Nigeria: Beer market growth forecast to be hampered by rising inflation and lower disposable incomes this year

The twin spectres of rising inflation and lower disposable incomes will put a damper on the growth of Nigeria’s vibrant beer market in 2012, although longer term growth prospects remain bright, a new research note released last week by Renaissance Capital (Rencap) said.

The partial removal of the fuel subsidy, the expectation of a new electricity pricing regime in May – which could raise tariff by 34 per cent (from 23.20kw/h to 31.20kw/h) and rising input costs for beer companies, are expected to lead to lower disposable incomes, as well as higher inflation (expected to peak at 14.5 percent in 2012), according to Rencap.

These all pose risks to Guinness and Nigerian Breweries, the top two brewers in the country, who together control 98 percent of the Nigerian beer market.

“We have identified several recent developments which could hamper beer market growth in 2012. We believe higher fuel prices and the proposed hike in electricity tariff to encourage privatisation and reform of the power sector could result in lower disposable income and put pressure on beer sales, while also giving rise to higher input and distribution costs for beer companies,” said the Rencap analysts.

Beer consumption in Nigeria, the second-largest beer market in Africa, with annual consumption of 19.5 million hector litres, grew at a Compound Annual Growth Rate (CAGR) of 9.1 percent between 2000 and 2011, which was ahead of Africa’s consumption growth of 4.6 percent per annum, over the same period.

08 May, 2012