Red tape holds back EABL bid to tap Ethiopia’s beer market

By James Anyanzwa

East African Breweries Ltd (EABL)’s plans to enter into the Ethiopian market have been hit by Government’s bureaucracies and red tapes.

The beer maker acknowledged that its intentions to penetrate the horn of Africa through an acquisition of an existing brewing plant from the Ethiopian Government has been slower than expected.

"We have been targeting buying a plant from the Ethiopian Government but the process has been slow. We are considering other options," said Peter Ndegwa, the Group’s Finance director.

Ndegwa disclosed that amongst other options the brewer is considering to access the market include acquiring a Greenfield.

Thinking big

"We are seeing huge opportunities in that market," Ndegwa told an international investor conference organised by Renaissance Capitals last week in Nairobi.

In addition EABL is hoping to set up a plant in Sudan in the next 12 months and open up distribution outlets.

"We have started to enhance our presence outside the East African region," said Ndegwa.

EABL has however expressed fears over the impact of the current economic challenges on its future growth.

These challenges include increased competition across the region, high taxation and increasing insecurity across the markets.

The company is now pegging its future profitability on regional expansion and cost management.

Controlled by the world’s biggest drinks group, Diageo, the Kenyan brewer has also renewed a rivalry with South African Breweries Miller (SABMiller) by seeking to exit a contract with Tanzania Breweries Ltd (TBL).

Market challenges

EABL wants to buy a stake in Tanzania’s Serengeti Breweries, ending a contract that lets SABMiller exclusively produce and market EABL’s products in Tanzania through Tanzania Breweries.

A court in London has however frozen the move by EABL to end its partnership with rival SABMiller to join another brewer.

"We want to establish a significant presence in Tanzania. But it is still subject to legal restrictions we have at the moment," said Ndegwa

Diageo —majority shareholder in EABL with a 50 per cent stake — and SABMiller were ordered to go into an arbitration process to find a compromise as they break-up the seven-year marriage.

EABL joined Tanzania Breweries Limited (TBL), in which SAB Miller has a 52 per cent stake, under the agreement signed in 2002.

SABMiller agreed to sell 20 per cent of TBL to EABL in exchange of a similar stake in its Kenyan subsidiary.

This deal saw SABMiller exiting Kenya as a direct competitor to EABL, and the latter did the same in Tanzania.

During this period, EABL’s profit grew by 26 per cent in Tanzania -- it’s highest growth rate in the region. The two firms were supposed to manufacture and distribute each other’s flagship brands.

Now with the court sending the dispute to an International Chamber of Commerce arbitration panel, EABL will have to wait before it can consummate its partnership with Serengeti Breweries, TBL’s main rival.

Tanzania, has not suffered from drought or political instability like Kenya, expects five to six per cent economic growth this year.

Still optimistic

EABL reported a 3 per cent drop in pretax profit to Sh 12 billion due to higher costs, a weaker shilling, a sluggish economy and tax rises in Kenya.

Barley imports rose as the firm covered shortfalls in local supplies caused by a prolonged drought in Kenya, pushing costs up 14 per cent to Sh17 billion.

Moreover, the Kenyan government raised tax on non-malted beer by 70 per cent and 250 per cent for spirits during the year.

EABL remains optimistic that the return to financial stability will increase disposable incomes and improve consumer confidence.

EABL is East Africa’s leading branded alcohol beverage business with an annual turnover of Sh30 Billion and it has the largest share of the beer industry in the region.

janyanzwa@standardmedia.com