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Beer investors eye Uganda, Tanzania

Saturday October 06 2012
eabl

An EABL bottling plant in Kenya. High demand for beer in the East African region is encouraging industry players to increase production capacity. Photo/FILE

Uganda and Tanzania are likely to receive more investment in coming years, as major players in the beer industry focus on the two countries, said to be among the fastest growing alcohol markets globally.

A survey by research analysts UBS says that, over the next four years, Uganda’s beer consumption by volume is expected to grow by a cumulative annual rate of 8.6 per cent, and that of Tanzania by 8.4 per cent.

The high demand for beer is encouraging industry players to increase production capacity. Early this year, SABMiller announced it would invest in a new $80 million brewery in Mbarara, Uganda, soon after it made a $29 million investment to expand capacity at the existing Jinja facility. The company also spent $25 million to improve its malting and effluent treatment plants.

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East African Breweries, too, has invested in its production plants in the past year. The company commissioned a new brewery in Moshi — bringing the total number of breweries in Tanzania to three — and doubled the capacity of its Ugandan subsidiary in Port Bell at an estimated cost of $19 million.

“We have also installed a mash filter in Uganda to increase capacity and efficiency there,” said Brenda Mbathi, EABL’s group corporate relations director.

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The company reports that net sales of beer in the region went up 21 per cent in the past financial year alone, with Uganda and Tanzania posting a much stronger growth in sales overall than Kenya — the Uganda market delivered a 38 per cent net sales growth, and Tanzania a whopping 76 per cent. Sales in Kenya went up by 16 per cent.

But risks remain, and the analysts are particularly concerned about currency weakness as a high proportion of raw materials are sourced in US dollars.

The increase in excise tax, announced in Tanzania’s last budget speech is also likely to negatively impact growth and cause brewers to slow down expansion plans.

Finance minister William Mgimwa, in his June 14 budget speech, announced a 25 per cent increase in excise duty on beer made from imported unmalted cereals, to Tsh525 ($33 cents) a litre.

“The effect of the tax increase will not come into play until the next financial year’s reporting. However, we shall continue to engage the authorities in ensuring a more level playing field in trade across the EAC bloc,” said Ms Mbathi.

A rise in a country’s GDP, coupled with high population growth, tends to lead to an increased demand for branded alcohol as consumers shift away from traditional brews, the report finds.

“Excluding South Africa, sub-Saharan average per capita consumption was 9.7 litres in 2011, offering strong growth potential as GDP per capita continues to grow,” the analysts say.

Uganda’s GDP per capita is expected to rise by an average 5.3 per cent over the next four years, with its population rising by 3.6 per cent — among the highest population growth rates in the world.

Tanzania’s GDP per capita is expected to rise by an average of 5.1 per cent, and its population to grow at 2 per cent up to 2016.
But a bottle of beer is still far out of the reach of an average citizen.

The report highlights that it takes about three hours of work to buy a 500ml bottle of beer in Africa, compared with a global average of just 20 minutes.

The US is the world’s most affordable market for beer consumers, where it takes just five minutes of work to afford half a litre of beer.

Companies are thus turning to more affordable grains such as locally produced sorghum and cassava, instead of imported malting barley, to bring down the cost of production.

In 2004, SABMiller introduced its first sorghum beer branded Eagle in Uganda, which now accounts for half of its 55 per cent market share.

According to EABL, local sourcing of raw materials has considerably reduced duty costs on imported raw material and related transport costs.

The use of local raw materials has also insulated brewers from exposure to currency fluctuations.

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