How AfCFTA driving investors’ interest in manufacturing sector-Report

Analyst at Vetiva Research (Vetiva) has said Africa Continental Free Trade Agreement (AfCFTA) is expected to drive investors’ renewed enthusiasm for manufacturing sector in Africa.

Vetiva in its Consumer Goods sector outlook report “Vetivaexamined”, noted that the current impact of the AfCFTA on the manufacturing sector, rising prices on consumer wallets and the overall rebound journey of Fast-Moving Consumer Goods (FMCGs) in the year.

Looking at the AfCFTA, the Consumer Goods analyst, Chinma Ukadike noted that whilst some positives are being gleaned from the intra-African trade agreement – especially in terms of volume – trade volumes are significantly low in comparison to 2019.

Although she attributed this to the pandemic’s effect on trading activities, stressing that the AfCFTA could however be responsible for investors’ renewed enthusiasm in the manufacturing sector, citing improved investment announcements so far in 2021.

Speaking on consumer spending, she mentioned that with consumer wallets still reeling from heightened inflationary pressures, consumer spending has remained weak.

She also highlighted the slow pace of minimum wage implementation as a significant challenge to increased consumer spending, especially given cost realities.

However, she expects the improving vaccination progress and increased government spending in the coming pre-election year to revive spending in 2022.

Furthermore, she believed that rising commodity costs across the Food, Sugar and Brewery subsectors, would pressure margins in the next year, noting that commodities like wheat and sugar are reaching 10-year highs in international markets amid supply chain fragilities, she expects the added challenge of FX sourcing to limit companies’ profitability.

Speaking on pricing, however, she sees room for improvement within the food space but expects sugar and brewery players to largely maintain price points.

The report considers the proposed implementation of the carbonated tax in the next year to be a key factor in brewers’ operations in 2022, specifically in the malt segment.

Although the report expects the tax to affect malt producers in varying capacity in line with the size of their malt portfolios, she opined that these players would largely maintain current price levels, given the precedent response to the increased excise duty on alcohol in 2018 and the price increases already implemented in 2021.

Finally, in view of market uncertainty in the next year – a pre-election year – the analyst expects a lag in the re-emergence of investor confidence as she believes that investors would largely remain cautious to see how events would play out in the market. However, she expects an appetite for stocks with strong dividend policies.