SABMiller Taps Ethiopia’s ‘Holy Water’
Resource-rich Africa long has been a battlefield for foreign companies vying to extract and export. Now, there’s a scramble to sell in Africa itself, a billion-person marketplace with a growing middle class that is stepping into the global economy.
But while poverty rates have fallen in the past decade, half the population still lives on only $1.25 a day, according to the World Bank, which considers Africa the world’s hardest region to conduct business.
“You’ve got to separate the working environment from the opportunity, and don’t let one scare you from the other,” says Johann Krige, managing director of Ambo Mineral Water. “We feel we can see a way through the minefield.”
The opportunity comes from a continent where gross domestic product rose an average of 4.9% a year from 2000 through 2008, more than twice the pace of the previous two decades, according to consulting firm McKinsey & Co.
In Ethiopia, stutter steps into the global economy have spurred change.
From 2003 through 2008, the country’s economy grew at an average annual rate of 11.2%, twice the clip for the continent as a whole, according to the Africa Development Bank. Per capita annual income is $330—low compared with other developing countries, but more than double what it was in 2000, the World Bank says.
“The commanding heights of the economy will be owned by the government,” Hailemariam Desalegn, Ethiopia’s deputy prime minister and minister of foreign affairs said recently at a conference of young African leaders. “This is our way of thinking. Whether it’s correct or not, we’ll see.”
Ethiopia has relaxed its grip on agriculture and a few other sectors, and foreign investment has trickled in.
The streets of the capital Addis Ababa offer vivid signs of the transition. Donkey carts trundle by shops selling Dell computers and Sharp microwave ovens, a girl yanks a goat by one of its hind legs past a Pepsi sign, a man balances cabbages on his head as he passes the country’s presidential palace, where South African wine is served to state guests.
In this environment, SABMiller has eased into Ethiopia.
Several generations ago, farmers found lost cows slurping water from natural springs in the rocky hills outside Ambo. Locals said the water cured stomach ailments, alleviated rheumatism and improved digestion. Ethiopia’s Orthodox Christians believed it cleansed the spirit. Legend has it that Haile Selassie, known as the “Lord of Lords,” was driven here in a maroon Rolls Royce to bathe in the hot springs.
After the government resisted SABMiller’s efforts to buy a brewery, a consortium led by the company acquired a 67% stake in the Ambo mineral-water factory, with the government holding the balance.
SABMiller has invested about $20 million in the Ambo plant, which, pushing four decades at its current site, had become an industrial relic. When SABMiller arrived two years ago, assembly lines were jury-rigged, stock was kept in cages to prevent theft and half-century-old records were stacked in outhouses.
The company refurbished old assembly lines and installed a new one. Now the factory spits out 40,000 glass bottles an hour, up from about 12,000 when the plant was state-owned, says Philip Gane, the plant’s technical director. He says SABMiller spent about $130,000 on equipment that uses cameras to line up labels on bottles.
Ambo water is sold in Ethiopian shops for about 30 cents a bottle but for much more in upscale hotels and restaurants. And SABMiller exports it to the Mideast, Europe and North America. Ambo sells for about $6 a bottle in New York restaurants. SABMiller has expanded the line with a less-carbonated, fruit-flavored version to compete with soft drinks like Coke and Pepsi.
Ambo water is part of a SABMiller portfolio that includes 45 African beers catering to a variety of tastes and represents a little less than half the company’s volume for the continent. Nile Gold is a premium beer in Uganda.
But Chibuku, a traditional sorghum beer popular with price-sensitive consumers on the continent, is known by some middle-class Zimbabweans as “the dog won’t touch it.”
“Local brands done well are our backbone,” Mr. Krige, the Ambo plant’s managing director, says over a glass of his chilled sparkling water.
In 2009, SABMiller began brewing beer in southern Sudan. In keeping with southern Sudanese ritual, a white bull was slaughtered to bless the brewery’s opening.
In the fiscal half through September, SABMiller’s sales in Africa rose 19% from a year earlier to $1.51 billion, outpacing growth in Latin America and Asia. European sales fell 5%.
But the challenges are many. Blackouts affect production and restrictive currency laws are a hurdle to importing factory equipment. Ambo residents grumble about layoffs since SABMiller took over.
“After SABMiller has come, the people haven’t benefited,” says Alemayehu Bayisa, the 41-year old caretaker of the Ambo hot springs. “I understand they want to modernize and use new machines, but that has meant layoffs at the factory.”
The company says it offered early retirement for workers over 55 years old, resulting in about 95 early retirees, but said much of the original work force remains.
There are signs that Ethiopia’s privatization experiment is set to spread. The government in November offered the opportunity to invest in a joint venture with a state-owned brewery. SABMiller is one of five international bidders.
“The bar of entry is getting lower,” Mr. Krige says brightly. But he strikes a note of caution: “That means our competitors also will be coming.”