Inside the Shs 235billion beer plant.
Optimistic outlook as Nile Breweries Ltd invests $200m in two breweries in four years
That a company of SABMiller’s reputation and with operations in 31 countries in Africa can invest $90 million to put up a new plant in Uganda speaks volumes about the country’s economic prospects and its market.
On Aug.22, Nile Breweries Ltd, a subsidiary of the brewing giant, launched the new brewery in Mbarara in the western region, which potentially doubles the company’s brewing capacity in the country to 3.6 million hectolitres a year.
The new plant supplements on the Jinja brewery, which also underwent a $29m expansion in 2009 to double its brewing capacity to 1.8 million hectolitres. That brewery is already near to operating at full capacity, according to officials, but the new brewery in Mbarara is intended to ensure an uninterrupted supply of beer to the market, which is currently ranked as one of the biggest and fastest-growing on the continent.
Two years ago, the company invested $25.6 million in malting and effluent treatment projects, bringing the company’s total investments in Uganda towards the $200 million mark over the last four years.
Already, farmers in the region are excited, as was President Yoweri Museveni who officiated at the launch of the factory. They had a reason to be excited. Apart from the 180 direct and over 30,000 indirect new jobs that are being created, the plant will use sorghum, maize and barley – largely grown by farmers in the region – which will definitely be a welcome boost in household incomes in the western part of the country.
Indeed, western Uganda is already a stronghold for the company’s rapidly growing sorghum-based Eagle beer brands. Therefore, supplying raw materials to the brewery in their own backyard represents a tremendous opportunity for the farmers in Ankole and Kigezi regions, to join the ranks of the over 20, 000 contracted farmers who are already growing crops for the company at very competitive market prices.
Company data shows that currently, Nile Breweries buys about 20, 000 tonnes of raw materials (60% of its brewing requirements) locally, and plans to increase this to 40, 000 tonnes (90%) by 2017.
Nick Jenkinson, the Nile Breweries Ltd managing director, said the new plant ideally meant that there is a growing market for beer in Uganda and the region, and hence the need to increase production levels to meet it.
According to a recent World Health Organisation report, Ugandans rank amongst the highest consumers of alcohol in Africa, but with 94% of the alcohol consumed being informal (unprocessed) in nature and only 4% as formal – which companies like Nile Breweries see as a big business opportunity.
Jenkinson said the growth of beer consumption in the country is boosted by several factors including the positive GDP growth – thus a growing middle class – and the rapidly growing population.
Speaking at the function, President Museveni suggested that while alcohol consumption was negative activity he doesn’t engage in, the business opportunity it presents is good for the country. “I do not drink beer but I am here to promote it for my drunkards,” Museveni said amidst laughter.
From revenue and employment point of view, Museveni had a point. For example, annual taxes paid to URA by Nile Breweries Ltd have quadrupled to over Shs 185 billion in 2013 from just Shs 40 billion in 2004.
Museveni added that the government has done its part of ensuring a good macroeconomic framework and stability, which has boosted the investment climate in the country. It is now up to Ugandans to tap into it, he added.
Jenkinson said originally, the idea was to expand on the Jinja factory but a study conducted in 2011 recommended that a new plant should be built in western Uganda – President Museveni’s home area.
“With Western Uganda constituting our biggest and fastest growing beer market, Mbarara was identified as the ideal location for a new brewery,” said Jenkinson, adding that based on its status as the major transport hub for the region and its superior infrastructure, it was an ideal destination for this investment.
The other major factor was Mbarara’s proximity to important emerging markets in Eastern DR Congo, Rwanda and Burundi and the presence of River Rwizi, which is a reliable source of water for the factory. With the commissioning of the Mbarara plant, the company’s rivals particularly Uganda Breweries Ltd will have something to ponder upon.
Indeed, the recent emergence of huge billboards advertising Uganda Breweries Ltd brands in Mbarara town may appear to be an immediate response to counter NBL’s multi-million dollar moves in the market, but it also points to the likelihood of an escalation of the historical war between the two beer giants. How the UBL responds in terms of investment is what remains to be seen.
However, soft drinks manufacturers should not rest on their laurels because according to Jenknison, the scope of the new brewery includes bottled water – a product that has also seen multi-million dollar investments by more than three dozen investors in recent years.
For NBL, the Mbarara investment is part of SABMiller’s plan announced in 2011 of rolling out $120 million investments in its Tanzania and Uganda subsidiaries, which the company hopes will give it an edge over its rivals in the entire region.
Going forward, Jenkinson said the company would continue to invest in Uganda country as it remains “one of the most profitable beer markets in Africa.” But even generally, Africa has become a stronghold for SABMiller.
In the quarter to June, volumes soared by 8% and revenue went up by 10% in Africa. Comparatively, volumes went down 1% for the whole Group. The Group, founded in 1896, has operations in 75 countries (31 in Africa), Asia, Australasia, Europe, North America and South America.
The company’s total global revenue grossed at $21.76 billion and it earned net income of about $4.5 billion in 2012, which makes an investment of $90m in Uganda pale in significance.