Analysis-No fillip from Africa for stressed world economy

Once hailed as crisis proof, African consumers are feeling the pinch, and hopes they can cushion shrinking company profits in the rich world by shopping their way through a global recession are evaporating.
Six months ago, Africa outside South Africa looked virtually immune from the financial crisis, with sound banks and emerging middle classes hungry for cell phones, branded beer and fridges, Reuters says.
While rich-world consumers tightened their belts, firms like SABMiller, UK-based PZ Cussons and South African retailers Shoprite and Massmart pointed to Africa as a bright spot with significant untapped demand.
But as the credit crunch spirals into a full-blown global recession, mining firms hit by a commodity downturn are slashing African jobs, remittances from abroad are shrinking and tourists are delaying trips to the continent’s beaches and safari parks.
Like shoppers in the West and Asia, Africans have less cash to spare, and bullish forecasts about consumer-driven growth look naive.
“Any thinking that the African consumer is somehow immune from the crisis is just flawed,” said Razia Khan, regional head of research at Standard Chartered Bank. “The overall picture is one of vulnerability.”
Take oil-rich Nigeria, Africa’s most populous nation.
Once an exciting prospect for consumer firms, Nigeria is battling a sharp fall in the naira currency as low oil prices dent its growth outlook, pushing up the price of imported goods from rice to textiles just as shoppers try to spend less.
“Before, some people carried a trolley full like this,” said Bassem Sawan, 30, manager of Goodies supermarket in an upscale district of Lagos, pointing to a trolley stacked with biscuits.
“Now they are just taking the things they need,” he added, estimating turnover at his business had halved in recent months while some shelf prices had tripled.
While Africa only accounts for a small chunk of profit at most multinationals — about 10 percent at SABMiller for example — it has been a key growth driver, with brewer Diageo selling more Guinness in Nigeria than in Ireland.
Shoprite and Massmart have expanded rapidly on the continent to offset slower growth at home and mobile phone firm MTN makes 60% of core profit in west and central Africa, driven by Nigeria.
Goldman Sachs recently cut its rating on PZ Cussons, a firm known for its Imperial Leather soap but which generates 34% of operating profit in Africa, to “sell” on expectations demand for its electrical goods in Nigeria will slow rapidly.
Consumers in other markets are also showing signs of strain. Kenya’s leading brewery, East African Breweries, is cutting jobs due to rising costs and lower sales.
And in Zambia, a slide in copper prices ended a boom that lured consumer firms from nearby South Africa, forcing mines to shut and denting disposable income for many.
Many consumer firms argue Africa’s new middle classes will act as a bulwark against the global downturn, meaning the impact will be less severe than in the West.
SABMiller’s head of Africa told Reuters growth in lager volumes will probably slow next year but not shrink.
The CEO of Shoprite said recently there was “no way” middle class Africans used to air conditioned malls would revert to shopping at the local market, while MTN is expecting 25 percent subscriber growth in Africa and the Middle East.
They may be right. The IMF expects African growth of 3.5% this year, half the rate of two years ago but better than the recession gripping many western nations.
And optimists say appetite for high-risk, high-yield African assets could return quickly, noting huge investment on the continent from resource-hungry China.
“There’s no question in my mind that Africa will recover within 2-3 years to the same level,” Zemedeneh Negatu, managing partner for Ernst & Young’s Ethiopia unit, said.
But arguably the worst is yet to come. When a worker in Europe loses his job, personal savings and government welfare will likely carry him through the painful months of job hunting.
In Africa, there is often no safety net.
Most exporting nations depend on a single source of income such as oil or copper, while others rely on aid flows, which will likely shrink as rich nations focus on trouble at home.
So when the storm hits, it hits hard.
“What everyone has forgotten is that African countries are small with a narrow economic base that makes them very vulnerable,” Khan said. “Africa was last to be impacted, but a recovery may also take longer.”