Anticompetitive practices in sub- saharan Africa: Myth, Reality and Perspectives Simon Evenett Said Business School, Oxford Frederic Jenny Professor of Economics , ESSEC France Chairman of the OECD Competition Committee CRC 3rd International Conference: Pro-Poor Regulation And Competition: Issues, Policies and Practices Capetown, 7-9 September 2004 1 Anticompetitive practices which hurt consumers directly (I) -Soft drinks ( Kenya, Sth Africa, Uganda, Zambia, Zimbabwe) -Beer and alcoholic beverages (Kenya, Namibia, Malawi, Mozambique, Tanzania, Uganda, Zambia) -Sugar (Ghana, Kenya, Malawi,Tanzania,Uganda, Zambia) -Flour and bakers products (Malawi, Namibia, Zambia, Zimbabwe) 2 Anticompetitive practices which hurt consumers directly; Example: Vertically integrated monopoly in the sugar industry in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « The Illovo Sugar Company is a vertically integrated monopoly operation extending from the growing of sugar through refining to distribution. The wholesale distribution of sugar is subjected to a private licensing system operated by Illovo, which adds a further layer of restriction to the vertically integrated monopoly. These licenses are granted sparingly, and those who hold them are therefore in a position to extract a monopoly rent from the 3 market ». The cost of the millers’ cartel in Zambia The Post ( Zambia), January 23 2002 « The government should not allow millers and traders to form a cartel in their effort to ensure that the price of mealie meal is kept at a high rate, Zambia’s Congress of Trade Unions (ZCTU) secretary General Sylvester Tembo has appealed. Tembo said government should not take a soft approach to the problem because the milling industry was strategic and sensitive since it centered around the country’s staple food. He said the majority of Zambians were too poor to afford the prices ranging from K33,000 to K50,000. « Even in a free market economy, governments must not abrogate its responsibility of protecting its citizens from price sharks, » Tembo said ». 4 Anticompetitive merger in the beer sector in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « In this sector, there were three major companies namely, Carlsberg Breweries, Chibuku and Napalo Ukana Breweries. However, stiff competition came from Chibuku and Napalo Ukana as they both brew local beer ( Masese). To avoid this competition, the two companies have since merged to create a monopoly in local beer. Since the Competition Law is still not enforced and the Commission is not in operation the matter has neither been investigated nor taken to court ». (« The Malawi Investment Promotion Agency indicated that (…) brewers make a practice of providing chilling cabinets to retailers, on condition that these cabinets are not used to stock rival products ». 5 Anticompetitive practices which hurt consumers directly (II) Industrial products bought by consumers: -Cement (Egypt, Madagascar, Malawi, South Africa, Zambia, Zimbabwe etc…) -Petroleum (Ghana, Kenya, Malawi, Tanzania, Uganda,Zambia) 6 Anticompetitive practices which hurt consumers directly, An example : Price fixing in the distribution of oil in Kenya II Nairobi, Panafrican News Agency, November 30, 2000 Kenyan authorities have deplored a sudden hike in the prices of petrol and petroleum products announced by major petroleum dealers, describing the rise as unjustifiable. Commuters on their part have also added voice to the protest, accusing the oil companies of forming a cartel to fix prices in order exploit commuters and other consumers. Energy minister Francis Masakhalia Thursday (…) dismissed the contention by the oilmen that they were forced to hike their prices due to a similar action by oil producers, (…)"How can all of them increase or adjust their oil pumps using the same tariff unless they collaborated," asked the Chairman of the Kenya Commuters and Consignors Association (KCCO), Ngeny' Obbayi. The Chairman of the "matatu" (minibus) taxis association, Dickson Mbugua, on his part called for the immediate regulation of oil prices to save the transport industry from collapse. He ( charged that) the six multinational oil companies (operating in Kenya) (…)had formed a cartel to exploit the transport industry players. 7 Anticompetitive practices which hurt consumers directly; An exemple:Cartel in the oil sector in Uganda Kampala (New Vision, July 13, 2000) MPs yesterday decried escalating fuel prices and called for government intervention to stem the tide (…). The legislators (…), also urged the Government to find ways of breaking the monopolistic cartel of oil companies operating Dr. Shanon Kakungulu (Masaka Municipality), warned of possible mass civil disobedience if appropriate measures were not taken to address the peoples' anger over skyrocketing fuel prices. Petroleum prices have steadily risen with the price of petrol now standing at sh1,450 per litre. (…) MPsdismissed attempts by ministers Francis Babu (State for Energy) and Prof. Mondo Kagonyera (General Duties) that the 8 high prices are a result of high world prices. Anticompetitive practices which hurt consumers directly : An exemple: the cement monopoly in Malawi « Malawi’s only cement company was recently sold to the Commonwealth Development Corporation (CDC), which already owns cement companies in