Firms invest Sh20bn on brand building in six months

Kenyan firms spent Sh20 billion on advertising in the six months to June —nearly as much as the annual spend for 2008 —signalling a rising optimism in the economy and the jostling for brand visibility in a market where consumers are regaining lost purchasing power.

Total advertising spend on radio, television and print media – excluding rate card discounts – closed at Sh20.4 billion in 2008, according to data from Synovate, making the 2010 half year spend only Sh400 million short of the annual spend two years ago.

This growth in advertising spend is being linked to rising optimism among businesses that investments in brand visibility will yield good returns as the pace of growth intensifies.

“Most companies are more confident of getting returns on their marketing efforts as the economy picks up and are therefore pushing for more placements,” said Phyllis Kinyanjui, a media director at Scangroup.

Synovate says telecoms, financial institutions, and fast moving consumer goods (FMCG) manufacturers — corporate Kenya’s largest advertising spenders — are expected to maintain their lead positions for the rest of the year.

Last year, telecoms and financial institutions accounted for 34 per cent of the Sh19.34 billion advertising revenues between January and September as they sought to woo customers in a weak economy.

In recent months, banks have increased their marketing spend as the battle for customer deposits and borrowers intensified with the decline in the base lending rates while telecoms have renewed their rivalry for subscribers as competition shifts from voice to new business areas such as data.

Last year, banks made 48.9 billion in pre-tax profits as Safaricom recorded a pre-tax profit of Sh21 billion for the same period.

The steep rise in advertising spend represents a complete reversal of the deep cuts in the past two years when growth plummeted to below three per cent after a heavy battering from the 2008 post-election violence and the global economic recession of 2009.

In 2008, for instance, the gross domestic output dropped to 1.7 per cent from a high of 7.1 per cent the previous year and improved only marginally last year to 2.6 per cent.

Optimism has been rising this year, helped by improved performance in key sectors of the economy and huge government spending plans.

Growth jumped to 4.4 per cent in the first quarter of the year driven by increased agricultural output, lower interest rates and stability of commodity prices.

Similar results are expected for the second quarter setting the pace of movement towards the target annual growth rate of 4.5 per cent.

Analysts have however warned that the target will only be achieved with sustained growth, whose fate now hangs on the peaceful conclusion of the August 4 referendum.

Increase tension or an outbreak of violence during or after the vote could raise the country’s political risk profile and delay execution of investment plans among existing businesses.

“These events are being watched closely internationally and remain a major threat to economic recovery,” Renaldo D’ Souza, an analyst at Genghis Capital, said in an earlier interview.

Media buyers expect advertising spend to continue growing in the remaining part of the year, buoyed by aggressive marketing of back-to-school promotions and heavy promotions typical of the festive fourth quarter season.

For media firms, the increased ad spend is set to translate into higher earnings this year as heavy discounting among the competitors eases.

Mr Joe Otin, the media monitoring director at Synovate, said the firm has seen a slowdown in discounting that has been rampant among the 97 radio stations vying for a share of the advertising spend.

“Discounting and offering other value-added services has been eroding earnings from radio and TV commercials but print is less affected,” he said.

He added that in the period under review, Synovate for the first time factored in notices when capturing advertising revenues for the print media.

As a result, the share of print advertising is set to grow unlike in the previous years when only display ads were used.

In the first half, for instance, the share of print revenues was 16 per cent or Sh3.2 billion, up from 14 per cent or Sh4.4 billion for the whole of last year.

Radio increased its share by one percentage point to stand at 52 per cent while the TV segment dropped from 34 per cent to 31 per cent.