Tanzania announces new brewery amid growing regional consumption

Beer production is set to expand in Tanzania, with Belgian-Brazilian brewing and beverage giant Anheuser-Busch InBev (AB InBev) set to construct its fifth factory in the country.

In late March the Tanzanian President’s Office announced that AB InBev, the main shareholder of Tanzania Breweries (TBL), would start work on the $100m brewery next year. Production is expected to begin in 2020 at the site, which will have the capacity to generate 1m hectolitres of beer per year.

An agreement on the terms of construction was reached during the 11th Tanzania National Business Council – a forum for dialogue between the public and private sectors in Tanzania.

AB InBev already operates breweries in Mbeya, Dar Es Salaam, Mwanza and Arusha, with these expected to reach maximum capacity by 2020, according to a statement made to press in March by Roberto Jarrin, president of AB InBev, East Africa.

African beer market offers growth potential

AB InBev’s new facility comes on the back of strong growth in the beer market in Africa last year, in contrast with the broader global market: consumption grew by 4.5% across the continent but fell by 0.7% in the world’s six largest markets in 2017, according to industry research company Plato Logic.

This rise in African consumption, coupled with declining demand in more mature markets, follows investments from several major players in the beer market across sub-Saharan Africa in recent years.

In April 2017 for example, Heineken, the world’s second-largest brewing company after AB InBev, opened a €150m brewery in Côte d’Ivoire. The move followed the previous year’s launch of its Ivoire beer, which is made using locally grown rice.

Meanwhile, AB InBEv’s first move into the African market was marked by its $100bn acquisition of UK-based SABMiller in 2016. The latter firm had a significant presence and history in Africa, having been founded in 1895 in South Africa.

In Tanzania, the country’s strategic location for exports and membership of the East African Community gives it the potential to act as gateway to the East African market for brewers. Evidence of this was seen in April last year, when Serengeti Breweries (SBL) – the second-largest brewer in Tanzania after TML – started exporting its Allsopps Lager in Kenya in March 2017.

Informal economy poses challenges

While Tanzania is ranked the 6th-highest beer consumer in Africa by Deutsche Bank, and broader economic growth prospects remain positive ­– with GDP expansion averaging nearly 6.7% a year since 2010 – commercially branded beer is expensive for most Tanzanians, whose wealth per capita stands at an average of $480, compared to a global average of $21,470, according to World Bank data.

Indeed, a study by research firm CanBack conducted in 2016 found that traditional beer, most of which is brewed by Tanzanian tribes, accounts for around half of all alcohol consumed.

Adding to the challenge of increasing formal sales, the government raised excise duty on beer for FY 2016/17. For beers made from local unmalted cereals, the levy was raised by around 5% to TSh430 ($0.19) per litre, while a similar hike brought the tariff to TSh729 ($0.32) per litre on all other alcoholic beers.

According to TBL, whose share of the Tanzanian market is estimated at 75%, 2017 revenues fell by 6%, driven by a 5% decrease in volumes. The company cited the new excise duty, which put pressure on overall demand, and a lack of adequate rainfall as challenges faced during the year.

Planning for climate change

Indeed, one risk to production and profitability is climate change, due to the impact of adverse weather conditions on local crop varieties used in beer manufacturing, particularly maize.

The El Niño of 2015 is evidence of the impact that this can have, with the event provoking a rise in temperatures and severe drought events that decreased maize yields by 57% in 2016, according to a Food and Agriculture Organisation report.

Furthermore, forecasts made by the ongoing Research Programme on Climate Change, Agriculture and Food Security conducted by the Consultative Group for International Agricultural Research predict that climate change will reduce maize yields by 9% across Tanzania by 2080.

Drought events also exacerbate the electricity shortage due to the effect on hydroelectric power, which accounts for 35% of total production capacity in Tanzania. With brewers already subject to an erratic power supply, this could stimulate greater uptake of alternative energy strategies. TML’s Mwanza beer plant has already sought to address this, having derived 60% of its electricity from biomass since 2016.