Zambia and Tanzania. This created a regional power where there had previously been a degree of cross-border competition. Subsequently, the CDC sold its controlling stake to a French company, Lafarge, which had presence in other countries as well and hence making it a regionally dominant power ». From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 9 Anticompetitive practices which hurt consumers directly (III) Health Services: (Sth Africa, Zimbabwe) Professional services(Lawyers, accountants, surveyors): (Sth Africa, Zambia, Zimbabwe) Urban Transportation (Taxis, Matutus): (Kenya, Malawi, Sth Africa) Airline transportation ( freight and persons): All Africa Telecommunication services (Nigeria, Sth Africa, Uganda, Zimbabwe) Retail trade (food, pharmaceuticals, furniture, books, cars, 10 cigarettes): (Kenya, Sth Africa, Zambia) Anticompetitive practices which hurt consumers directly : an example: Taxi cartels in Sth Africa 17 October 2001 Business Day Cape Town Taxi associations are organised into territories the same way that gangs cut up the town and rule by fear over the bits of turf they claim. Because taxis are mobile, competition for turf involves routes. (…) The taxi associations have come to "own" the routes they serve. Huge profits were made in the beginning. As the number of taxis grew, so profits fell. There is now over-trading and owners have become ruthless. Meanwhile, passengers are left with no choice, are at risk and remain voiceless. They have to transfer at the dangerous boundaries between taxi territories. Many are compelled to take from two to four taxis on every trip to work and back, with long waits at points between association boundaries.(…) 11 Anticompetitive practices which hurt consumers directly : an example Private monopolies in the rail and transport sectors in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « Malawi’s railways are used for freight only. The track is state-owned, but the operation of trains is now privatized under a 25-year concession. The company running the operations enjoys a complete monopoly of rail services, without any form of regulation of rates or quality of service; similarly, there is only one shipping company operating a monopoly service on Lake Malawi ». 12 Anticompetitive practices which hurt farmers (IV) Fertilizers and Animal Feed:(Sth Africa Kenya, Zambia, Zimbabwe) Agricultural Machinery (Kenya) Traders and Transformers ( cotton, tea, coffee, tobacco, fish): (Malawi, Zambia, Kenya) Banking and Insurance: (South Africa, Uganda, Zimbabwe) Freight Transport and Shipping ( Malawi, Tanzania West Africa) 13 Anticompetitive practices which hurt farmers, an Example: Price fixing and Market sharing in the fertiliser industry, Kenya Nairobi, Jul 03, 2003 (The East African Standard The Kenya Tea Development Authority( KTDA) yesterday claimed that a group of suppliers had organised themselves into a cartel to control fertiliser tenders. The suppliers, the Authority claimed, were colluding to minimise competition amongst themselves by pre-determining who would supply to KTDA each year. KTDA Managing Director, Mr Eric Kimani (…) noted that a group of suppliers then emerged who colluded and formed a ring to minimise competition. " Indeed, there is evidence that the fertiliser was not necessarily manufactured by the winning bidder," said Kimani. He said the Board was then compelled to re-advertise the supply tenders to break the monopolistic tendency that had sprung up and denied farmers the benefits of lower prices. Kimani said KTDA Ltd purchases fertiliser worth between Sh1.2 billion and Sh1.4 billion14 every year supplied by one group of manufacturers. Anticompetitive Practices which Hurt Farmers, an Example:Collusion among tea buyers in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « The Ministry of Agriculture and the Malawi Export Promotion Corporation indicate that there is a small number of traders and processors in the market to buy tea in Malawi, and that they collude in setting their purchasing prices». 15 The unraveling of a buyers’ cartel: the case of cotton in Zimbabwe1 « Zimbabwean peasant cotton farmers are smiling all the way to the bank in the aftermath of a bitter price war that erupted last week between rival marketing companies vying for their crop; The price war was sparked off by Farmer’s World, a new marketing company which started operations two weeks ago when it moved into Muzarabani and other major producing areas offering farmers instant cash and higher rates than what Cottco and Cargill had pegged for this year’s crop. Farmers instantly changed their allegiances in droves, forcing the two traditional cotton marketing companies to adjust prices upwards to beat off the challenge from the new comer. The farmers often complained that the traditional buyers under-graded their crop and paid mower price for their produce. 16 Anticompetitive Practices which hurt Farmers, an Example: Price fixing by purchasers of cotton in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « The National Economic Council expressed the concern that there are very few companies in the business of purchasing raw cotton from growers, one of which is the Agricultural Development and Marketing Corporation of Malawi ( ADMARC) and its subsidiary David Whitehead and Sons and Cotton Ginners, these companies collude over the terms and prices they offer to farmers ». 