Rise or fall - it’s all a matter of perspective
Is Nigeria really the promised land that international brewers Heineken, Diageo and SABMiller make it out to be? Or is the country a house that has fallen - whose roof may still be intact but shows many gaping holes, as risk consultancy Menas Associates, London, argues in a recent report?
At least from the point of view of international oil companies, the risks of major oil and gas investments in Nigeria have now begun to outweigh the rewards Jonathan Bearman for Menas concluded at briefing on 5 May 2012 in London.
Faced with worsening political and social instability and on-going oil theft - there are big investments made in illegal pipelines, storage and even mini topping facilities - the larger international oil companies are in an orderly retreat from Nigeria, only prevented from an outright exit because the country is too big a reserve base to do without, says Mr Bearman.
Investors are in a fix: shocked by the string of bloody attacks on Christian churches, they worry if they should put money into a country of 150 million people which appears to be in a lot of trouble.
No doubt, Nigeria is beset by a myriad of problems which include ethnic tensions and Islamist militancy, a weak government, deepening corruption and oil theft on an industrial scale. The Niger Delta has not been pacified, there are ethnic tensions and clashes all over; the militant Islamist sect of Boko Haram is on the rise, the northern part (mostly Muslim) feels more and more alienated from the central government and the southern part of the country, as the election of President Jonathan marked a shift in power away from northern political elites, stoking fears of secessionism; crime and lawlessness are spreading while the under-resourced security services are struggling to cope with a multiplicity of threats.
In Nigeria, Mr Bearman reminds us, the election of President Goodluck Jonathan a year ago in April 2011, served as another destabilising event, not as a resolving event the country so desperately needs: the legitimacy issue is not settled; everyone is presumed to have cheated, despite the election deemed the freest and fairest since Nigeria’s return to democracy in 1999; and sadly, like all elections before, it has led to a short-term rise in political violence and crime.
As we argued above: it’s a matter of perspective how badly you think Nigeria is off. While brewers will not deny that Nigeria is far from having reached political stability, they are not as downbeat as their colleagues from the oil industry about its future. For one, revenues from beer, in the form of excise and taxes, are not as central to the government’s revenues as they are from oil. So brewers are mostly left alone from unwanted government attention. For another, beer consumption, especially in the southern part of the country, has risen 9 percent annually for the past ten years and is expected to go up to 20 million in 2016 from 16 million hl (or 10 litres per capita) in 2011.
Profits in Nigeria are good. Investment bank Nomura estimates that total beer profits amounted to USD 452 million in 2011 (as measured in EBIT), which ranks Nigeria above France and the UK in the global profit pool, although volumes in these two markets are bigger. To make a salient point that Nigeria is a glass half full rather than half-empty: for brewers, elections in Nigeria are always a good time for business as cash for votes often translates into free beer for votes.
That’s why brewers continue to put money into Nigeria. In an interview in January 2012, Nick Blazquez, Diageo’s Africa president, said that Diageo will invest at least GBP 1 billion (USD 1.5 billion) in Africa to boost output and to acquire companies in the coming five years, adding that the company will maintain its biggest focus on Kenya, Nigeria (!) and South Africa. “About 40 percent of all of Diageo’s growth globally last year came from Africa,” Mr Blazquez was quoted as saying. “We’re seeing high gross domestic product growth rates, broadly increasing GDP per capita and more consumers with rising population growth, and more coming into the beverage alcohol sector”, Mr Blazquez added.
Heineken seems to buy into this view as in January 2011 the Dutch brewer spent an estimated EUR 500 million or more (USD 650 million) to buy a controlling interest in five breweries in Nigeria, which increased Heineken’s production capacity by over 3 million hl to close to 16 million hl and its total market share to approximately 70 percent, it was reported.
The Nigerian market, which had long been a duopoly shared by Heineken and Diageo (25 percent market share), is seeing more competition of late, not least thanks to the entry of SABMiller. SABMiller has the Pabod Brewery in Port Harcourt and since 2011 it also operates the Ilesha brewery which it took over from France’s Groupe Castel. It is currently putting the finishing touches to a new brewery in Onitsha, which should be up and running by October this year. Apart from these breweries, SABMiller has bought a water business in Nigeria and Ghana - Voltic. However, this is widely seen as a global move by SABMiller to get involved in water as well. Having purchased the Ambo water business in Ethiopia a few years ago, SABMiller in 2011 quietly acquired Rwenzori, the biggest water bottler in Uganda, and Keringet, the biggest water bottler in Kenya.
This is not to say that Nigeria will be a walk in the park for the international brewers. Quite a few tried and failed in the past: Germany’s Brauhaase and Warsteiner are more recent casualties. Now you can add Denmark’s Royal Unibrew to that list. Having had their non-alcoholic malt beverage Vitamalt brewed under licence for many years, their local licensee in Lagos suddenly stopped production (again!) earlier this year. There is no Vitamalt in the market right now and Royal Unibrew says that no date has been fixed as to when production will resume. And this although Nigeria used to be Royal Unibrew’s largest African market.
The Vitamalt brewery claims to have produced 200,000 hl of Vitamalt and Nasmalt, a brand belonging to an Islamic organisation, before the latest shut-down. The brewery is majority-owned by a local Nigerian chief, Kolapo Lawson, and some other shareholders. Mr Lawson has been in talks with outside investors for a cash injection. Reliable sources say that SABMiller was interested in buying this brewery as it would have given them easier access to the Lagos market but discussions seem to have stalled because Mr Lawson wanted to have controlling shares which was not acceptable to SABMiller.
Nigeria may be the promised land ... but only for those brewers who are not afraid of adversities.
Beer consumption estimates for Nigeria vary widely. According to SABMiller it stood at 19 million hl in 2010. Nomura says it was less than 16 million hl. Undoubtedly, consumption is highest in the southern part of the country which is largely Christian. Half of Nigeria’s population of 150 million people is Muslim according to the CIA World Factbook. Chart: SABMiller March 2011
