Continent offers expansion prospects despite slowdown

* Growth still set to outstrip other regions

* Brewers substitute local ingredients for imported barley

By Alistair Thomson and Joe Bavier

DAKAR/KINSHASA, April 17 (Reuters) – As the sun sets over the Congo River, drinkers trickle into Kinshasa’s “Staff Franc Congolais” bar, testament to the resilience of Africa’s thirst for beer even in difficult places and tough times.

“I get by. The Congolese drink every day. It’s a distraction — there’s no world crisis as far as beer is concerned,” says a co-owner, known as “Franc Congolais” after the local currency.

He adopted the nickname when rebels seized the vast country, formerly Zaire, in 1997 and changed its name back to the Democratic Republic of Congo.

Its many violent upheavals habitually involve looting, although residents say breweries are mostly left untouched.

“If I can sell 120 bottles at 200 francs ($0.25) profit each in a day, that’s enough for me,” Franc Congolais said.

Big brewers operating in Africa may be slower to dismiss the threat from the global economic crisis that has caused economic havoc in the Democratic Republic of Congo and elsewhere.

Some brewers report a slowdown in sales growth, but they say Africa nevertheless offers rich expansion prospects compared with elsewhere, and even reduced growth on the continent will outstrip that of other regions this year.

“For sure we’re seeing an impact, but still Africa is in growth, is providing more growth than many other parts of the world, and that’s the environment where we’re operating,” said Nick Blazquez, Diageo’s managing director for Africa.

The International Monetary Fund has cut its 2009 economic growth forecast for sub-Saharan Africa to 2.2 percent from 5.1 percent six months ago, although that is still well ahead of the 3-percent-plus contraction expected in advanced economies.

Lower commodity export revenues and a slowdown in remittance income from workers overseas are squeezing disposable incomes and currency fluctuations are hurting some breweries, which mostly rely heavily on imported materials.

East African Breweries, Kenya’s leading brewery which is majority-owned by Diageo, is cutting jobs after pre-tax profit growth slowed to 5 percent in the six months to Dec. 31 from 22 percent a year earlier, mainly as a result of high input costs.

HOLDING UP

With beer sales holding up better than in most regions, investments in new capacity in Africa, including those that have been on the cards for years, have taken on new importance.

“We are putting money into Africa based on the assumption there will be growth,” Mark Bowman, Africa managing director of the world’s number two brewer, SABMiller, told Reuters in Johannesburg.

The company is building four new plants in Africa, including Sudan’s sole industrial brewery, and increasing capacity at existing plants to cater for double-digit volume growth across its beer and associated soft drinks businesses.

Nile Breweries, SABMiller’s subsidiary in Uganda, will lose some of its export trade to the new brewery in southern Sudan, but is in the process of doubling its output over several years.

“We haven’t seen any slackening in demand for our local products,” Nile’s Managing Director Nick Jenkinson said in his office, away from the deafening racket of the brewery in Jinja, 80 km (50 miles) from Uganda’s capital, Kampala.

“The situation now is that we can’t supply all the demand in the market,” he said.

Competition for market share is intense. Dutch brewer Heineken and Diageo are building South Africa’s first major non-SABMiller brewery, hoping to boost market share for their high-end Amstel, Heineken and Guinness brands. SABMiller is cutting costs in its home market in preparation.

The global brewers are also in competition across a range of west and central African markets, sometimes in partnership with each other or with the French drinks group Castel, which has a large market share in much of francophone Africa.

Africa is credited with producing some of the earliest brewers in ancient times and Guinness was first shipped to Sierra Leone in the early 19th century. Yet the continent merits barely a footnote in most world beer guides.

Despite Africa’s importance to some brewers — SABMiller makes almost one-third of its profits there and the continent hosts four of the top 10 markets for Diageo’s flagship Guinness stout — per capita beer consumption of 9.5 litres a year is the lowest of any region except the mostly Muslim Middle East.

GROWTH POTENTIAL

In March, investment bank Renaissance Capital issued a “buy” recommendation on Diageo’s Guinness Nigeria subsidiary and Heineken’s Nigerian Breweries, noting the capacity for growth in Africa’s most populous country.

“Across the cycle, we see significant opportunities in the Nigerian beer market given relatively low beer per capita consumption of 9.3 litres vs the average of 56 litres across other emerging markets. This is why it is attractive to global brewers,” it said.

Higher consumption of nearer 60 litres per year in wealthier African countries such as South Africa and Gabon demonstrates the potential for growth as average incomes in Africa rise.

Brewers are also moving into the low-cost end of the market, hoping to pick up some of an informal alcohol market which SABMiller reckons could be worth $3 billion a year.

Innovations include substituting local barley, sorghum and cassava for imported barley to make European-style lager more cheaply, as well as more traditional cloudy brews to compete with local artisanal brews at 30 percent or more below the $1 average price of a lager, SABMiller said.

“Most poor Africans are drinking alcohol, but informally made … the potential for growth in Africa is greater than anywhere else in the world,” said Jenkinson, whose Jinja brewery produces a clear lager called Eagle, made with sorghum.

“In Africa, beer is a very price sensitive commodity.”

In Congo, Franc Congolais’s business partner Pepin Mambote ruefully agrees.

The collapse in prices for the country’s metals exports has driven down the value of the Congolese franc, forcing up the cost of beer made from imported ingredients and pushing more consumers towards artisanal drinks — and out of his bar.

“Before, people would throw punches just to have a seat. Now look — there is an empty chair over there. I’m telling you, times are tough,” he said.

“If you are a beer drinker, the beer isn’t expensive. It’s life that’s expensive.” (Additional reporting by Rebecca Harrison in Johannesburg, Jack Kimball in Jinja, Uganda; Editing by David Clarke and Andrew Dobbie)