Botswana has a structural deficit in the beer trade. It imports much more beer than it exports and the deficit is growing exponentially. According to the central statistics office, in 2011 Botswana imported 124-million pula (R136-million) of beer, up from P3.6-million in 2007. Exports were P30-million, up from P500 000 in 2007.
The question is why Botswana imports that much beer. Is it because local brewer Kgalagadi Breweries Limited, a subsidiary of the global giant SABMiller, can't keep up with demand for its chief brand, St Louis? Hardly. The reason is because its only real competitor, a joint venture between Heineken, Diageo and Namibian Breweries Limited (NBL), has been making serious inroads into the local market.
If you listen to Kgalagadi, the only reason is the way in which the Botswana alcohol levy has been applied. Until recently, Windhoek, which many Batswana like, was taxed on the import price whereas St Louis was taxed further down the value chain, which gave NBL a massive price advantage over Kgalagadi.
The other explanation is that Kgalagadi became a lazy monopoly 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 the thinking beer drinker (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 fascinating story about business and government policy in the Southern African Customs Union. The brewery game is dominated by two players in Southern Africa – SABMiller, and Heineken and Diageo with NBL. Despite the large variety of brands available in the customs union to suit everyone from the day labourer to the chief executive, there are really only two commercial choices of breweries and SABMiller remains by far the biggest player.
Recognisable African brand
But the really interesting beer story is not the Goliath of the industry, SABMiller, but the David, NBL. Unlike Kgalagadi, NBL is a local Namibian-owned company that for many years has had considerable assistance from the Namibian government and has done what almost no other brewery in Africa has managed to do – create a recognisable African brand on three continents. It now exports to more than 20 countries.
In the mid-1990s, the Namibian government helped, first, by keeping SABMiller from either buying NBL or establishing a brewery in Namibia. It then helped with a range of export promotions, knowing the benefits to the country of having a globally recognised brand. But most breweries hate exports – they are normally considered junk volume sales because the profit margins are usually low owing to the transport costs of such a low value-to-weight item. This eats into the slim margins of an industry that is heavily taxed by the government.
But the real difference between Kgalagadi and NBL was that the Namibian brewer had a tiny market of two million people in Namibia and it had to grow by exporting, or die.
In Botswana, Kgalagadi was never under such commercial pressure. NBL, according to the company's managers, derives 60% of its sales from exports and its two biggest export markets are South Africa and Botswana. In 2010, Namibia exported R1.3-billion in beer and it is one of the most important examples of 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 into an advantage. The Reinheitsgebot, the 16th-century German beermaking standard, is used for making Windhoek, which assures that only water, hops and barley are used, guaranteeing purity. This has been a major selling point for Windhoek at the premium end of the market. In Botswana, Kgalagadi has, 20 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 beer, St Louis Export, that 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. It is one of the reasons that SABMiller's business model in Southern Africa is based on breweries in each of the countries in which it operates and then those breweries produce not only the local brand, but also the whole stable of SABMiller products.
This model is not unique to SABMiller and almost all breweries look for local firms to produce their products under licence. Guinness, the world-famous Irish black beer, is produced under licence in a score of countries that have no access to Liffy water, which is the basic ingredient for all Guinness purists.
In 2008, NBL saw the enormous advantage of trying to make its products in South Africa rather than reducing its margins and shipping beer to Gauteng. So when its partners, Heineken and Diageo, decided to establish a R7.7-billion brewery in Sedibeng in Gauteng in the run-up to the 2010 Fifa World Cup, NBL decided to shift a part of its production to Gauteng. The decision of where to establish the brewery was not purely a commercial one. The South African government, according to NBL and department of trade and industry reports, provided considerable tax concessions to set up a brewery 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 said the figures were 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 will 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 Namibian government authorised the building of a brewery in the country by SABMiller, although it has not yet started construction.
There are at least two lessons from the customs union 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 such as Gauteng – although the South African government might wish to stop aiding the loss of diversification from one of its neighbours. But, for all the smaller customs union partners, this is part of a century-long process of Pretoria behaving in a commercially predatory manner.
It should also be an object lesson to those in Gaborone designing the economic diversification drive that foresees the establishment of local firms to produce for the local market and then at a later stage move into exports. The experience of the Kgalagadi and the SABMiller business models simply means that this will never happen, because more exports mean less profit for the group as a whole.
There is no avoiding the lesson of Namibia that a lean and hungry business helped by the government to export can do much better in terms of export diversification than any inward-looking approach to diversification. NBL exports R1.3-billion worth from Namibia and Kgalagadi exports P30-million from Botswana – the numbers speak volumes.
These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed