Trouble brewing for Diageo

A shortage of foreign currency has forced Guinness Nigeria, which is majority-owned by Diageo, to ask the drinks maker for a USD 95 million loan. The loan became necessary because Nigeria is in recession due to a slump in oil prices, which has hurt its currency and government revenues.

Guinness Nigeria said in September 2016 that the company’s currency needs were much bigger than it was able to source locally and from its exports. So Diageo stepped in with the loan.

Nigeria’s economy is expected to shrink 1.8 percent this year. That would be Nigeria’s first full-year contraction since 1991. In June, the central bank floated the naira to try to resolve the dollar shortage and to preserve its dwindling foreign reserves. The naira lost a third of its value after the float. According to official figures, inflation is running at 18 percent.

The brewer of Guinness Stout hopes to source more raw materials locally, but it will still have to buy the concentrate for the stout from Diageo in Ireland.

Guinness Nigeria in September posted its first pre-tax loss in 30 years and said it will cut dividends and jobs.

To reduce its dependence on Diageo’s imported spirits, the local company also plans to start production of spirits itself in 2017 as growth in the spirits category is in the mid-to-lower end.