Consumer Story Positive In Post-Revolution Egypt
Two years after the revolution and subsequent overthrow of President Hosni Mubarak, the long - term Egyptian consumer growth story looks promising. Although the tensions associated with the political transition have yet to dissipate , Egypt's core demographics continue to offer encouraging prospects for the world's major fast - moving consumer goods companies. Despite wel l- documented risk, we believe the Arab world's largest market continues to offer impressive long-term investment potential.
|Core Demographics Remain|
|Egypt - Population (mn) & GDP Per Capita (US$)|
Egypt's positive demographics , which attracted investors before the Arab Spring, have not changed and continue to reflect the potential of the country's consumer growth story. P opulation growth continues to accelerate , with UN statistics projecting the population to surpass 100mn by the early 2020s. This population base is also young (a key ingredient for dynamic consumer growth) and is expected to develop greater spending power in the coming years . Although in our view the economy is unlikely to stage a more pronounced recovery in the near term, real GDP growth is forecast at 3.7% in FY2013/14 , and there remains huge potential for long - term growth in the food and drink retail sectors. Still the largest market in the Arab world, Egypt has retained all the core characteristics that point to long - term consumer potential.
Mass Grocery Retail
The development of the Egyptian organised retail market has picked up pace over recent years, indicating an impressive shift towards modern retail formats, with headline sales forecast to grow at a dynamic local currency compound annual rate of 15.6% over the forecast period to 2017. Although small, independent retailers continue to benefit from enduring consumer loyalty, there is huge room for growth in the organised sector, particularly as discount and convenience formats gather momentum.
A key indication of th e potential seen within Egypt's mass grocery retail sector is the continued presence of multinational retailers in the region. France- based Carrefour is one example, and the retailer opera tes a network of hypermarkets, supermarkets and express stores in Egypt with its joint venture partner , UAE-based Majid Al-Futtaim Group . Saudi Arabia's second largest mass grocery player, al-Othaim , has seen success in Egypt with its c onvenience and discount formats , and hugely successful Turkish discount retailer BIM recently announc ed plans to enter the Egyptian market with 30 stores in Cairo by the end of 2013 . Middle East - based Spinneys' entry in 2007 also demonstrates the potential for more upscale retailing while supporting our view that much of investment in the sector over the coming years will flow from the Middle East/Gulf region .
|Modern Retail Momentum|
|Total Mass Grocery Retail Sales (EGPbn)|
|Soft Drinks Promising|
|Egypt - Soft Drink Sales (US$mn)|
In a country where alcohol consumption is not prevalent, potential for growth in the soft drinks segment is particularly strong. For 2013, soft drinks value sales are forecast to grow an impressive 17.1%, with a compound annual growth rate of 16.5% to 2017 forecast . Again, Egypt's young population is a key indicator of growth potential, particularly as income are also set to rise . Indeed, young consumers are likely to follow trends seen in other regions such as the UAE, driving aspirational demand for commercial, carbonated products. The f ruit juice and bottled water segments also offer encouraging room for expansion, providing attractive platforms for investors looking to secure stable volume sales both in Egypt and regionally.
Continued investment by g lobal drink giants The Coca-Cola Company and PepsiCo is indicative of th e potential in the soft drinks complex . Coca-Cola , which has been present in the country since 1942 and for which Egypt remains its largest market in the Arab world , has announc ed plans to double its business in Egypt over the next five years. Key rival PepsiCo is also confident in Egypt's consumer potential and , like Coca-Cola , has pursued aggressive social media marketing campaigns directed at fostering solidarity following the revolution. UAE - based Agthia ( which produces Al Ain water and Capri Sun and Chiquita juices ) has also continued to target Egyptian consumers in recent years, eager to capture the thirst of the country's impressive consumer base.
As seen with the prospects for mass grocery retail and drink companies , Egypt's large population will continue to present opportunities for food producers. Global food majors such as Nestlé are representative of the long - term commitment seen in the sector, with Nestlé Egypt present in the country for more than 100 years . The company marked the achievement with the announcement of a four - year CHF151mn investment that aims to enhance its already impressive presence in the country. With diverse portfolio s of products particularly suited to low - income, emerging market consumers, firms such as Nestlé and Unilever can expect to be well positioned to capitalise on growing Egyptian demand. With Middle East and North Africa sales continuing to drive group revenue for these multinationals, Egypt remains a market that is too important to ignore .
Reward Vs Risk
Despite the opportunities presented by the Egyptian consumer, there remain a plethora of risks facing investors. The political landscape remains uncertain as President Mohamed Morsi continues to implement a democratic transition ; this will affect the country's economic recovery at least in the short term. Much - needed tax and energy subsidy reforms could also hamper consumer spending patterns if passed, as could persistent unemployment rates. However , despite these challenges Egypt comes third in our Q3 2013 Food & Drink Risk/Reward Ratings for the Middle East and North Africa , behind Saudi Arabia and Israel . Egypt is bolstered by high scores for population size, youth population, food consumption per capita and an immature organised retail market.
Consequently, we believe the Egyptian consumer growth story offers unrivalled potential. Challenges certainly exist , but long-term rewards for investors in the food and drink sector are increasingly attractive. The country's impressive demographic profile has not changed following the Arab Spring, and as the staying power and enduring commitment of some of the world's leading multinationals demonstrates, Egypt is too big of a market to exit.