In a strategic move aimed at mitigating the challenges posed by foreign exchange exposure, Swiss food giant Nestle has made a deliberate decision to increase its sourcing of local raw materials in Africa. By opting for locally available resources such as starch and turmeric, Nestle hopes to alleviate the headaches caused by fluctuating currency rates and foreign reserves.
Nestle has already begun replacing imported corn starch in Nigeria with cassava starch, and the company has been working closely with seven local suppliers to enhance their capacity in order to meet Nestle’s supply requirements. Encouraged by the positive outcome in Nigeria, Nestle is now looking to expand this localization initiative to other countries in the region, including Cote d’Ivoire, Cameroon, and Senegal.
The growing debt burden in many African nations has put immense pressure on foreign reserves, leading to currency volatility and making it increasingly difficult and costly to import essential inputs. Just last week, the Central Bank of Nigeria allowed the Naira currency to depreciate by up to 36% on the official market, highlighting the urgency for companies like Nestle to explore alternative sourcing options.
Foreign exchange costs have become a major driving force for global consumer goods companies to shift their focus to African suppliers. British consumer packaged goods giant Unilever recently revealed that managing foreign exchange costs was a primary factor behind its transition from Asian suppliers to African ones, despite the relatively higher costs associated with sourcing from the continent compared to parts of Asia.
The COVID-19 pandemic and subsequent disruptions in global supply chains have compelled companies worldwide to reevaluate their production and raw material sourcing strategies. Nestle, recognizing this shift, has intensified its efforts to localize production and source raw materials closer to its consumer markets. The company has already been working on developing local suppliers of vegetables and spices used in its Maggi products, such as onion powder in Nigeria and Senegal, and turmeric powder in Nigeria.
Nestle’s commitment to sustainable practices is also evident in its approach to agriculture. The company has been actively supporting the training of local farmers and processors in good agricultural practices, as well as in harvesting, warehousing, and cleaning techniques for grains. Now, Nestle plans to take the next step by introducing regenerative agriculture to these farmers as part of its sustainability journey. Regenerative agriculture focuses on preserving and restoring soil health, enabling the capture of more carbon from the atmosphere and reducing greenhouse gas emissions.
To facilitate this localization and sustainability drive, Nestle has provided letters of intent to suppliers, offered technical expertise, engaged with local authorities to establish standards, and provided financial support through advance payments to address working capital challenges.
The Middle East and Africa region has been a significant market for Nestle, with sales amounting to approximately 5.25 billion Swiss francs ($5.9 billion) last year. These figures accounted for around 6% of the company’s total annual sales of 94.4 billion francs.
Nestle’s strategic shift towards sourcing local raw materials in Africa not only addresses the challenges posed by foreign exchange exposure but also aligns with the global trend of promoting sustainable practices and bringing production closer to consumer markets. As the company expands its localization journey across the region, it is expected to foster economic growth, enhance supply chain resilience, and contribute to the overall development of African economies.