NIGERIA – Tiger Brands, one of Africa’s largest food producers, has exited Nigeria- Africa’s most populous nation and largest economy- after selling its minority stake in UAC Foods.
Tiger Brands, which owns brands including Jungle Oats, All Gold, and Koo, said that Nigeria remains a market of significant potential for the company, and “options will be explored after the closing of the transaction to maximise opportunities in relevant categories”
UAC, with interests in real estate, paints and livestock feed, will take over Tiger Brands’ stake in the company, further cementing its majority ownership of the company.
The purchase is expected to be completed in September, UAC of Nigeria said in a filing published on the website of the Nigerian Exchange Group.
Tiger bought 49% of UAC’s food business in 2010 following a joint venture agreement with the Nigerian firm to manufacture and distribute some sausage, ice cream and water brands.
This was when Nigeria, touted as the next growth spot for retailers, attracted many South African retail giants including Shoprite and Massmart.
Economic weakness last year curbed consumer demand while input cost rises have cut into margins, and currency volatility has further eroded profits, making operations in the country untenable, particularly for foreign companies.
South African firm, Shoprite Holdings, sold its operations in the West African country to local investors after facing difficult economic times and what analysts are now referring to as a market hostile to foreign capital.
Massmart also exited the market along with similar exits in Ghana, Uganda, Kenya, and Tanzania in an effort to cut down on operating costs.
In an interview with fin24, investment analyst at Mergence Investment Managers Lulama Qongqo notes that South African companies did not do enough due diligence before venturing into the west.
“South African companies overestimated their capabilities and attractiveness of their product offerings moving into the Nigerian market and forgot different countries have different cultures and tastes,” Qongqo said.
Nigeria’s low GDP per capita might have also played to the disadvantage of South African retail giants as most consumers earn low wages and thus could not afford items at their stores.
Qongqo says that exiting South Nigeria was probably a good move for South African companies “because if you can’t grow to the extent that you can get to critical mass and operate profitably in a sustainable manner then it makes for a poor investment”.
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