Botswana Food and Drink Report Q4 2012

Includes 3 FREE quarterly updates

BMI View: Amid solid but unspectacular mining-led economic growth, we expect to see below-trend private consumption growth of 5.5% in 2012 and 2013. In comparison, private consumption growth expanded by an annual average of 7.4% over 2006-2011. There are a number of reasons for the moderation, including base effects, unemployment levels and muted wage growth, and this has fed through into our outlook for Botswana’s food, drink and mass grocery retail sectors. In general, we hold a less positive view towards the industry in Botswana than we do in the wider Sub-Saharan African region over our forecast period.

Key Forecasts

• Total food consumption growth: 9.2% (local currency) in 2012; compound annual growth rate to 2016: 9.3%
• Beer sales growth: 2.0% in 2012; compound annual growth rate to 2016: 2.8%

Key Trends

Organised Retailing: All Southern Africa markets lag regional leader South Africa, in terms of the presence of organised grocery retailing. Across the region, formalisation will be a key driver of mass grocery retail sales growth, as more and more shoppers trade up to organised retail channels. This will be true even for the region’s more mature markets, though we would also expect the steady introduction of new store offerings, such as non-food products, to support growth. In Botswana, we estimate that around 40% of grocery retail sales are accounted for by the organised sector. This is comfortably ahead of most regional markets, although it still allows room for solid growth.

Beverage Sector Growth: We expect to see strong beverage sales growth throughout the region over the forecast period and well beyond. There is enormous potential in beer and soft drinks, specifically carbonates at this stage of the region’s development. Throughout the region the beer market is already keenly contested, and this level of competition will lead to significant new investment over our forecast period, thus driving strong sector growth. At an estimated 18 litres per annum, Botswana has fairly average levels of beer consumption by regional standards, and there is still room for steady growth.

Demographic Appeal: Demographics are a key component of the region’s appeal, given the very low base from which most growth is occurring and the severe income inequalities that persist. Botswana’s population dynamics – while not as enticing as many of its regional peers – are still a plus point for investors. The country’s 2.1mn-strong population base (as of 2011) will grow to 2.2mn by 2020 and by 19% on the 2011 level, to a forecast 2.5mn in 2050. Botswana’s population, and population growth, is below most of its neighbours, it has appealing age dynamics. According to our 2012 forecasts, 43% of Botswana’s population is younger than 20; this provides solid long-term growth opportunities for regional investors.

Risk/Reward Ratings: Botswana falls in a reasonably impressive ninth place out of 13 regional markets that are ranked for Sub-Saharan Africa within BMI’s Food & Drink Risk/Reward Ratings. The country scores below the regional average in terms of rewards, while scoring well above the regional average in terms of risk. Overall, Botswana ranks a little above the Sub-Saharan Africa average in our regional ratings.