High hopes for Africa

“Population growth plus GDP growth plus political stability equals an almost limitless rise in beer consumption.” For several years now, international brewers have used this simple yet memorable equation to sweet-talk analysts into believing that their investments in Africa would pay off and lucratively so. One word conspicuously absent from brewers’ soft soap has been “risk”. Heineken, SABMiller and Diageo, through words and deeds, have certainly succeeded in giving Africa a good reputation. But does this mean that the so-called “risks” in investing in Africa are more perception (read prejudice) than reality? Yet, what if risks become fact and affect industries adversely? Do these industries only have themselves to blame – like the extractors, notorious for their disregard of local concerns and the environmental impact of their commercial decisions? It would be foolish to downplay political risks in Africa. In their wider sense they range from worker strikes and sudden changes in taxation to recent events in Mali and Algeria. Political risks don’t discriminate. They just affect businesses in different ways.

That’s an interesting move. SABMiller got out of sorghum beer production in South Africa over a decade ago and now Diageo is getting into it. The world’s leading drinks company on 28 January 2013 said it will acquire a 50 percent interest in a joint venture, co-owned by India’s Vijay Mallya, for USD 36 million (EUR 26 million).

As Egypt prepares for a referendum on a controversial new constitution 15 December 2012, the draft of which was boycotted by most liberals, secularists and Christians in the constituent assembly on 30 November, the news that the government had also drafted a law to raise the sales tax on several commodities, including alcohol, and services to 11 percent from 10 percent, went largely without comment.

It’s an interesting management change. Norman Adami, a 33-year veteran of SABMiller and currently Chairman plus Managing Director of the brewer’s South African unit SAB, will be promoted to the new role of Chairman, SABMiller Beverages South Africa with effect from 7 January 2013, SABMiller announced on 22 October 2012.

This would not be Nigeria if a new project did not immediately drown in a mire of alleged or factual corruption. Same with SABMiller’s new 500,000 hl brewery in Onitsha, Anambra State in southeastern Nigeria, which is the brewer’s first greenfield brewery in the country. It was officially opened on 30 August 2012, in the presence of Nigeria’s President Dr Goodluck Ebele Jonathan.

It takes some daring to put big money behind a new brewery venture in Nigeria if you happen to be a latecomer to the market like SABMiller. The market is basically a cushy duopoly by Heineken and Diageo, both of whom have been active in Nigeria for decades. Heineken entered in 1946, Guinness in 1962. The two heavyweights have the market cornered: Heineken’s market share is about 70 percent, while Diageo’s is 25 percent.

South Africa is crafting a new law to restrict alcohol advertising, raise the minimum drinking age to 21 from 18 and clamp down on drink driving, media reported in August 2012.The bill would also propose warning labels on alcohol containers, raising taxes and stricter licensing laws for alcohol outlets.

Why is Namibia Breweries Limited (NBL) buying a 15.5 percent stake in the Sedibeng brewery in South Africa, which is currently owned by Heineken (75 percent) and Diageo (25 percent)? The decision was made public by NBL’s majority shareholder Ohlthaver and List Group of Companies (O&L) in May 2012, without giving details of the purchasing price.

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?

It was to be expected that Heineken would not be content with owning two breweries in Africa’s second most populous country behind Nigeria. Early last year Heineken entered the Ethiopian beer market when the Dutch brewer acquired the Bedele and Harar breweries — both of which were publicly owned — for USD 78.1 million and USD 85.2 million, respectively.