Entrepreneurship Zone: 31 March 2022 :: Seeking a business opportunity in Kenya? Try pasta

Thu Mar 31 09:31:19 CAT 2022

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A study by Manufacturing Africa shows potential for the local manufacturing of pasta in Kenya, specifically premium pasta. Nearly all of Kenya’s pasta is currently imported.

Pasta is Kenya’s fastest growing consumer packaged goods product (13% CAGR, 2012-2020) and has high margins (retail margins are typically 25-30% and manufacturer margins are estimated to be around 30%).

Kenya’s pasta market is expected to be worth US$98 million annually by 2030, while demand in the broader East African region (including Ethiopia, Uganda, Rwanda, Burundi and Tanzania) is forecast at $400 million by the end of the decade. This growth will be driven by population expansion of 3% and a rise in incomes of 7% in East Africa.

Kenyans will become increasingly urbanised as half of Africa’s population is expected to reside in urban areas by 2030. Busy people and families tend to prefer easy-to-prepare foods. As pasta is quick to prepare, it is appealing to parents and other urban groups with time-poor, busy lifestyles. Willingness to buy premium pasta is also increasing: people with higher household income are aware of better quality options and can afford them.

About two-thirds of the Kenyan market is standard pasta (~$0.4/400g) mostly imported from Egypt, while one-third is premium pasta (~$0.8/400g) which comes primarily from Turkey.

Climatic conditions required for growing wheat are not favourable in Kenya, as a long cold season is required. Only 10% of wheat consumed in Kenya is locally farmed and the rest is imported.

Although the local manufacturing of standard pasta could be profitable, businesspeople would be able to achieve better margins by simply selling the imported product. The research reveals Kenyan manufacturers would struggle to compete with standard pasta from Egypt, which benefits from lower raw material (i.e. wheat) costs, has significant manufacturing capacity and can take advantage of COMESA free trade agreement waivers and added incentives from the Egyptian government.

However, when it comes to premium pasta, local Kenyan manufacturers can achieve superior margins compared to imports. The key ingredient used to make premium pasta is semolina, a higher quality flour milled from durum wheat. (Standard pasta is made predominantly from wheat flour.) Although Turkey benefits from lower cost durum wheat and manufacturing at scale, its exports to Kenya are subject to 20% import duty. Kenyan producers can import semolina without import duty and would save on shipping costs to serve the domestic market.

High-level economics to manufacture premium pasta in Kenya

Setting up a factory to supply the Kenyan market with premium pasta requires an investment of about $1.2 million, comprising the following costs:

·         Land and development: $0.2 million

·         Construction: $0.36 million

·         One production line: $0.3 million

·         Packaging equipment: $0.1 million

·         Other: $0.2 million

With such a facility, the business should be able to produce 1,800 tonnes of finished product per year, which is about 1.4% of Kenya’s estimated market for premium pasta in 2030.

At a selling price of $1,700/tonne the venture is estimated to generate annual revenues of $3 million, with EBITDA of $780,000 by the third year.

Over the long term, there is also an opportunity to scale up the plant to 12 production lines and cater for the greater East African market.

This article summarises findings from a Manufacturing Africa report. Manufacturing Africa is an FCDO funded programme looking to support investment into the manufacturing sector across Kenya, Ethiopia, Rwanda, Uganda, Nigeria and Senegal. For more information about Manufacturing Africa, investment opportunities, or additional sector deep dive studies please consult the website at www.manufacturingafrica.org –Howwemadeitinafrica

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