In a recent report by Reuters, Heineken NV, the world’s third-largest brewer is reported to have submitted the highest offer for an Ethiopian brewery being sold by government. The report reveals that Heineken offered US$85.2 million for Bedele Brewery SC.

In addition, the Amsterdam-based company is also prepared to pay $78.2 million for Harar Brewery SC. Bedele, situated in western Ethiopia, has the capacity to produce 300,000 bottles of 330ml beer per day and Harar Brewery can produce 200,000 hectolitres (hl) of the beverage annually.

Among other bidders for Bedele were SouthWest Development Plc of Ethiopia, Carlsberg A/S and BGI Ethiopia.

Ethiopia is selling state-owned companies to private investors as it seeks to diversify its economy. The country is a promising, long-term growth market for Heineken in Africa given the large population, political stability, improving economy and rapidly growing beer market.

Africa in general has proved to be the next growth area for world brewers. Africa’s biggest brewer, SAB Miller Plc, recently raised its revenue and margin targets after investing in nations like Angola, Tanzania and Mozambique. SABMiller has spent about $1.5 billion over the last three to four years and is eyeing growth in new markets such as Nigeria, southern Sudan, Ethiopia, Uganda, Zambia and Mozambique.

The group recently commissioned breweries in Angola, Mozambique and Tanzania. It is also planning an investment in Nigeria. A partnership with the Ethiopian Government to manufacture Ambo Tabel naturally sparkling water is also a clear indication of the company’s bullish expectations on Africa.

Within the African context, Nigeria continues to be an interesting market as it has become the proverbial “800-pound gorilla in the room”, given the population size of 158 million. The country is an 18 million hl beer market, which is the second largest market in Africa (after South Africa) and has been growing at an annual rate of 9% in the 10 years to 2009.

Heineken dominates the Nigerian market with around 70% market share and Diageo’s Guinness business with around 20%, while SABMiller has less than 5% market share. There has been significant investment in the market by major players over the past months, with Heineken NV acquiring controlling interests in five breweries in Nigeria through the purchase of two holding companies from Sona Group Nigeria. Diageo’s Guinness Nigeria Plc, is also planning to spend N52 billion ($335.8 million) on expanding brewing capacity at its two existing plants.

Interestingly, Nigeria’s President Goodluck Jonathan has signed the new minimum wage bill (140% wage increase) into law ahead of general elections due to commence this weekend. We expect the wage increases and the electioneering environment to drive demand levels in Nigeria.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.