E-Malt.com News article: Ethiopia: International brewers helping transform Ethiopia’s business landscape

International brewers are helping transform Ethiopia's business landscape as it slowly sells the assets of the former communist state and opens up to foreigners drawn to one of Africa's fastest growing economies, Reuters reported on April 1.

Heineken, Diageo, and privately-owned Dutch brewer Bavaria have snapped up state breweries or built new ones in the past four years, introducing new beverages and increasing competition for St George, Ethiopia's oldest beer brand, that was itself bought by France's Castel Group in 1998.

The east African nation that once could not feed itself now draws investors keen to profit from the increasing prosperity of its 96 million people.

"We recognise the huge potential in Ethiopia," Diageo said in a statement e-mailed to Reuters. It bought state-owned Meta Abo brewery for $225 million in 2012 and has doubled brewing capacity and invested in new brands. It launched Zemen Beer in December and non-alcoholic Malta Guiness in August 2013.

Heineken bought state-owned Bedele and Harar Breweries for a combined $163 million in 2011, introducing the Walia beer, which bar staff in Addis Ababa say is catching up St George.

A few years ago, small bars struggled to get hold of crates of St George as they were bought up by hotels or bigger restaurants but Castel has increased brewing capacity, meaning they are now readily available.

Prices have dropped as a result of the extra competition and supply. A St George bottle sells for 15 birr ($0.75) at Mery's Pub, down from 18 birr in December.

"We have variety now for our customers - and more supply," said Meron Girma, who runs the pub in a small shack with a corrugated iron roof next to the capital's increasingly affluent Bole Medhane Alem district.

Per capita income is still below Sub-Saharan Africa's average at just $470 a year, according to World Bank figures for 2013 but annual economic growth rates are 8 to 9 percent and the political outlook is stable. The Ethiopian People's Revolutionary Democratic Front (EPRDF), in power for a quarter of century, is expected to sweep a May election.

"Ethiopia has started to attract high quality foreign direct investment," Abraham Tekeste, state minister for finance and development, told Reuters.

The IMF estimates foreign direct investment will reach $1.8 billion in fiscal year 2014/15 and $4.3 billion in 2018/19.

Investors will have to wait for entry into many areas of the economy, which is still dominated by the state. It rapidly opened up the beverage sector, but has moved more cautiously in other industries. Telecoms remains in state hands while banks and retail businesses are off limits to foreigners.

The government says it needs the revenues from telecoms to pay for new railways, roads and dams. It says some businesses need protection until they can compete with foreigners.

Critics say the approach supports inefficiencies at state-owned companies, noting how the brewing industry has changed and prices fallen as international firms have come in. They say better run companies would deliver bigger profits, pay more tax and generate jobs.

Investors are watching developments in the drinks industry closely.

"When breweries go in, you know there's definitely the demand," said Guy Brennan of Ascent Capital, a private equity fund that this year bought a stake in a healthcare firm.

Some of Ethiopia's new spenders crowd Abebe Yohannes's bar even on a workday evening. He says the investment of big brewers has been good for his business.

"We have more sales altogether," he said in the shack near one of the five-star hotels that have gone up in Addis Ababa.

When Castel bought St. George in 1998, beer consumption per capita was two litres a year but now is seven litres, said Gebreselassie Sifer, regional sales manager of Castel's BGI Ethiopia unit.

"Every producer in the country will sell what they produce," he said of the new competitors in the market.

But there are also challenges for investors. One concern is the availability of foreign exchange to repatriate profits.

In principle, there are no restrictions. In practice, requests for dollars can face delays as the central bank holds foreign exchange reserves that barely cover two months of imports - half the level of neighbours such as Kenya.

One source with knowledge of the Diageo deal said the firm had quietly reassured the government it would be investing for several years so had no immediate plans to take profits abroad. "That is how it was presented," he said.

When asked if repatriating profits was an issue for Diageo, the firm said in its statement it was building "for the long-term future growth" and could deal with any such challenges.

There are other difficulties. While Ethiopia is expanding the road and rail network, the nation's fleet of trucks is old and transport costs are three or four times those in Europe.

Part of Bavaria's investment involves operating its own vehicles. "This is really a long-term deal," said Thijs Kleijwegt, finance director of Bavaria-owned Habesha Breweries. "The potential is huge."


01 April, 2015