(This story is from 2012/2013 and illustrates the, at times, predatory nature of industrial policy in Southern Africa)
It is with great sadness I found that Botswana has a structural
deficit in the trade of beer. Year in, year out Botswana imports much more beer than we export and the deficit
is growing exponentially. In fact in 2011, according to CSO statistics, we
imported Pula 124 million of beer up from a mere Pula 3.6 million in 2007.
Exports on the other hand were a mere Pula 30 million, up from Pula 0.5 million in 2007. Now the interesting
question is why on earth Botswana imports that much beer? Is it because the
local brewer Kalagadi Breweries Limited (KBL) which is a subsidiary of the
global giant SAB-Miller can’t keep up
with demand for its chief brand St
Louis. Hardly! The reason is because its only real competitor ie Heineken
Diageo which is in a strategic alliance with Namibian Breweries (NBL) has been making
serious inroads into the local market. If you listen to KBL the only reason has
been because of the way in which the alcohol levy was applied which gave the
biggest import- Windhoek of which many Batswana are very fond. The alcohol levy
used to be imposed on the import price of beer and on the retail price which
gave NBL a massive price advantage over KBL. The other alternative explanation
is that for years KBL has basically become a lazy monopoly in the market and
could get away with one local brand St Louis* and really had to do nothing else
until NBL and the alcohol levy shook the market.
To thinking beer drinker ( i.e those before the third glass) the
immediate response to this should be, who
on earth cares? Well it should matter but not to beer drinkers as long as we
are allowed to choose where our beer comes from. But the trade statistics hide
a genuinely fascinating story about business and government policy in SACU. The
brewery game is dominated by two players in Southern Africa – SAB-Miller and Heineken
Diageo which operates with NBL. Basically despite the variety of brands available on the SACU
market to suit everyone from your day laborer to the CEO there are really only
two commercial choices of breweries available and SAB-Miller remains by far the
biggest player in the SACU market.
But the really interesting beer story is not the Goliath of the
industry ie SAB Miller but the David ie Namibian Breweries Limited (NBL). Unlike KBL,
NBL is a local Namibian owned company which over many years has had considerable
assistance from the Namibian government and has done what almost no other brewery in Africa has
managed to do, which is to create a
recognizable African brand across three continents. It now exports to over 20
countries. The Namibian government helped first by keeping SAB Miller from
either buying NBL or establishing a brewery in Namibia in the mid-1990’s. The Namibian
government then helped with a range of export promotion activities knowing full
well the benefits to the country as a whole of having a globally recognized
brand. But most breweries hate exports- they normally considered these junk volume
sales because the profit margins are usually low due to the transport costs of such a low value to
weight items. This eats into the slim margins available in an industry that is so
heavily taxed by government. But the real difference between KBL and NBL was that the Namibian brewer had a tiny market
of 2 million people in Namibia and it was either grow by export or die.
In Botswana KBL was never under such commercial pressure. NBL, according to the company’s mangers
derives some 60% of sales from exports
and its two biggest export markets are South Africa and Botswana. In
2010 Namibia exported Rand 1.3 billion in beer and it is one of the most
important examples of the country's export diversification.
Why has NBL’s Windhoek brand been so successful? In part it has been
what the beer marketing people call ‘premiumisation’. NBL took the German
colonial origins of Namibia and turned it onto an advantage. The Rheinheitsgebot which
is the 16th century German beer making standard is used for making
Windhoek which assures that only water, hops and barley are used which assures purity. This has been a major selling point for Windhoek
at the premium end of the market. In Botswana, KBL has, twenty years too late,
discovered that it might be losing the
market not just because of price and taxes and has recently introduced a new
premium St Louis Export which has started winning awards.
The economics of trucking huge volumes of beer across the Namib and
the Kalahari from Windhoek to Gauteng and Gaborone is really poor. Because beer
is a low value to weight item you simply destroy your profit margins. It is one
of the reasons that SAB Miller’s business model in Southern Africa is based
on breweries in each of the countries in
which it operates and then those breweries will produce not only the local brand
but also the whole stable of SAB Miller products. This model is not unique to
SAB Miller and almost all breweries look for local firms to produce their
products under license. Guinness, the world famous Irish black beer is produced
under license in a score of countries with no access to Liffy water as the
basic ingredient for all Guinness purists.
In 2008 NBL saw the enormous advantage of trying to produce its
products in South Africa rather than reducing its margins and shipping beer to
Gauteng. So when its partners Heineken Diageo decided to establish a Rand 7.7
billion brewery in Sedibeng in Gauteng in the run up to the World Cup, NBL
decided to shift a part of its production to Gauteng. The decision over where
to establish the brewery was not purely a commercial one. The government of South
Africa, according to NBL as well as DTI reports, provided considerable tax
concessions to set up in such a high unemployment area. Since 2008, if the
Namibian trade statistics are to be believed, both the value and volume of beer
exports from Namibia have been flat. NBL says the figures are inaccurate but
refused to provide its own. The bigger bottles are now being produced in
Sedibeng and for the moment the smaller bottles are still coming across the Kalahari. But eventually the
transport economics dictates that exports from Namibia should diminish greatly.
Since the move to Sedibeng in 2008 there has been a perceptible
shift in policy towards competition to NBL in Namibia. In 2010 the government of
Namibia authorized the building of a brewery in the country by SAB Miller which
it had previously blocked in the 1990’s. The SAB Miller brewery has not yet
started construction.
There are at least two lessons from the SACU beer saga. The first is
that South African tax concessions only strengthen the natural commercial
forces that drive business to areas of high economic density like Gauteng. The
government of South Africa might wish to stop aiding the loss of
diversification from one of its neighbors. For all the smaller SACU partners all
this is part of century long process of Pretoria behaving in a commercially
predatory manner and is nothing new. It should also be an object lesson to
those in Gaborone designing the current Economic Diversification Drive that
foresees the establishment of local firms first that produce for the local
market and then is a second and later stage move into exports. The experience of
KBL and the whole SABmiller business model simply means that this will never
happen because more exports mean less profits for the group as a whole. There
is no avoiding the lesson of Namibia that a lean and hungry business helped by government
to export can do much better in terms of export diversification than any inward
looking approach to diversification. NBL exports ZAR 1.3 billion from Namibia and
KBL exports P 30 million from Botswana –
the numbers speak volumes.
[*According to senior officials from KBL the local Botswana bee,r St Louis is named after city in the USA, not the French patron saint. Why one asks, would anyone in Botswana name the national beer after a big but relatively uninteresting American city? The response given to me by those officials was that this was done because Batswana like big American cities. This seems curious and if anyone has a better and more credible explanation it would be appreciated]
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