Vega Foods is a Singapore-based exporter of items such as pasta, dairy products, seasoning, canned foods, beverages and snacks. It has been doing business in Africa for over 10 years – some 80% of its turnover comes from the continent and it has a presence in about 30 countries. The products trade under Vega’s own brands, but manufacturing is outsourced to about a dozen countries – for example, canned meat is imported from Brazil, and spaghetti from Egypt.
Shaun Jayaratnam, associate vice president at Vega Foods, recently shared some of the company’s experiences in Africa at a roundtable session with journalists in Singapore. Below are the major takeaways.
*Some quotes have been edited slightly for clarity.
West Africa an easier market to penetrate
West Africa accounts for about 70% of Vega’s business in the continent.
Jayaratnam says eastern Africa is generally challenging for exporters such as Vega because the food industry is more developed, with many established local producers. He expects Kenya to become one of Africa’s major food exporters over the coming years, along with South Africa and Egypt. Countries such as Tanzania, Zambia and Mozambique are also moving in this direction.
“It was very difficult for us, as exporters of food products, to penetrate these [east African] markets… When they started local production, they started increasing the import duties for those products,” he explains.
West Africa, on the other hand, has less domestic food producers, and is more reliant on imports.
Playing by the rules
In 2005 Vega entered the Ghanaian market with a “big bang” by setting up a local office and its own distribution system. However, it found it tough to compete because many of its rivals weren’t abiding by the law and paying import duties, creating an uneven playing field.
“We were one of probably five companies that was actually [paying duties], whereas you had a hundred companies who weren’t. We were actually pricing ourselves out of the market because we were following the law,” explains Jayaratnam.
Due to these difficulties, Vega shut down its physical presence in Ghana, opting to work through a local distributor. (It has recently re-established an office in Ghana.)
In South Africa – where Vega enjoyed success for a number of years by importing canned fish – it also had to deal with questionable tactics from a local competitor. “They made our lives really miserable, and so we had to pull
out of South Africa because of that.”
But despite these challenges, Vega continues to be committed to its African operations. “It has not stopped us from still being focused on Africa, it has not stopped us from strategising, it has not stopped us from thinking long-term,” notes Jayaratnam.
Local manufacturing potential
Vega is currently mulling the potential to establish manufacturing facilities in Africa. However, it is taking a cautious approach.
Another concern are sudden changes in government policies. For instance, last year the Nigerian central bank barred importers of a list of 41 product categories from accessing foreign exchange at the Nigerian foreign exchange markets. This directive had an impact on Vega’s business, as two of its products – tomato paste and canned fish – were on the list.
Although the reasons for the ban was to conserve foreign reserves and facilitate the resuscitation of domestic industries, Jayaratnam says such sudden policy changes could discourage investment. “When you change your policies like that overnight, it is not going to encourage anyone to come in… What if I actually put in $5m and set up a [manufacturing] facility. Am I assured that $5m facility is going to be there in the next 10 years?”
But will domestic production make Vega’s products more competitive? According to Jayaratnam, this depends on the actual product and availability of raw materials. Some products are problematic to manufacture locally. He uses the example of milk powder, one of Vega’s major exports. Many African countries don’t have commercial dairy industries, which means milk is not available in sufficient quantities. “I [export] a lot of milk powder to say Gambia, Liberia and Burkina Faso, but I can’t set up a production facility over there. I would still need to import the raw milk powder, and do the packaging [locally],” he explains.
However, by producing locally, Vega would benefit from a reduction in import duties.
“We want to dig ourselves deeper into Africa, but these challenges exist. And it is not limited to one or two countries, it is across the board,” he says, adding “the risk is currently very high”.
Spend time on the ground
Jayaratnam says Asian businesspeople seeking success in Africa need to be patient and spend time in the local market to gain the trust of their African partners.
“I used to travel with the Singapore Business Federation when they had missions to Africa, and you get a lot of enthusiastic [Singaporean] businessmen jumping on the bandwagon… But a lot of these businessmen, they expect to seal the deal there and then… and then they get really disappointed when it doesn’t happen.”
He says competition in African countries is heating up, with many Chinese, Indian and European investors now active in the market. These businesspeople are establishing local offices and are constantly in contact with importers and distributors on the ground.
Those operating from abroad via phone calls or emails are therefore not going to make it.
“I always tell my sales team – out of sight, out of mind,” he says.