Beer Monopoly




    International Reports






Posted February 2013

High hopes for Africa

African beer market │”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.

When news of the escalating conflict in Mali hit our screens in Europe at the end of December 2012, we were shown TV footage of a yellow-T-shirted guy, whom we took to be an Islamist militiaman, brandishing a rifle as he stood atop a pile of beer crates oozing forth some liquid into splinters of glass. The message was quite clear: the Islamists' efforts to impose Sharia law in northern Mali have extended to also banning alcohol. Fortunately, Castel’s brewery in Mali is located in the capital Bamako, further to the south, and thus out of harm’s way. From what we have heard it is still running. Likewise Mali’s gold mining activities (Mali is Africa’s third largest gold producer), which are concentrated in the south, have been largely unaffected by civil strife.

Still, French armed forces were deployed to Mali in January 2013 in an international legal framework with UN backing to aid Malian troops on the ground in their efforts to stabilise the south, while hitting hard with air power at Islamist bases in the north. At the same time, African leaders met at the World Economic Forum (WEF) in Davos, Switzerland, to talk about what’s being done to make the continent more attractive to investors. The WEF’s organisers had put on a session with the title “De-risking Africa: What are African leaders doing to mitigate investment risks?” There it was: “risk”.

No wonder, the politicos on the panel, South Africa’s Jacob Zuma and Nigeria’s Goodluck Jonathan, kicked off the panel by questioning the session’s title. Risks, which risks, they wondered aloud. “Is Africa [more] risky than any other region of the world?” Mr Zuma asked, rhetorically. While the Rwandan president Paul Kagame, who was in the audience, complained that there is often a misperception about Africa because its history is written by non-Africans, insinuating a latent post-colonial revanchism, African media commentators whined afterwards that some of the people who are most critical and negative about Africa, at times, tend to be Africans.

Though acknowledging that there were “pockets of issues” (!) in Mali, upper Nigeria, and in some of the parts of Congo, Africa’s strongmen in Davos stressed that the continent has become much more stable politically and economically.


A sissy? Moi?

SABMiller’s Chairman Graham Mackay, who participated in the panel, took the same line. He was quoted as saying: “In my perspective, it’s not so much a question of de-risking. It’s taking the brakes off what is already remarkable economic progress by removing some of the bottlenecks. I don’t know of any part of Africa where we could have invested because we thought there was demand and didn’t for risk factors. We were the first investor into South Sudan, I think, of any kind. Great big brewery there next to Juba just after independence.” He added: “We don’t hold back on investment because of risk factors. We invest as we think the markets can grow.”

Mr Mackay has a point. When considering the biggest risk of all – wars – breweries on the whole have been spared. Unbeknownst to most of us in the West, 28 African countries, out of 54 sovereign ones, have been at war between 1980 and 2010. In the on-going, but largely under-reported Great War of Africa in the Congo (since 1998), seven countries have become involved, observers say, with a death toll of an estimated 6 million people to date. However, if memory serves us right, in the past 30 years there were only three incidents when breweries were destroyed during fighting, the first being the Camel brewery in Khartoum (Sudan) in 1983, followed by Heineken’s Freetown brewery (Sierra Leone) in 1999 and the Monrovia brewery (Liberia) in 2003.

It’s a cynical thing to say but obviously warring factions know only too well that if they aim their shots at a brewery they will be out of beer, too. Although brewers in Africa will rather bite their lips than admit it, whenever there are peacekeeping troops in their thousands deployed to African trouble spots, they have to revise their production forecasts upwards. Because what African peacekeepers like doing best is setting up roadblocks near a shady tree from where they can observe comings and goings while having a beer.

And, as concerns the avoidance of more minor political risks, such as unwanted government interventions of various sorts, brewers have been best advised not to behave like the bullish mining companies. South Africa's government threatened mining heavyweight Anglo American Platinum with the loss of its licence after the firm said in January 2013 it would cut 14,000 jobs, following violent and deadly clashes between the police and striking miners. Brewers would have better taken their lead from France’s Pierre Castel, whose BGI is the number two brewer in Africa. Apart from Mr Castel’s personal clash with Nigerian officials a few decades ago, his various BGI businesses, as far as I can tell, have not run into any troubles anywhere.

Besides, it has probably done public-private relations lots of good that brewers, Heineken and SABMiller most prominently, have shown to be flexible and willing in their “government stakeholder” (who can those be if not the Big Men?) dialogues and have got involved in farming in several countries. Already they source significant amounts of their raw materials locally, which they aim to raise to 70 percent eventually. It’s a good thing that, apart from paying taxes and excise, the brewers, through their local sourcing initiatives, literally plough some of their profits back into the countries, in return for which they often receive favourable excise rates and enjoy the benefits of a lower cost base.

Most likely, the whole Davos hullabaloo over Africa as a risky place for business comes down to a sloppy choice of words. What some investors call political risks are merely commercial challenges to others.

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