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    Sector ReportBeer

    SECTOR REPORTBEER

    Trends in beer consumption in developing countries are often taken as one revealing proxy for economicactivity. Economic growth, rising incomes, and a growing share of disposable to total income all tend to drive

    the consumption of beer in developing countries. As statistics for beer production are easily measurable and tendto be well documented by the industry, trends in this area can potentially provide one indicative measure of trendsin incomes and economic activity.

    Cross-country data do indeed corroborate the broad relationship between economic activity and beer

    consumption: in recent years, for example, growth in beer consumption has been a modest 2 percent per

    annum in most developed markets but several times that rate in fast-growing developing countries.1 Beer

    demand is on the rise particularly in Asia (especially China), Eastern Europe, and rapidly growing Africaneconomies. This is propelled by economic recovery, expanding population, rising disposable income,improvement in beer quality, and improving distribution systems. Within Africa, according to Business MonitorInternationalsBeer in Africa Report2008,beer consumption has been experiencing impressive growth on theback of foreign investments in new production, rising disposable incomes, and changing consumption patterns.

    For example, a gradual shift is taking place away from home-brewed beer or other traditional drinks towardscommercially produced brews, reflecting aggressive advertising campaigns by major brewers, rising urbanization,and the growing prevalence of drinking as a social activity. Owing to the above factors, many of the worldsmajor brewers have been increasing their operational activities in the region, attracted to its vast long-termpotential. In this regard, ambitious expansion plans are being seen by some of the dominant regional brewers suchas SAB Miller, Heineken, BGI (Castel Group) and East African Breweries.

    In line with regional trends, Ethiopias beer industry has seen much activity in recent years including a

    surge in demand associated with increased urbanization, population growth, and rising incomes. From alevel of just 1.0 million hectoliters in 2003/04, beer production has risen to nearly 3.1 million hectoliters by

    2008/09, giving an estimated average growth of around 24 percent per year.2 The industry at present includes five

    major breweries, namelyMeta Abo,Harar, Bedele, DashenandBGI Ethiopia(Castel Group Holdings). The firstthree are state owned, while the other two are owned by private investors. Their production capacityas opposedto actual productionis close to 3.6 million hectoliters per annum after incorporating the near-term expansionactivities of Dashen, Meta and Harar breweries.

    By far the largest supplier of beer in the market is BGI Ethiopia/Castel Group, a company owned by

    French investors. Its current production level is around 1.5 million hectoliters, reflecting two large plants inAddis Ababa and Kombolcha with capacity of 1.0 and 0.5 million hectoliters respectively. Dashen Brewerycomes in second with current production capacity of 0.75 million hectoliters per annum, followed by Meta and

    Harar Brewery with annual capacity of 0.6 and 0.45 million hectoliters respectively. Bedele Brewery is thesmallest of all the beer producers reflecting in part a location that is much further away from the major market

    centers of the northern, central, and southern Ethiopia.

    1Global Beer Industry Guide (2009).

    2A hectoliter is the unit of measure used in the beer industry. One hectoliter equals 100 liters.

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    Table 1: Capacity and Supply of Major Ethiopian Breweries

    No. Factory

    Capacity & Sales (HL)

    Sales (2008-2009) Current

    Capacity

    (2009-2010)

    Total Capacity

    Share

    1 Bedele Brewery 300,000 300,000 8%

    2 Harar Brewery* 350,000 450,000 13%

    3 Meta Brewery* 500,000 600,000 17%

    4 Dashen Brewery* 400,000 750,000 21%

    5 BGI Ethiopia 1,500,000 1,500,000 42%

    Total 3,050,000 3,600,000 100%

    Source: Data f rom I ndustry Producers and Experts. * Breweries with expansion activi ties

    Despite a sharp increase in recent years, per capita beer consumption in Ethiopia is still only a fraction of

    the level seen in neighboring African countries. With estimated consumption of 3.1 million hectoliters and apopulation of near 80 million, annual beer consumption per head is only around 4 liters in Ethiopia. This figure isabout a third of that in neighboring countries and roughly one twentieth of the consumption levels seen in SouthAfrica.

    Table 2: Per Capita Beer Consumption in Africa

    COUNTRY BEER CONSUMPTION PER HEAD

    Ethiopia 4 Liters

    Kenya 12 Liters

    Swaziland 19 Liters

    Cameroon 25 Liters

    Angola 37 Liters

    Botswana 40 Liters

    Nigeria 53 Liters

    South Africa 59 Liters

    Source: Var ious in ternational publications and press reports

    Besides domestic production, Ethiopias beer demand is met partly by imports from almost 20 different

    countries. Roughly 30 different brands of beer are imported into the country according to trade statistics, and thetrends in recent years show a sharp increase every single year (Figure 1). At the same time, the volume of

    imported beer still accounts for only an insignificant share (less than 1 percent) of domestic beer consumptiongiven the dominant preference (in part due to price levels) for local beers.

