Beer-brewing giants SABMiller and the Castel Group are riding roughshod over African markets, dividing territories between them, because there is no pan-African competition law.
This is the opinion of Professor Frédéric Jenny of the Essec International Business School, who made the claim during a presentation at the South African Competition Authorities’ third annual conference last week.
Jenny, who sits on the board of the Office of Fair Trading in the United Kingdom, argues that in most domestic beer markets in Africa there are tight oligopoly or monopoly structures. “In the African beer sector Castel is the most likely competition to SAB and vice versa.”
He said competitors were reluctant to take each other on in some markets because of the threat of attacks in other markets in which they operated.
“In developing their multinational strategies, the regional oligopolists are aware of the fact that there is no transnational competition law and that they can allocate national markets among them.”
Jenny referenced SABMiller’s communication’s director Nigel Fairbass, quoted in the French-language magazine Jeune Afrique, as saying: “There may be anti-trust laws at the national level, but none covering the continent. I don’t see what the problem is.”
Fairbass denies the quote attributed to him by Jeune Afrique. “We have been in touch with the publication to remove it from their website story,” he said.
Jenny highlighted a number of problematic deals that have had anti-competitive consequences for various African beer markets in the past 10 years.
One of these was the market-sharing agreement signed by SAB International (SABI) and East Africa Breweries in 2002, in which they agreed not to compete in the Tanzanian and Kenyan beer markets.
Another agreement on which Jenny focused was the strategic alliance signed by SAB and French brewing giant, the Castel Group, in 2001, whereby SAB acquired a 20% stake in the Castel Group’s beer division and Castel acquired a 38% stake in SAB’s African operations.
“Competition policy and trade policy must be better coordinated,” said Jenny. “The market sharing between SABI and KBL [Kenyan Breweries Limited] in East Africa or between SABI and Castel in West Africa deprives African countries of the benefits of trade.
“Only cooperation between national competition authorities and/or the development of regional approaches to competition law enforcement could alleviate the situation,” he said.
“How many of the transactions or agreements reviewed would have been tolerated if European competition law applied to the African continent?” Jenny asked at the conference.
Attempts to get comment from the Castel Group were unsuccessful.
SABMiller responds
SABMiller’s communications director, Nigel Fairbrass, says Professor Frédéric Jenny’s presentation clearly raised some important issues, but in relying almost exclusively on press articles he says it does demonstrate a disappointing lack of evidence-based insight.
Fairbrass went on to say: “A more thorough examination of beverage competition in Africa would reveal that the market for alcoholic drinks is much wider than just beer. The beer business is also capital-intensive, with a high level of fixed costs associated with production and distribution.
“As a consequence, brewers in small markets may require a significant market share simply to attain a break-even level of sales.
“There is an implicit assumption in the presentation that high market shares lead inexorably to higher prices. This is flawed, as can be demonstrated in South Africa, where SABMiller has raised prices at below the level of inflation for years, thereby reducing the real price of beer to the consumer.
“Despite Jenny’s adherence to European competition regulation, it’s worth noting that the United Kingdom has a consolidated brewing industry, which remains intensely competitive, yet consumers pay some of the highest prices for beer in the world because excise tax rates have a far greater impact on consumer pricing than competition among producers.
“In essence, SABMiller whole-heartedly supports free-market competition wherever we operate, but the economics of competition in the brewing industry are more complex than Jenny would have us believe.”