FMCG’s Market Analysis in Egypt

FMCG’s Market Analysis in Egypt

The short-term outlook for fast moving consumer goods in Egypt is mixed. Due to high rates of inflation, the Unilever product users are cautious about over-expenditure. Besides, Egyptian banks have strict policies that limit the amount of disposable income for both retailers and producers. Despite these shortfalls, the country boasts a significant size of the young population and the economy is on a growth trajectory. Resultantly, the consumer confidence rises gradually due to the increasing export opportunities.

During the aftermath of 2013 political turnover and civil unrest, FMCG manufacturers like Unilever reported a significant sales drop and frequent production disruptions. Undeniably, protests have ebbed in 2016 but the government cannot strengthen the investor or consumer confidence unless it maintains fiscal and economic stability. In the long-term, several factors will still affect Unilever sales. In fact, the latest data from Central Agency for Public Mobilization and Statistics (CAPMAS) indicate that more than 27% of Egyptians survive on less than 2 US dollars a day. The research implies that several households struggle to afford basic necessities and cannot acquire non-essential FMCG.

Egypt is a developing country. Therefore, low-income earners represent more than 80% of the market purchasing power. Even worse, Egyptian market projections indicate that this disparity will not change in 10 years. Instead, value-driven commodities are set to dominate Egyptian consumer market for decades. Moreover, consumer spending is increasingly becoming selecting, hence threatening the competitiveness of costly Unilever products.

While the pool of potential FMCG clients is shrinking rapidly, a sustained Egyptian economic improvement may turn the tide. In particular, the government maintains that the annual growth will average at more than 4.5% per year. A narrowing client base is not the only challenge FMCG producers and retailers face. The inflation rates in Egypt are still at record highs, peaking at 11% in May 2016. The double-digit rates squeeze the disposable income for Egyptians, particularly those whose wages are fixed. In urban areas such as Cairo, the inflation rate is as high as 15.7%.

The rate of youth unemployment is variable as per the region. The national unemployment rate is 13.5% but in Egypt’s Northern region, more than 50% of young people are unemployed. Notably, the young population is a prime demographic unit for FMCG products, thus high rates of employments harm Unilever’s production in Egypt and Sub-Saharan Africa. However, the IMF (International Monetary Fund) projects that the Sub-Saharan Africa’s average growth rate will be 5.1%. The positive prediction, therefore, improves the supply potential of regional customers. Additionally, 35% of the best selling Unilever products are manufactured in Philippines and India hence are subject to tax advantages due to offshore production. The policy on regional goods free flow allows for tax exemptions and low tariffs to encourage imports.

Not only does the depreciating Egyptian currency weaken the economy, but also it increases the import cost. Factors such as sluggish economic prospects, ineffective government intervention, and a strong US dollar contribute to the fall of the Egyptian pound. Besides, The US and EU are Egypt’s close trading partners and their current economic vulnerability has a rippling effect on Cairo. The resultant weakening of government finances introduces a risk of higher taxation that scares off multinationals, thus completing a vicious cycle of poverty, unemployment, and low returns for FMCG producers. In mid-March 2016, the Egyptian central bank devalued the currency by 14% against US dollar in response to the balance of payment strain but the economic experts predict that a further devaluation is highly unlikely, given the market uncertainties.

Moreover, the cost of fuel and electricity are rising steadily because of government regulations. Excessive control of energy is unsustainable in the long-run. For instance, the recent reduction in fuel subsidies has a negative impact on the Egyptian consumers’ purchasing power and pressures the FMCG sector in terms of future growth opportunities. Already, Egypt ranks high in the list of the most expensive countries to conduct business. It is a major concern for potential investors. Following this, reputable FMCG multinationals such as Unilever are freezing their expansion plans in the country until the GDP growth stabilizes.

In the wake of terror attacks and political instability in the Middle East, there is a growing insecurity in the upper parts of Egypt. Specifically, the downing of Russian jet raised fears regarding the safety of foreign personnel. Eventually, radical Islamism impacts on the distribution of FMCG, especially in remote parts of the country. 

Aside from tourism, traditional foreign exchange earners in Egypt like Suez Canal remittances, gas, and oil have failed as major job creators. The current government has already initiated an economic stimulus program, but it is equally important for Egypt to encourage export of and investment in labor-intensive commodities like horticultural products and clothing. In china, for example, the labor cost is rising and the western businesses are concerned about employee safety. In light of this, Egyptian FMCG exports may find and exploit a ready export market.

In summary, the long-term economic outlook in Egypt favors FMCG producers. However, the positive economic prospects are yet to trickle down through the society. The young population is still affected by high unemployment rates and poverty, especially in urban areas. On the other hand, Unilever targets the youth as a major consumer segment for its products such as Rexona and Fair and Lovely. Unless the Egyptian government stimulates the economy to improve the citizen’s living standards, the growth for FMCG sales will be crippled severely in the domestic market.  Unilever manufactures some of its products locally, hence may be offset by rising exports to Sub-Saharan Africa, the Middle East, and the European Union as their economies recover.