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    Source: Ethi opian Revenue & Customs Authori ty

    The market share of the major breweries has shown significant shifts over the years reflecting promotional

    activities, production innovations, and consumer preferences. Until 2004/2005, Meta was the leading breweryhaving the lions share of the market, followed by Dashen and BGI Ethiopia respectively. However, due to theaforementioned factors, market shares have shifted markedly in recent years. Access Capitalsestimate of currentmarket shares, based on discussions with leading industry experts and data from selected breweries, is presentedbelow. As can be observed, BGI claims almost half of the countrys market share andhas a particularly dominantshare (of nearly two-thirds) in Addis Ababa.

    Table 3: Current Market Share of Ethiopian Breweries

    Brewery Addis Ababa National

    BGI Ethiopia 64% 48%

    Meta 12% 16%

    Dashen 11% 13%

    Harar 5% 11%

    Bedele 7% 10%

    Total 100% 100%Source: Access Capital Estimates based on I ndustry Experts

    With respect to pricing, we find only limited price-based competition among producers. Table 4belowlists

    the prices of beer and draught that each brewery presently charges its agents and their respective retail prices inAddis Ababa. Outside Addis Ababa, price differences generally reflect distribution and transportation margins.In both Addis Ababa and outside, the limited price-competition that is observed is largely linked to periodicpromotional and incentive schemes breweries offer to distributors and agents.

    Figure 1 : Volume of Imported Beer (2005/06-2008/09)

    0

    100

    200

    300

    400

    500

    600

    2005/06 2006/07 2007/08 2008/09

    Quantity of

    Imported Beer (HL)Beer Import Quantity

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    Table 4: Agents and Retail Price by Beer Brand (in Birr)

    Brand

    Bottled Beer per Crate Draught Beer

    Retails Price

    (A.A)

    Agents

    Price

    (A.A)

    Retails Price

    (A.A)

    Agents

    Price

    (A.A)

    BGI Ethiopia

    -St. George 109.00 102.00 285.00 270.00

    -Bati 109.00 102.00

    -Castel 130.00 122.00

    Meta

    -Meta 110.75 110.75 285.00

    Bedelle

    -Choice 135.00

    -Special 119.40

    -Normal 110.00 200.00/Jimma

    Harar

    - Harar 109.00 103.00 270.00/DireDawa

    - Hakim Stout 109.00 103.00

    - Harar Sofi 109.00

    Dashen

    - Dashen 109.35 103.00

    - Draught(30lt) 560.00

    - Draught(50lt)

    Source: I ndustry ExpertsOutlook

    While Ethiopiasper capita beer consumption is presently very low by international standards, it should

    rise over time on account of rising incomes, increased urbanization, and still-rapid population growth. Recalling the earlier statistic of only 4 liters of beer per person as compared, for instance, to roughly 12 liters per

    person in Kenya reveals that there is considerable potential for growth simply by catching up with theconsumption patterns of neighboring countries.

    Differing approaches for estimating beer demand in Ethiopia all suggest that double-digit growth is very

    likely to be seen in the years ahead:

    Convergence of beer consumption towards at least half of neighboring country levels: With steadyeconomic growth and continued urbanization, it is quite reasonable to expect that Ethiopias per capitabeer consumption will in a decades time reach at least what is currently the norm in neighboring Kenya.This implies that per capita consumption would be near 12 liters per head by 2020, a relatively modesttarget that we think amounts to a conservative projection. Given population growth of around 2.3 percentper annum and assuming a steady move towards consumption of 12 liters per head by 2020 implies anaverage annual growth of around 12 percent over the next five years.

    Extrapolation from recent growth rates: With beer production amounting to approximately 1,000,000HL in 2003/04 as compared to 3,050,000 HL at present, we estimate that average growth rates in

    consumption for the past five years were around 24 percent per annum. We think that the main drivers ofbeer demandgrowing population, urbanization, and rising nominal incomeswill not changefundamentally in the years ahead, even though part of the recent growth is likely to have reflected pent-up

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    demand following years of very limited capacity expansion. Accounting for the latter effect, anextrapolation from recent growth rates would suggest demand growth of around 20 percent per annum inthe coming few years.

    Projections based on GDP growth: Recent growth rates for beer have amounted to around 0.8 timesnominal GDP growth and 1.8 times real GDP growth over the past five years. Looking ahead, real GDPgrowth is expected to average 6-8 percent according to Access Capitalsprojections (and those of otherinstitutions such as the IMF). Using historical relationships between beer consumption and real GDPgrowth, this would suggest that beer consumption will be near 11-14 percent in the coming years.

    Given the above considerations, we are fairly confident that beer demand will show double-growth ratesfor at least the next five years, with a range that could lie from 11 to near 20 percent per year, based on the

    differing extrapolating methods noted above. Our central scenario, based on an average of the three alternativeapproaches, would be for growth in the range of 15 percent per year. This projected growth rate implies new beerproduction of around 400,000 hectoliters per year, a volume increase that could support several new large-scalebeer operations even afteraccounting for some of the on-going expansions in existing plants.