SA’s Massmart lays foundations for growth in Zambia
Weak currency one of the obstacles for retail expansion
MASSMART Holdings hopes to provide the bricks and mortar needed for Zambia’s economic development. As the increasing presence of construction sites around Lusaka suggests, the country is gearing up for growth.
The demand for building materials may be the saving grace for Massbuild, a division of South African-based Massmart, which opened its first Builders Warehouse store in Lusaka this week.
“The construction sector is growing; everywhere you look is a construction site and [Builders Warehouse] couldn’t have come at a better time to take part in this economic growth,” said Margaret Mhango Mwanakatwe, Zambia’s minister of commerce, trade and industry.
Mwanakatwe said that even though sub-Saharan economies were underperforming, investment in the country was likely to yield long-term growth on “the belief that the economies are going to turn around”.
However, this will mean added pressure on the wholesaler, which will have to battle against the poor-performing kwacha, which lost almost 50% against the dollar, making it among the world’s worst-performing currencies in 2015.
FNB economist Alex Smith said expansion of Massmart in Zambia would help to diversify the country’s economy, which was “still too reliant on mining as a driver of economic activity”.
Massmart already has one Game store in Lusaka, and plans to open another Builders Warehouse store in the country in the next 18 months.
However, he added that this might pose a risk for the world’s second-largest copper producer, as Massmart may opt to import most of its goods, which could put even more pressure on Zambia’s trade balance.
“We expect the kwacha will remain under pressure until the Zambian government approaches the IMF for financial and technical assistance,” said Smith.
Despite this, Massmart expects Zambia to offer an opportunity to grow its profits, after the group reported a 26% fall in profit in August — from R364-million in the previous year to R269.3-million.
The group cited currency pressures, low consumer spending and a difficult, competitive domestic landscape.
Karen Ferrini, the director of Massbuild Africa, said that one of the major challenges with setting up shop in a different country was finding the correct sites and property.
“We are very space-hungry and we have a large footprint, so to find property with the right space situated in the right area is a challenge.”
Ferrini said the 4 665m² store, with a 6 393m² external yard, cost the wholesaler more than $10-million (about R143-million at the current exchange rate), with locally procured brands making up more than 11% of stock.
Smith said: “We expect a US rate hike will put further pressure on the weak kwacha.
“This is likely to stoke inflation and ultimately it will reduce real disposable income of consumers in Zambia.”
Zambia’s industrial sector is feeling a lot of pain due to major electricity shortages and rising input costs.
Mining company Glencore recently retrenched 4 300 workers at its copper mining unit to mitigate flagging copper prices.
“Over the medium term, these challenges may be gradually alleviated, but it is going to be a tough period for the industrial sector in Zambia,” Smith said.
Despite this, Massbuild remained confident that the rising demand for hardware products from Zambia’s growing middle class would generate substantial profit for the retailer.
“We are of the idea that every human being is building and, with our operating model, I think we have a good competitive advantage to enter any market,” said Peter Mamabolo, Massbuild’s regional operations manager.
Mamabolo said the company’s diversified product offering would present a diverse shopping basket that customers could tap into despite the cyclical trading environment.
“Even if there might be a slowdown in terms of new construction, people have homes that they need to improve on or do basic DIY,” he said.
Every human being is building. We have a good competitive advantage
tshandup@sundaytimes.co.za
The writer’s trip to Zambia was sponsored by Massmart