Baking Bread in Zimbabwe: Opportunities in the Rise of Africa
· By Vijay Mahajan
· Sep 10, 2008
1. African Wealth: The Tenth Largest Economy in the World
Africa has more than 900 million consumers. Despite the challenges, every day they need to eat. They need clean water. They need shelter, clothing, and medicine. They want cell phones, bicycles, computers, automobiles, and education for their children. Businesses are already seizing these opportunities to build markets across Africa.
The headlines from Zimbabwe when I visited in July 2006 were dismal. Inflation was above 1,000 percent. Unemployment was over 70 percent.1 Gas stations had not had official supplies of fuel for years, so people carried cans of gas in their trunks for long trips. Borrowing rates ran as high as 400 percent to 500 percent. A combination of the policies of President Robert Mugabe and Western sanctions had brought the nation to its knees.
When I arrived at the airport in Harare, it was a ghost town. Gift shops and car rentals were closed. One line snaked away from the exchange window where an ATM door was flung open, exposing its interior machinery. There used to be 20 flights a week here. Now there were three or four. Tourism revenues in Zimbabwe dropped from $340 million in 1999 to $98 million in 2005.2 An advertisement for cellular network operator Econet Wireless at the arrival doorway in the airport seemed jarringly out of place, with its bold letters proclaiming "Inspiration is all around you." There was little inspiration here.
Outside, half a dozen taxis sat by the curb. Their engines were off. Gasoline was scarce. The drivers leaned against the rail, even after the Kenya Airways flight discharged a few passengers from Nairobi. Idle taxis at an idle airport are the clearest indication of an economy that is collapsing upon itself.
Yet even here there were market opportunities. A few days later, in downtown Harare, I met an accountant for a company that makes fiberglass roofing. Kizito Ntoro was sitting in the late morning at a table in a food court on the ground floor of the shopping mall at 105 Robert Mugabe Road. He had just purchased a hamburger from the Steers restaurant, one of about a half dozen offerings at the row of stores along the wall in front of him. But his reason for stopping for fast food would be totally foreign to a restaurant manager in the developed world. He was here because his electricity was out the night before, so he and his family had no dinner. Their lights were out. They couldn't cook. They just went to bed without eating hot food. So he stopped at the restaurant before an 11 a.m. meeting. In a country where power is unreliable, a power outage is an occasion to eat out and an opportunity for entrepreneurs to build businesses (not to mention booming sales of generators and solar cells).
Innscor, which operates the Steers restaurant chain in Zimbabwe, got its start in the restaurant business with a small chicken restaurant in Harare in 1987. When Innscor built its first Chicken Inn, there was no fast food in the country. KFC (Kentucky Fried Chicken) had tried setting up shop but closed down. Most people thought it was a foolish idea. Chicken Inn started turning a profit in six months. Now Innscor has developed a full food court with a set of restaurants that cuts across demographic segments—from the daily bread of its basic Bakers Inn to Steers to Pizza Inn and the upscale Nandos chicken restaurants (see Exhibit 1 of the insert). Innscor replicated this concept in more than a dozen countries across Africa. The company has also moved into distribution for U.S., European, and local companies in Zimbabwe and other countries, manufacturing appliances and franchising grocery stores. It forged an alliance with ExxonMobil for its On the Run convenience stores. In 2005, the company posted revenue growth of 278 percent and profit growth of 246 percent. By 2007, it was the tenth largest company in southern Africa, excluding South Africa, with a market value of $203 million. (There is an active stock market in Zimbabwe.)3 All the news out of Zimbabwe was not bad.
Entrepreneurs have had to adapt to political and economic challenges. When Nigeria banned imports on cheese, Innscor spent nine years perfecting its own recipe to make mozzarella in Nigeria taste like European imports. In Zimbabwe, they have gone into businesses that most restaurant companies in developed countries would never have imagined, like crocodile farms. The need for foreign exchange in Zimbabwe's shaky financial system took Innscor first into the tourism business with its Shearwater Victoria Falls operation. When increasing economic uncertainty undermined tourism, Innscor moved into crocodile farms. The company whose core business is bread, chickens, and burgers was raising more than 50,000 crocodiles a year for global markets on Lake Kariba in Zimbabwe when I visited. Innscor became one of the biggest producers of crocodile meat and skins in the world and brought in much-needed foreign exchange. When the market changes, entrepreneurs adapt.
Innscor is just one of many entrepreneurial firms I have had the opportunity to study in diverse countries across Africa as I have sought to understand the African opportunity and how successful companies are capitalizing on it. These companies span industries from consumer goods to alcohol and soft drinks to metal roofing to airlines to retailers. These firms are challenging the view that Africa is a charity case. They are one of the driving forces of Africa's rise. If there are opportunities in a country such as Zimbabwe, where political mismanagement has led to a prolonged economic crisis, or Rwanda, Congo, and Southern Sudan, where new enterprises are springing from the ashes of horrific violence and genocide, imagine the opportunities to create wealth in more stable and well-managed countries in Africa. Successful companies across the continent have recognized the African opportunity that is sometimes buried in a flood of bad news that streams out of the continent.
