Ethiopia is the second most populated country in Africa (after Nigeria), and the 15th most populated in the world. The country holds good investment potential because of its agro-friendly climate and soils – contrary to the common view drought is region specific; substantial growth in services mainly in the retail trade, hotels, transportation, financial services and real estate sectors over the past decade; relative political and social stability; abundant labour force; strategic location; zero tolerance for corruption; and one of the lowest crime rates in Africa.
Ethiopia has also moved to encourage FDI by offering incentives to foreign investors such as tax breaks and so forth, but unfortunately many sectors remain closed to non-Ethiopians. These sectors include retail trade and brokerage; wholesale trade; import trade; export of raw coffee, oil, seeds, pulses, hides and skins; hotels other than those star-designated; and crucially, financial services and telecoms.
The beverage business has, however, been opened to investors, prospects of which it has been reported by Bloomberg are proving exciting to SABMiller.
The world’s second largest brewer by volume is using its success with Ethiopian “holy water” to encourage the country’s government to sell its state-owned breweries. SABMiller has invested US$20 million since last year buying Ambo, which bottles a strong-tasting, naturally sparkling water from a valley of the same name about 130km west of the capital, Addis Ababa. The water is sold locally as Ambo Tabel, which means holy water in Amharic, and is touted as a historical cure for ailments from diabetes to obesity.
“We thought it would be a great business and great opportunity to enter Ethiopia,” Mark Bowman, the MD of SABMiller’s African operations was quoted saying.
Ethiopia’s Meta Abo, Bedele and Harar breweries, which the government announced on 8 October, are up for sale, hold a combined 37% market share, according to London-based Plato Logic, which estimates that Ethiopians drink about 3.8 litres of beer on average each year compared with 10 litres in the rest of the continent.
The government is offering auction documents for a joint-venture partner to run Meta Abo while the sale of Harar and Bedele will take place before the fiscal year ends in July. Habesha Breweries Share Co., a newly formed company, plans to bid for Meta Abo, Eskinder Desta, a spokesman for Habesha, said. Meta Abo may fetch as much as $55 million. Harar may be worth up to $30 million and Bedele around $20 million, he said.
SABMiller has improved technology and marketing and cut workers to 300 from 700 since buying what was a “defunct” business, according to Bowman. This may improve the company’s chances in bidding for state-brewing assets in a country that posted economic growth last year of 8.7%. “You can’t ignore 80 million people,” Bowman said.
Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.