E-Malt.com News article: Tanzania: Rising disposable income and expanding population laying the foundation for growh in the beer industry

No longer is beer just a social lubricant – it has become big business in Tanzania, Ventures reported on May, 26.

It was not long ago that low consumption of alcohol, particularly beer, in the country jaded investors on the potential of the sector. Tanzania currently ranks as the 6th biggest beer market in Africa, according to a report by Deutsche Bank. This ranking is an optimistic change but does not speak to the increasing potential in the country.

Tanzania’s rising spending power (or disposable income) and expanding population lay the foundation for the growth. The country lacks the stringent laws on distribution and sale of alcohol beverages vastly associated with Kenya. Popular beers such Tanzabeer can be found in the United Kingdom. Still some hurdles remain.

A large Muslim population, for example, helps to explain the lower alcohol consumption as compared to Kenya. Capacity expansion is often myriad of problems that extend beyond simple capital injection. Absent large commercial farming, sourcing barley requires building a strong and reliable network of smallholder farmers. Developing a local management team exposes the challenges the country faces in building a sufficiently skilled labor force.

Regardless the challenges, says one Diageo representative, optimism is rightly placed. Backed by a projected 8 percent-plus annual growth rate in beer consumption, East African Breweries, whose largest shareholder is Diageo, recently invested in a new brewery in Moshi and has been actively discussing future expansions. After 6 pm there are usually few options for African nightlife, the Diageo representative continues, and drinking beer is usually in the top two. SABMiller recently said it will invest 80 million into its breweries across the country.

Diageo recently paid a lavish $200 million-plus price for Meta Abo in Ethiopia. Heineken recently bought two Ethiopian breweries for $160 million-plus. Price tags may not match profit margins. But the investments are more a bet on growing incomes in the future.

Some investors remain sceptical about Tanzania. Expected growth in incomes, says one private investor, are more potential than reality until gas production picks up and gas money trickles down to the local population. The scepticism can be justified. But it is hard to ignore the Tanzanian taxi driver in the corner happily sipping a Serengeti with the extra schilling he just received from an overpaying American patron.

29 May, 2013