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ANIMA PUBLICATION
    19 November 2013 Emerging countries: the new Mediterranean FDI providers?  
   
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BUSINESS SECTOR - INDUSTRY
Consumer goods

The consumer goods sector is expanding in many Mediterranean countries. First of all, it is the main beneficiary from the rise of people’s living standard in the region and the resulting changes in household consumption patterns (television sets, DVD players, etc.). The high proportion of young people under 25 years (54% in Arab countries) also contributes to its expansion: sensitive to the various images conveyed by the media (commercials, movies, series, etc.), young people are more likely than their elders to buy consumer goods, especially for leisure (games/toys, MP3 players, game consoles, etc.).

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Consumer goods
 
A sector benefiting from regional growth

The consumer goods sector is expanding in many Mediterranean countries. First of all, it is the main beneficiary from the rise of people’s living standard in the region and the resulting changes in household consumption patterns (television sets, DVD players, etc.). The high proportion of young people under 25 years (54% in Arab countries) also contributes to its expansion: sensitive to the various images conveyed by the media (commercials, movies, series, etc.), young people are more likely than their elders to buy consumer goods, especially for leisure (games/toys, MP3 players, game consoles, etc.). Moreover the gradual emancipation of women is also a positive factor for all segments in which their purchasing power could be decisive (household appliances, furniture, decoration, cosmetics, etc.). Finally, the consumer goods sector has benefited from a ripple effect linked to the growth of other economic sectors: the establishment of a subsidiary by a large company involving, for example, the purchase of office equipment (computers, office supplies, etc.) or the opening of a hotel impacting local demand for furniture.
 
« Large-scale investments and numerous partnerships

Countries with large local markets are therefore, quite naturally, the main recipients of foreign direct investments (FDI) in the consumer goods sector. Turkey has attracted 33% of the total projects and 50% of FDI amounts announced in the consumer electronic, home appliance and home furnishing sectors since 2003 according to the ANIMA-MIPO observatory, consolidating its position as a major regional hub for production and export. It also hosted several large-scale projects in 2011, such as the acquisition of Airfel by Japanese air conditioning giant Daikin (nearly 200 million euros), or the relocation from China to Cerkezkoy of Bosch-Siemens Hausgerate (Germany) factories (300 million euros). Egypt, with an extensive local market and low labor costs, also offers an attractive, yet under-exploited, location to set up business. Swedish Electrolux had it right when acquiring the local company Olympic in 2011 for more than 600 million euros, while Turkish giant Arcelik plans to set-up two appliance production units. Algeria, which imports most of its consumer products (except for the household appliances segment which is still dominated by public enterprises), is also a target market. Meanwhile, modest-sized countries (Morocco, Tunisia, Lebanon) host strategic partnerships with foreign companies: they include mainly opening of brand stores, franchise or distribution agreements. Involving smaller amounts, these partnerships allow a greater flexibility in responding to demand fluctuations.
Finally, the consumer goods sector is characterised by a strong presence of Asian investors (33%), who enjoy a good positioning thanks to their consumer electronics brands (LG, Sony, Samsung, etc.)

Number of investment or partnership projects in consumer goods by country (accumulated 2003-T2.2012, Source: ANIMA-MIPO)

 
High added-value segments

 

During the last decade, the household appliances segment has benefited from a fabulous catch-up effect which derives from the fact that households in the region were under-equipped: refrigerators, freezers, microwave ovens, and other devices have built a loyal client base among the Mediterranean middle class. Some countries such as Morocco and Tunisia, which have reached a sufficient level of equipment, are witnessing a relative slowdown. Turkey has also positioned itself as a leader in the field: it is the second largest producer of appliances in the Euro-Mediterranean region, with two thirds of its production targeted at the European market. Local giants such as Arcelik have developed production units in Romania and Russia. Algeria, for its part, has announced in mid-2012 an investment of 175 million euros to boost and diversify the activities of its two public companies specialising in electronics (ENIE) and appliances (ENIEM).
The furniture industry has also strong competitive advantages. Oriental furniture, renowned for its quality and design, is indeed highly valued in the Gulf countries mainly, but also in Central Asia, Europe and the United States. Egypt, which relies on a network of skilled SMEs and a competitive workforce, exported more than 26% of its production in 2009. An upmarket move combined with an adaptation to importing countries’ (West or Gulf) taste would greatly benefit the sector. Turkey, the 16th largest exporter of furniture in the world, has already won its spurs: since 2003, the sector has shown an annual growth of about 32% (more than the automotive sector), inducing small artisan workshops to group together and change their production model.
The electronics sector is dominated by the presence of Asian investors who, contrary to the general trend, outnumber Europeans in this field. All the big names are present in the region, through acquisitions (Filmat and Filmed by Fujifilm or Arena Bilgsayar by Redington in Turkey), subsidiaries (LG Egypt, Samsung Turkey) or greenfield projects (Sony factory, LG R&D centre in Tunisia, etc.).
 
Last update 1-12-12

 

 
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