Whatever its challenges—and there are many, from diseases such as AIDS and malaria to corruption to all-out war—Africa contains more than 900 million consumers. Every day, they need their bread. In Harare, I watched the conveyor belts of the bread factories of Innscor's Bakers Inn churn out more than 50,000 loaves of bread daily as workers in white coats inspected the line. Workers mixed massive pots of yeasty-smelling dough and monitored brown loaves rising on a Ferris wheel and running through ovens on a conveyor belt. The bakery faced challenges of finding good wheat, fluctuating diesel supplies, and government-controlled pricing. The afternoon I visited, the line had to be shut down because of a lack of diesel. But more fuel was on its way, and they would run all night to meet demand. People lined up at the shops in the morning. These loaves of bread serve the lowest end of the consumer market. Costs are unpredictable. Prices are fixed by the government. Innscor has refined its business processes, used meticulous cash management, and harnessed the power of entrepreneurship to achieve better profit margins despite higher costs and lower effective prices. The most amazing thing is that their profit margins were better than they had ever been. As one manager said at the bakery, "We are not bakers; we are entrepreneurs."
Although it was hard to imagine the situation in Zimbabwe could get worse than when I visited in July 2006, it did. By early 2008, annual inflation was estimated at more than 8,000 percent (although unofficial estimates were as high as 25,000 percent). An estimated 4 million people, one-third of the population, had fled the country by mid-2007.4 To address widespread hunger, the government fixed prices for essentials products at a point where producers said they could no longer earn a profit. Executives were arrested for failing to implement the price controls. Entrepreneurs stepped up informal imports from neighboring South Africa. After President Robert Mugabe required all businesses to yield 51 percent of their ownership to black Zimbabweans (called "indigenization"), J. Heinz sold its interest in a Zimbabwe company in September 2007.5
Even so, companies were still investing billions of Zim dollars in building their brands. From banks to cellular companies to milk producers, companies were reworking their taglines and logos to redirect or reinvigorate their Zimbabwe businesses. Kingdom Bank, founded a dozen years earlier, proclaimed, "Kingdom's time has come!"6 An April 2007 ranking by African Business of the top 50 companies in southern Africa (excluding South Africa) included 19 Zimbabwean firms in areas from food to retail to seeds to reinsurance. In July 2007, large South African retailers, including Massmart (owner of Makro in Zimbabwe), Edgars, OK, and Pick 'n Pay affirmed their commitment to keeping their operations open in Zimbabwe.7 Even though squeezed by runaway inflation and government price controls, the retailers continued to express hope about the future of the country.
Most surprising, Zimbabwe is also attracting new investors. Despite worsening conditions, foreign direct investments rose from $4 million in 2003 to $103 million in 2005. With companies significantly underpriced and a belief that the country will ultimately turn around, many investors believed it was worth the risk. At the urging of investors, Imra Assets Management of South Africa, which categorized Zimbabwe as a "frontier" market, nonetheless launched a Zimbabwe-focused investment fund in March 2007. It had set a goal to raise $10 million by the end of the year, but had already brought in $11 million just a few months later. The fund is investing in a number of enterprises, including Innscor.8 These investors believe, that with plans and patience, Zimbabwe's prospects, like the bread in Innscor's bakeries, will continue to rise.
As this book was going to press, there were historic changes underway in Zimbabwe. In elections in March 2008, Robert Mugabe's party lost control of the house of Parliament for the first time since the country's independence from white rule in 1980. His loss to Morgan Tsvangirai marked the weakening of his control of the country. Although these changes increased the threat of violence, they also signaled the most dramatic political change in the nation's recent history.
African Wealth: The Tenth Largest Economy in the World
Africa is a continent full of surprises. The fact that people were baking and buying bread in a country that was in economic free fall is just one snapshot of the continent's hidden opportunities. Looking at the bigger picture of Africa also reveals some surprises. If Africa were a single country, according to World Bank data, it would have had $978 billion total gross national income (GNI) in 2006. This places it ahead of India as a total market. Africa would show up as the tenth largest economy in the world (see Table 1-1). In fact, this places Africa ahead of every one of the vaunted BRIC economies (Brazil, Russia, India, and China) except for China. Of course, Africa is not one country, as we consider in the next chapter, but it is richer than you think.
Table 1-1. Africa Is the Tenth Largest Economy in the World
1
|
United States
|
$13.4 trillion
|
2
|
Japan
|
$4.9 trillion
|
3
|
Germany
|
$3.0 trillion
|
4
|
China
|
$2.6 trillion
|
5
|
United Kingdom
|
$2.4 trillion
|
6
|
France
|
$2.3 trillion
|
7
|
Italy
|
$1.9 trillion
|
8
|
Spain
|
$1.2 trillion
|
9
|
Canada
|
$1.2 trillion
|
10
|
Africa
|
$978.3 billion
|
11
|
India
|
$906.5 billion
|
12
|
Brazil
|
$892.8 billion
|
13
|
Republic of Korea
|
$856.6 billion
|
14
|
Russian Federation
|
$822.4 billion
|
15
|
Mexico
|
$820.3 billion
|
Source: Gross National Income, 2006, World Bank, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNI.pdf
| ||
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