At face value, the deterioration in relations between Saudi Arabia and Turkey shouldn’t mean much for supermarket retailing in Africa. Except Turkish discounter BIM has large store networks in Morocco and Egypt and Saudi influence puts the supply chain to several countries at risk for Turkish companies.
For the most part, when analysts look at the spat between Saudi Arabia and Turkey, two countries which have found themselves on opposite sides in both Syria and Libya, they tend to focus on textiles and fashion or hajj quotas. Although the impact on grocery products and grocery retail in Africa is much smaller the spat between Turkey and Saudi Arabia has the potential to cause noticeable effects even for FMCG.
On 15 October, Morocco placed restrictions on products manufactured in Turkey and Turkish supermarket chains. It also raised taxes on imported Turkish goods by 90%. In February this year the Moroccan government threatened to close down leading discount chain BIM, blaming the trade imbalance.
The Moroccan government has several incentives to boycott Turkish goods: Morocco has been Turkey’s largest export market in North Africa, valued at $2.24bn in 2019, according to figures from the Turkish Exporters’ Assembly. Morocco runs a $2bn annual trade deficit with Turkey and is keen to foster local resilience and encourage investment in domestic manufacturers and retailers. Morocco insiders also wryly note that the Moroccan king’s holding company, SNI, owns one of BIM’s largest rivals, Marjane. Morocco only accounts for 5% of BIM’s revenues, but we think the retailer will be very unwilling to exit.
In Egypt, things are little better: we have heard for months that Turkish products are being held up at customs, cannot get the legal registration documents they need and face all sorts of non-tariff barriers. Egypt is heavily influenced by Saudi Arabia. Saudi Arabia had begun enforcing an informal ban on Turkish goods since last year and exports to the country from Turkey are already falling sharply.
BIM also operates in Egypt, where it has a store network of 300 stores. Network growth has stalled, as BIM’s head office has pulled the plug on investment. We think that if Saudi Arabia ratchets up more pressure on Turkey, BIM will be explicitly targeted. Egyptian chains either directly or indirectly controlled by parties close to the ruling military regime will stand to benefit. Note also that the Saudi chain Al Othaim and the UAE-based Carrefour franchisee Majid Al Futtaim are major players in supermarket retail in Egypt.
The problems do not end there. Dubai is a major point of supply for many African grocery retail markets, especially in East Africa. Turkish exporters, with a lower cost base than their European counterparts and more experience of product development for emerging markets, have made big gains into African markets. Especially in areas such as canned food, confectionery and pasta.
The GCC is close to Sudan’s rulers. Traders and investors in Kenya, Tanzania, Uganda and Ethiopia maintain close ties with the GCC. For example, Majid Al Futtaim is a major player in the Kenyan and Ugandan supermarket sector. Ethiopian conglomerate MIDROC, a subsidiary of which is the Queens chain of supermarkets, is owned by dual Ethiopian-Saudi national Mohammed Hussein Ali Al-Amoudi.
So the potential problems facing Turkish exporters potentially extend beyond North Africa. For now, Turkey enjoys good trade relations with Kenya. In March, the two countries signed new cooperation agreements aimed to avoid double taxation. Turkey is the second-largest investor in Ethiopia, and the two countries also enjoy good trade relations. Turkey may also leverage the fact that Egypt’s fight with Ethiopia over its new dam and access to water puts Ethiopia firmly in the Turkey camp. Turkey is a major investor in Tanzania, where Turkish companies are heavily involved in building Tanzania’s rail infrastructure. Turkey has discussed a whole raft of cooperation agreements with the Ugandan government.
None of this is a coincidence. In 2019, Turkish diplomats started working furiously to shore up support for Turkey in East Africa in the knowledge that its investments in North Africa were at risk. In practical terms, this could mean that a potential exit for BIM in Morocco and/or Egypt could see the retailer looking to more settle on some safer markets, politically. That could mean Kenya, where there is no strong discount retailer. Or Tanzania, where modern retail is still highly immature and the supply chains are poor. Or even Uganda, where modern retail is still extremely low, even compared to neighbouring Kenya.
