Unilever Zim exit: Failure to innovate or economic challenges?

The company’s decision, according to observers, aligns with its broader strategy to scale back operations in certain African markets, while to a certain extent, reflects the increasing challenges faced by investors in Zimbabwe’s economic environment and Africa at large.
Business Writer

After nearly eight decades of operating in Zimbabwe, Unilever, one of the multinational consumer goods giants, reportedly announced its intention to pull out of the country by the end of the year, joining other foreign-owned firms exiting the African markets.

While the disinvestments offer different reasons, economic analysts are in agreement the multinational companies might be failing to shoulder the pressures associated with the unique African business environment, which demands innovation and agility.

This is evident in the success of similar businesses operating under the same conditions, with some of them even attracting significant amounts of domestic and foreign capital.

The reported exit of Unilever, formerly known as Lever Brothers, comes despite reaffirming its commitment to the country in 2018 by opening a new food plant.

The company’s decision, according to observers, aligns with its broader strategy to scale back operations in certain African markets, while to a certain extent, reflects the increasing challenges faced by investors in Zimbabwe’s economic environment and Africa at large.

Just in 2018, Unilever’s Africa vice president, Bruno Witvoet, expressed optimism about Zimbabwe’s future. As such, the company’s sudden withdrawal could indicate a significant shift in its perception of the investment climate in Zimbabwe and other African markets.

While Unilever’s withdrawal from Zimbabwe may seem significant, it might be largely symbolic as the company had already ceased production of most of its products locally.

The Royco brand was the only product still being manufactured in Zimbabwe, with the rest of its products sourced from South Africa.

“Unilever had significantly reduced local production of most of its products and supplies were primarily sourced through distributors,” a buyer at a leading supermarket chain revealed in an interview.

Unilever not an isolated incident

Unilever’s decision to divest from Zimbabwe follows the closure of its manufacturing operations in Nigeria last year, raising concerns about a potential trend of foreign companies exiting African markets.

Other multinationals have also been scaling back their operations or exiting African markets entirely.

Nestlé, for example, halted production of its Nesquik brand in South Africa last year due to declining demand.

Diageo, the parent company of Guinness, is selling its majority stake in Guinness Nigeria, once a shining example of foreign investment success, citing worsening economic conditions and currency devaluation.

In Zimbabwe, the trend of foreign entities leaving the country, particularly fast-moving consumer goods (FMCG) companies, began over a decade ago.

In 2007, H.J. Heinz, a US-based company, sold its 49 percent stake in Olivine to the Government in a deal facilitated by the Industrial Development Corporation of Zimbabwe.

This followed reportedly strained relations between the Government and the company over allegations that Heinz had stopped producing

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cooking oil after facing pressure from the US government not to buy produce from indigenous farmers.

Some of the popular products produced by Olivine included Heinz baked beans, Jade bathing soap, Buttercup margarine, Dolphin washing soap and Olivine cooking oil.

Seven years later, Reckitt Benckiser, the producer of popular brands like Cobra floor polish, Nugget shoe polish, Jik, and Dettol, stopped operations in Zimbabwe, citing a difficult operating environment.

Beyond FMCG companies, global banking institutions like Standard Chartered and Barclays, who also had a long history of operation in Africa, divested from certain African markets, including Zimbabwe.

Standard Chartered cited its global strategy to achieve operational efficiencies, reduce complexity and drive scale as the reason for its decision.

While the trend of MNCs exits has been pronounced, some analysts say it is important to note companies, particularly FMCG have maintained a presence in Zimbabwe through distribution partnerships, suggesting a significant potential for these firms in the local market.

“It’s likely a more viable business model for them to manufacture products in markets with more stable and predictable environments and then distribute those products to us,” the buyer suggested.

Immense potential

With Africa set to be home to a quarter of the world’s population by 2050, the region offers immense opportunities for businesses that can successfully navigate its unique challenges, according to a recent report by the World Economic Forum.

“These challenges should not deter companies from doing business in Africa; rather, they should compel a strategic rethink,” a recent report by the World Economic Forum revealed.

“Simply transplanting a model from another region won’t help companies doing business in Africa’s highly varied and complex economic environment.

“Western business models typically emphasise large-scale manufacturing and centralised operations. Asian models tend to focus on export-driven growth. But Africa’s limited formal transport networks, cash-dependent economies and language variations point to the potential for innovation around localisation and fragmentation at scale.”

Despite some multinationals exiting African markets, other firms have been thriving and filling the void.

Some of these firms have demonstrated a greater ability to craft products, systems and processes that cater to the specific needs of their customers, analyst say.

“The departure of multinational corporations from Zimbabwe, and in some African markets while a setback, presents a significant opportunity for local businesses to expand their market share and contribute to the country’s economic growth,” Josh Tarumbwa, Harare based economist said.

In a post on social media platform X, former Confederation of Zimbabwe Industry Busisa Moyo said Unilever has been exiting Zimbabwe slowly over the years.

“They have been exiting slowly and scaling down since the 1990s remember they even manufactured soap products here in Zimbabwe in the 80s/90s for these multinationals scale and stability matter. Maybe for all of us in manufacturing,” tweeted Moyo.

Also commenting on X, entrepreneur and strategy expert Prechard Mhako said “local brands are stepping up big time, especially in the FMCGs space”.

He gave examples of brands such as Cairns, ProBrands, National Foods, Mega Market, Associated Foods, Arenel, Jaran, Glytime, Kefalos, Garfunkels among others that have filled the gap left by multinational companies.

Tarumbwa noted that one of the key challenges faced by multinational in Africa was their inflexibility and tendency to impose models that have worked in other regions without considering the unique complexities of African markets.

The highly informal nature of business activities, currency issues and economic problems require a high degree of agility to respond effectively to market dynamics.

“This is while some multinational face increasing competition from other players, including local startups,” Tobias Musara, an economic analyst said.

In Zimbabwe, traditional brands are facing stiff competition from emerging products, particularly in the fast-moving consumer goods segment.

New food products, ranging from cereals and bread spreads to milk, are proliferating on supermarket shelves as manufacturers diversify their product offerings.

These products, which pose a potential threat to traditional brands, are now occupying more shelf space in supermarkets.

The Ministry of Industry and Commerce has attributed the emergence of these new products to increased research and innovation among local firms.

The exit of multinational companies has not had a significant impact on consumers in some areas where these companies’ enjoyed monopolies. Musara urged local companies to seize the opportunities presented by the changing market landscape.

“Western multinationals are already being replaced in Nigeria by Asian companies that have succeeded by localising costs and adapting to the country’s unique challenges,” said the WEF.-ebisinessweekl