Business

EAC protectionist policies behind Shoprite stores closure in East Africa

Shoprite Holdings has shut down its only remaining store in Kenya in February, as they continued to under-perform relative to their return requirements.

The South African retail food giant has as a result, retreated from the country.

Shoprite had entered the East African market in 2018 with four stores in hand, and by 2020 it had already shut down two of them.

In the release of its Unaudited results for the 26 weeks to 27 December 2020, the Group reported that it had increased its trading profit in South Africa by 18.3%, increasing sales by 4.7% for the six months ‘representing 78.8% of Group sales.

But for its East African store, Shoprite Group CEO Pieter Engelbrecht blamed the lacklustre performance on adverse conditions faced in the East African country.

“Our Non-RSA Supermarkets achieved constant currency sales growth of 0.9%. The business remained vigilant, combating the challenges faced across Africa, however, currency devaluations again eroded much of our efforts,” he said.

However, it is a well-known fact that the East African Community (EAC) bloc is notorious for imposing higher tariffs on agricultural and staple food products. The Kenya Revenue Authority, for example, placed high tariffs on the import of sensitive products such as maize (50%), rice (75%), wheat (60%), milk (60% – including butter, cheese and whey), and sugar (100%).

Fabien Tondel of the European Centre for Development Policy Management (ECDPM) said that such protectionists policies by the EAC bloc were set to enhance agricultural productivity and improving the competitiveness of regional agro-food products.

The exit of Shoprite from the Kenyan market also followed on the heels of Tanzanian exit in 2014, which was due to low profitability. Local retail giant Nakumatt (which also fell) apparently bought Shoprite assets at an estimated $45 million.

Shoprite Holdings attributed the fall in Kenya to internal inflation and lower sales volumes which declined by 8.4% in rand terms for the six months. Standard Bank Consumer Insights Report of 2020 agreed with this assessment.

“On average, the Shoprite stores visited in the other three African countries were 35% more expensive than the Shoprite store in South Africa on our sample basket of food grocery items,” the report found.

According to Engelbrecht, customer visits in all its Kenyan stores for the six months declined by 16.3%. Shoprite, like its Botswana peers Choppies supermarket, failed to study and analyse EAC policy interventions.

For Tondel, EAC policy interventions were intended to “strengthen the capacities of various actors and institutions contributing to the systemic transformation of the agricultural sector” notably, groups such as agricultural producers, market operators, including agro-food industry and traders.

Mzansi Agri Talk says:  

The high tariffs on agricultural and staple food imports in the EAC bloc is a clear indication that any business entering their markets with the intention to import agricultural and staple food products will suffocate in the long run.

Such protectionists policies, as mentioned by ECDPM, were set to enhance agricultural productivity and improving the competitiveness of regional agro-food products.

Coming back to South Africa, it then begs the question why the South African government was not pushing harder for its thousands of emerging farmers to be included in the agriculture value chains like EAC has done for its member countries.

This EAC block policy remains a perfect example that for local emerging farmers to prosper, the government has to have some sort of protectionist policy in place.  

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