E-Malt.com News article: Tanzania: End of cooperation between East African Breweries and Tanzania Breweries Ltd likely to hurt the country’s economy – TBL CEO

Tanzania’s economy is in for far-reaching adverse consequences of the bid by Kenya-based East African Breweries Limited (EABL) to acquire Serengeti Breweries Limited (SBL), the head of Tanzania Breweries Ltd (TBL) was quoted as saying by This Day on September, 2.

Such a deal between EABL and SBL would drastically reduce TBL’s production capacity, since Kenyan products by EABL would overflow into the Tanzanian market, Tanzania Breweries Managing Director Robin Goetzsche believes.

As such, TBL would be forced to lay off an estimated 200 workers if the proposed EABL/SBL deal goes through, Goetzsche said.

The matter is currently pending arbitration by the International Commercial Court of Arbitration.

The TBL boss said a deal between EABL and SBL is also likely to impact negatively on taxes currently paid by TBL, such as excise, income, and corporation taxes.

Excise duty paid by TBL would come down to around TZS140 bln per annum, from TZS161 bln at present. Income tax would also shrink to around TZS25 bln, from TZS30 bln per annum at present, said Goetzsche.

TBL currently dominates over 80 per cent of Tanzania’s beer market, while the remaining 20 per cent share is held by SBL. But if the latter’s deal with EABL goes through, the ratio would change to about 65 and 35 per cent for TBL and SBL respectively.

Goetzsche said TBL, currently recognized as the country’s largest single taxpayer, has remitted taxes amounting to $872m (over TZS1 trln) in the seven years between 2002 and this year. The company paid a hefty TZS190 bln in taxes during financial year 2008/09 alone, he said.

He argued that SBL does not have enough capacity to produce EABL products locally, hence paving the way for the Kenyan company to distribute its products into the Tanzanian market from across the border, via SBL.

“If SBL was serious on raising capital, it could do so through the DSE (Dar es Salaam Stock Exchange). What people don’t know is that EABL would be paying enormous taxes in Kenya at the expense of Tanzania, should the EABL products be sourced straight from Kenya,” the TBL chief added.

He also suggested that EABL’s intention to scrap its current deal with TBL and shift over to SBL, is also due to the fact that EABL feels it has already laid a solid foundation in the local market and now wants to explore the zero-rated tariff for products crossing borders within the East African bloc, slated for take-off from January next year.

According to Goetzsche, EABL and TBL entered their brewing and distribution agreement in 2002 in which EABL would distribute TBL products in Kenya and TBL would do likewise with EABL products in Tanzania.

The agreement required TBL to distribute Tusker, Guinness, Malta Guinness, and Pilsner beers in Tanzania, while EABL distributed Castle Lager and Redd’s beer brands in Kenya, he explained.

He said since this agreement prohibits one partner company from doing business directly in the other’s country, EABL’s move on SBL at the expense of TBL constitutes a sign of bad faith on the Kenyan company’s part.

“Under our agreement with EABL, we have been able to boost their volume of sales in Tanzania to over 460,000 hectolitres, although in Kenya EABL has only distributed 30,000 hectolitres of our products,” Goetzsche stated.

He said TBL has also injected investment capital amounting to 220bn/- between 2002 and 2009, and plans to spend a further $56m (about TZS76 bln) on a new brewing plant in Mbeya.

“Should EABL acquire SBL, then TBL’s capital utilization would come down by almost 35 per cent,” he said.

On its part, EABL together with the parent company Diageo have reaffirmed that their future business link-up in Tanzania is SBL and not TBL.

“The long-term future of EABL brands lies with Serengeti Breweries Ltd. To further emphasize this fact, and separate to the claim for fundamental breach, EABL has given TBL notice to terminate the distribution agreement for its brands. Thus, it is clear that TBL will not be the long-term brewer of Tusker or Guinness or any of the EABL brands in future,” EABL/Diageo said in a recent media statement.

Following TBL and its parent company SABMiller’s decision to block the EABL/SBL deal, a London court recently issued an injunction to maintain the status quo until the substantive issues can be resolved in arbitration.

“Until the injunction comes to an end, EABL fully expects that the performance by TBL around EABL brands will be in line with the current brewing and distribution agreement. It is of paramount importance that our consumers continue to enjoy their favourite Tusker and Guinness brands even more with increased availability in this interim period,” EABL’s group Managing Director Seni Adetu said.


02 September, 2009