Case study: Detergent Market in South Africa

The detergent market in Africa is on the rise, with multinational companies looking to enter this emerging market. Rapid urbanisation in South Africa has led to increase in demand within the fast-moving consumer goods (FMCG) sector. GDP growth in South Africa is expected to grow as below:

2015

2016* 2017* 2018* 2019*
2% 2.1% 2.2% 2.5%

2.9%

Table: Real GDP expected growth rate in South Africa (*estimated)

Following the advent of urbanisation in South Africa, the middle class is growing larger and with more disposable income. This accounts for a growing proportion of the detergent industry in South Africa.

SouthAfrica_CapeTownA developed town in South Africa, Cape Town

Overall market growth

The household cleaning and detergent market is expected to experience the highest growth as a main outcome of increasing urbanisation and demand for improved hygiene.

2015

2016* 2017* 2018* 2019*
4% 4.1% 4.1% 4.5%

4.8%

Table: Household cleaning and detergent market expected growth rate in South Africa (*estimated)

Laundry detergent manufacturers are anticipated to increase at a constant CAGR value of 2% from 2015until 2018, with automatic detergents driving the performance. All other automatic detergents categories are expected to reflect positive CAGRs ranging from 3-4% over the forecast period.

Driving forces in growth of the market:

  1. Furthermore, a driving factor for the detergent industry in South Africa would be the government’s spending on improve the country’s healthcare system, with hospital infrastructure and health care facilities comprising 20% of surfactant market share. This pushes the demand for cleaning products.
  2. Following urbanisation, the country now has an increase in Internet access. Previously acting as the major constraint in South Africa, the growth of e-commerce is now climbing high as the market gets more competitive. Nevertheless, only higher-end detergent manufacturers have the means and financial capability of developing their business through this e-platform.

 

Challenges faced in the industry

In South Africa, the majority of the ingredients used in detergent manufacturing are currently imported. Although the competition of ingredients is moderate with different suppliers in the industry, the major concern lies in the ‘luxury’ tax imposed upon these local manufacturers. An ad valorem tax of 5 – 7% in addition to the cost price of the ingredients are exercised. Local manufacturers suffer the most impact from the extra cost in production.

Tax

On the other hand, international players get imposed higher import duties from local governments, diminishing their strategies in breaking through the South Africa detergent market. A few producers have stated that duties were as high a 20%. This forces the bigger players to have a much differing pricing of the product on the end-user market, allowing local players to have a chance. That being said, exceptions are allowed when proven to be beneficial for the country as whole. For instance, when a company exports the finished product beyond a level – bringing foreign reserves for the country; or when the government hopes to build local employment through these international companies having a manufacturing plant within their country’s borders.

 

To find out more about the chemicals used in detergent manufacturing, visit our detergent website.

By: Sinyee

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