The Johannesburg-based company has reached a preliminary agreement with a partner for a factory in Ethiopia and is now seeking financing for a potential $68 million project cost, Chief Executive Officer Andre de Ruyter, 47, said in an interview at Bloomberg’s Johannesburg office last week. That will help supply drinks makers including brewer Heineken NV and soft drinks producer Coca-Cola Inc, he said. Nampak has also “made good progress” on a Nigerian factory, the CEO said.
“Africa is the story for us,” De Ruyter said. “People talk about Latin America, they talk about India, China or other emerging markets, but we think the opportunity that we’ve got in Africa is so big and this is what we know we can do well.”
Consumer-goods companies such as US retailer Wal-Mart Stores Inc and brewer SABMiller Plc are expanding in Africa to take advantage of economic growth and rising household incomes. Many people in sub-Saharan Africa are moving away from subsistence existences and becoming consumers of packaged goods for the first time, according to De Ruyter, creating a growing market for can and bottle manufacturers. Nampak is also Africa’s biggest maker of beverage cans.
“There’s a youth bulge of people reaching drinking age” in Africa, De Ruyter said. Producing glass bottles and cans “makes a lot of sense.”
Nigeria, with a population of about 177 million, has 44% of its population under the age of 15 while 46% of Ethiopia’s 97 million people are below that age, according to U.S. Census Bureau data. That compares with 16% of the 403 million people who live in the Euro area.
Nampak is expanding outside of South Africa to help reverse declining profit margins in its home market, where it’s cutting costs. Africa’s most industrialized economy contracted in the second quarter of 2015 for the first time in a year, while consumer confidence dropped to a 14-year low in the same period. Nampak shares have declined 36% this year, compared with a 0.2% gain for the FTSE/JSE Africa All-Share Index.
In South Africa, Nampak plans to cut its number of glass products to about 85 different types from 130 to reduce costs, according to De Ruyter, and is also seeking to reduce its food- can range by as much as 38%. It’s replacing older machines with more efficient models, the CEO said.
Nampak has signed a memorandum of understanding with a local partner in Nigeria, identified a factory site with access to natural gas and water and started a feasibility study, De Ruyter said. The plant in Africa’s biggest economy will cost as much as $100 million and will be completed in about three years.
The company also has plans for an Angola glass factory although it’s still “very early days,” according to the CEO.
Nampak will consider expanding its can production by doubling capacity in Nigeria and looking at a potential third can line in Angola, De Ruyter said.
“Beverage cans are a fairly new innovation,” in most of Africa, the CEO said. “Previously it was all returnable glass bottles, which were in some instances recycled up to 30 times. So you have this old, scuffed bottle and the new, shiny fresh can with a logo.”
©2015 Bloomberg News