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South Africa Food and Drink Report Q2 2008
Business Monitor International, April 2008, Pages: 51
The South Africa Food Drink Report provides independent forecasts and competitive intelligence on South Africas food and drink industry.
Ongoing power cuts are continuing to plague South Africa, and are having a major negative impact on the country’s food and drink producers. This current power crisis is due to underinvestment in the countrys power infrastructure at a time when economic growth has accelerated. One of the nations leading brewers, Anglo-South African SABMiller, has recently said that despite the inevitable negative effect on sales, business in the country will continue as usual. Although the company admitted that the ongoing power shortages are a major problem, it was quick to point out that this is something it has been dealing with for a year and a half already and that despite this, its business in the country has continued.
Meanwhile, the country’s dairy producers are threatening to sue the state-run power company for damages of ZAR100mn (US$14mn) a month, saying that the energy cuts are costing them as much as ZAR40mn a month in direct costs, with the losses rising by as much as 250% when indirect costs such as generators and falling milk yields are taken into account. Dairy farmers say that since the start of this crisis, milk production has dropped by 10% and they have been forced to spend ZAR240mn (US$30.8mn) on back-up power generators.
Of even greater concern is the long-term impact these cuts will have on growth and how this will damage the countrys current positive image as a top investment destination, potentially limiting further foreign direct investment inflows. As this crisis threatens to stretch into the long term, seriously damaging South Africas economy and lowering the countrys appeal to foreign investors, BMI may have to revise its real GDP growth forecast of 4.18% per annum between 2008 and 2011.
Food consumption in South Africa, in both overall dollar terms and in per capita terms, is set to increase considerably over the next five years, with growth of 36.4% and 35.9 % forecast respectively to 2012. Mass grocery retail operators will play their part in fuelling this growth by bringing a wider range of higher-value produce to a wider consumer base, 24 hours a day, to cater to the needs of increasingly demanding consumers. Yet the real driver behind this growth will be the country’s economic strength. Consumers are finding themselves better off, thanks to a rise in employment opportunities, higher wages and lower inflation. All of this has boosted consumer confidence and encouraged spending on non essential items. However, in order for the country to make the most of its long-term growth potential, the current infrastructure crisis must be adequately addressed.
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