17 Anticompetitive practices which exclude or hurt other businesses (V) Freight transportation and Shipping: Malawi, Tanzania, West Africa Air freight : (Sth Africa, Zambia) Services for industry ( oil, health, computer software): (Nigeria, Sth Africa) Industrial products ( chemicals, cardboard, gas, jet fuel, coal, metal packing, metal crown) : (Kenya, Uganda, Zimbabwe, Zambia Sth Africa) 18 Anticompetitive practices which exclude or hurt other businesses : an example, the ugar cartel in South Africa 27 March 2000Business Day (South Africa) INDUSTRIAL sugar users have accused SAs sugar industry of operating as a cartel that abuses an antiquated piece of legislation to fix local sugar prices. SA Federation of Soft Drink Manufacturers spokesman Liz Farquharson said yesterday that the outdated Sugar Act allows the Sugar Association of SA to act as a cartel by setting a maximum price for sugar. This means SAs mills all sell sugar for the same price. The association represents producers and SAs three sugar mills, Illovo, Tongaat-Hulett and Transvaal Suiker. (…) The confectionery and soft drink manufacturers buy about 80% of the domestically produced sugar. Sugar users are considering alternatives to remain competitive in the global market and soft-drink manufacturers are investigating a switch from cane to maize-based sweeteners. Confectioners may have to import sweets as it is cheaper 19 than producing them locally. Anticompetitive practices which exclude or hurt other businesses: an example: margin fixing in the banking sector in Uganda New Vision December 11 2000 Kampala « For our markets to become sophisticated, the sector has to develop new products. An efficient and developed market is key to market competition, which would lead to lowering margins in the sector. Bank of Uganda is of a view that the sector should not have cartels where margins remain fixed for long time otherwise the public will agitate for intervention from the central bank », the Deputy Governor Bank of Uganda, Dr louis Kasekende said » 20 Anticompetitive practices which exclude or hurt other businesses, an example: exclusionary practices in the cable Tv in Nigeria Dec 25, 2002 (Vanguard/ Boss of Communication Trends Ltd [CTL], Engr Uzo Udemba has vowed to stay in the cable TV business and continue to provide cheaper and more convenient alternative package for entertainment and information despite anti-competitive elements from certain quarters. At a press meet in Lagos last week (he) reflected on continental happenings where one company in an unbridled monopoly, is harassing every other operator out of business by tying programmes down through satellite and terrestrial exclusive deals. With this practice, most local Cable TV operators in some parts of Africa have had to leave the business or be bought out and eventually be given employment. 21 Anticompetitive practices which exclude or hurt other businesses, an example: Abuse of dominance in Telecom (South Africa) Johannesburg, Jan 27, 2004 (ITWeb/All Africa Global Media) Telkom has been accused of bullying tactics and anti-competitive behaviour.Two of Orion's major clients, Standard Bank and Edgars, chose not to renew their contracts, after Telkom "made them an offer which they could not refuse". According to Orion's Don Tredoux, part of the deal appears to have included lucrative discounts for the clients, but only if they took their cellular traffic from Orion's network in order to take them past the threshold required for the new deal. "This isn't just about Orion Cellular and its clients. It's about the way Telkom continues to treat the telecommunications industry as its own personal fiefdom,". 22 Anticompetitive practices which exclude or hurt other businesses, an example:Price fixing and trade associations: the case of freight transport in Malawi From « Spine chilling experiences of anti-competitive practices in Malawi », CUTS and Consumer Association of Malawi (CAMA), 2003 « Transport costs are high in Malawi despite the fact that Government has abandoned traffic control. Though the industry consists of a few large firms e. g. Trans African Transport (TAT), Central African Road Services (CARS), Zagaf, Welsons, Fersons, etc and many small ones, rates are not set competitively. The Road Transport Operators Association sets them for the industry at large. It was also established that foreign trucking firms operating into Malawi (mainly South African and Zimbabwean) are also 23 members of this cartel ». Anticompetitive practices which exclude or hurt other businesses; an example :the soft drink industry in Zambia Times of Zambia, September 23, 1999 Franchise arrangements by Coca-Cola and Cadbury Schweppes (Z) are among the major points of negotiation between the Zambia Competition Commission (ZCC) and the two companies over their intended merger in Zambia. Zambia Competition Commission executive director George Lipimile has said that the franchise arrangements made by the two firms in Zambia had some anti- competitive arrangements which the commission was trying to resolve. Among the provisions in the franchise arrangements by Coca-Cola and Schweppes is the barring of distributors from dealing in similar products as those put out by Coca-Cola and Schweppes, price fixing, and territorial restrictions. 