action as opposed to action plans.
To add onto this, there is ample and affordable electricity. Power in Ethiopia costs US 2.9 cents a Kwh compared to the US 19.0 cents a Kwh that we pay in Kenya. Ethiopia has become competitive for manufacturing and very sincerely open for business.
Having made three acquisitions in Ethiopia, Nigeria and South Africa last year, what is your expansion strategy for the larger eastern Africa region?
First, is to step up growth of the organic base that we presently have with new category entries, new distribution models and maintaining our big appetite for agro-processing industries that utilise locally-sourced raw materials.
What are the biggest challenges affecting manufacturing and marketing of fast-moving consumer goods in Kenya and the rest of East Africa?
One of the biggest challenges is poor execution of government policies due to bad politics. This inhibits global competitiveness.
Some examples are delayed value added tax refunds to exporting manufacturers; Illicit competition from smuggling; counterfeits and sub-standard products; diesel generated electricity even when rivers overflow with water; ill-suited labour laws; a weak Judiciary; short supply of relevant vocational artisan skills; insecurity; ports, roads and railway gridlock.
What opportunities does the East African common market present to your company and what is the contribution of the regional export market to your annual turnover?
The EAC opportunity is obvious with a predominantly youthful and rapidly urbanising 250 million people, and a gross domestic product growth rate average of five per cent. However, non-tariff barriers remain a hurdle.
Companies must explore different business models to take advantage of the opportunity. Half of Haco Tiger Brand revenues come from the regional export market.
Have you introduced any special products into the East African market to suit local needs and culture?
Yes. In the past three years we have introduced products in different segments: Hair care (Miadi), skin care (Ingrams), rice and pasta (Tastic), confectionery (Beacons), culinary (Allgold) and baby food (Purity).
Do you look forward to listing any of your subsidiaries in the local EA bourses in the near future?