TheCable

Swiss food and drinks company, Nestle, on Wednesday confirmed that it was cutting 15 per cent of its workforce in 21 African countries because it overestimated the rise of the middle class.

A Nestle spokesman told Reuters that the job cuts would affect about 60 workers in the Equatorial Africa region after reports that the company was pulling back because it overestimated growth in the middle classes.

The retrenchment is in contrast with Africa’s consumption-fuelled growth story, which has drawn investors in search of a new, fast-growing market.

“We thought this would be the next Asia, but we have realized the middle class here in the region is extremely small and it is not really growing,” Cornel Krummenacher, chief executive for Nestle’s Equatorial Africa region, revealed in an interview in Nairobi.

Krummenacher said turnover in the region had failed to deliver in line with initial growth forecasts set out in 2008, when Nestlé, which has invested close to $1bn in Africa in the last decade, stepped up its expansion in the region.

Since then, it has built a clutch of new factories, aiming to double its business every three years. Instead, so far this year, Nestlé has closed its offices in Rwanda and Uganda entirely and is reducing its product line by half, and might close some of its 15 warehouses before September.

Krummenacher said the company would be lucky to reach annual 10 per cent growth in future years. “We don’t have enough money every month to pay the bills. With these cuts, we hope we will be able to break even next year,” he said, adding that Nestlé had been borrowing from its Swiss headquarters and local banks to pay wages and buy raw materials.

Krummenacher also identified corruption, floods, riots, currency depreciation and poor infrastructure, adding that transport prices account for up to 75 per cent of operational costs.

Nestle has about 11,000 employees on the continent, equatorial Africa region encompassing 21 countries including Kenya and Angola.

Krummenacher also said that Nestle would be lucky to reach annual growth of 10 percent in the Equatorial Africa region in future years and, with the job cuts, hopes to break even next year.