From FinancialTimes. Story by Katrina Manson.

Nestlé, the biggest food and drinks company, is cutting 15 percent of its workforce across 21 African countries because it says it overestimated the rise of the middle class.

“We thought this would be the next Asia, but we have realised the middle class here in the region is extremely small and it is not really growing,” Cornel Krummenacher, CEO for Nestlé’s equatorial Africa region, told the Financial Times in an interview at the regional headquarters in Nairobi.

The region covers 21 countries including Kenya, DRC and Angola. The retrenchment is in contrast with Africa’s consumption-fueled growth story, which has drawn investors in search of a new, fast­growing market.

It underlines difficulties for foreign entrants into the sub-Saharan markets, which are dominated by family businesses broadly thriving on local know­-how and the sale of cheap products tailored to individual countries.

Krummenacher said turnover in the region had failed to deliver in line with initial growth forecasts set out in 2008, when Nestlé, which has invested close to $1 billion in Africa in the last decade, stepped up its expansion in the region.

Since then it has built a clutch of new factories, aiming to double its business every three years.

Instead, so far this year, Nestlé has closed its offices in Rwanda and Uganda entirely, is reducing its product line by half, and might close some of its 15 warehouses before September.

Krummenacher said the company would be lucky to reach annual 10 percent growth in future years.

“We don’t have enough money every month to pay the bills. With these cuts, we hope we will be able to break even next year,” said Krummenacher, who added that Nestlé had been borrowing from its Swiss headquarters and local banks to pay wages and buy raw materials.

 

Read more at FinancialTimes.