24 Anticompetitive practices which exclude or hurt other businesses, an example:Price fixing and trade associations: the case Jet fuel cartel in South Africa:cost to SAA « An airline executive comments: "When you sign up with one( oil company) it's like signing your marriage vows. You're expected to remain true and faithful. The others won't talk prices to you, so you can't shop around to see if you can do a better deal." On average, the contract price for jet fuel at Jan Smuts is 14c a litre more than at Cape Town and nearly 30% more than at Heathrow in London. "It costs us R25,000 more to fill a Boeing 747 400 at Jan Smuts than it does at Heathrow" says Mike Myburgh, CE of SA Airways (SAA) which spends R228m a year on fuel at Jan Smuts ». 25 21 April 1995, Southern Africa Business Intelligence A Case study: The Egyptian Cement Market 26 F.Jenny The Demand for Cement in Egypt The demand for cement in Egypt increased considerably during the 90’s. The major reasons for the rise in consumption are the rapid expansion of tourist projects along the Red Sea and the North Coast and the boom in residential construction around Greater Cairo. Thus, the availability of cement at a competitive price is crucial both for the welfare of consumers and for the development of the tourist industry, an important source of foreign exchange Over the past twenty years cement consumption increased by 10% annually rising from a per capita cement consumption level of 95 kg in 1979 to an estimated 396 kg in 1998. This consumption level is still relatively low compared to the consumption level in developed countries ( more than 600 kg). 27 F.Jenny Privatization and Deregulation of the Egyptian Cement Industry Until 1999, the Egyptian cement sector was publicly owned and faced problems of low utilisation of production facilities, low productivity and dependence on imports. The distribution of cement was in the hands of a small number of powerful licensed distributors. Until 1998, public and private construction companies could not order cement directly from the manufacturers but had to order through the licensed distributors. The distributors were known to withold supply in critical periods in order to boost prices. Starting in 1999, the picture changed completely. Customers were given the right to order directly from producers. The government sold majority stakes in cement companies to four foreign and two local strategic investors. 28 F.Jenny Privatization and Consolidation in the Cement Industry in Egypt 65% Tourah Cement Suez Cement Co Blue Circle Alexandria Cement (British) Beni Sueif Cement Lafarge (French) Egyptian Cement Titan ( Greek) National Cement Cemex Assuit Cement (Mexican) El Amreya Cement Simbura (Portuguese) Helwan Cement 29 F.Jenny 5% Arab Swiss Eng Co Other Structural Changes:Decrease in Import Competition and Entry in the Industry 1) Import competition decrease Because of the acquisition of local cement companies by large international firms, competition from imports has declined in Egypt since these international firms were the main importers of cement in Egypt. 2) Production capacity increase Attracted by the profit opportunities, four new new private companies, the Egyptian Cement Company, Misr Beni Suef, Qena Cement and Sinai Cement also entered the market supplying nearly 1.4 million tons each. Altogether market capacity increased by 7.5 million tons between 1999 ( when the Government privatised the local cement industry) and 200230 F.Jenny Because of the Newcomers, Competition Increases in the Domestic and Export Markets 1 « The fierce race to secure a place in the market was a challenge to newcomers particularly because of the economic slowdown. The newly established firms began lowering the price of their goods, sometimes selling them at the break-even point to ensure a market share and meet the financial obligations of the loans they took out to establish themselves. The presence of small players, helped by a network of wholesalers is the leading factor since, unlike in the public sector era, distributors now deal with any cement company which gives them a good bargain » The Egyptian Cement Company started exporting its production to the Spanish Canary Islands at much lower prices than that offered by Cemex, the Mexican cement producer with a majority stake in Assiut Cement 31 F.Jenny 1) Al Ahram, December 19 2002 Retaliation Against the Newcomers1 According to Azzam Abdel-Azeem, head of the marketing department at the National Cement Company and Maged Nezar, head of Suez Cement sales department, « Cemex and other foreign companies retaliated by pushing local prices to their lowest levels to prevent local companies from exporting by burdening them with losses » (Cemex denies the allegation) « An anonymous source (…) asserted that Egyptian Cement Company has lowered the volume of its shipments to the Canary Islands by 75% as a reaction to the local price war. » « We cannot control the practices of foreign companies, Abdel-Azeem said. « being the affiliates of international cement heavyweights, they can afford losses for one or two years till they achieve their aim in the market » 32 F.Jenny 1) Al Ahram, December 19 2002 Cement production in Tanzania Mbeya Cement ( bought by Lafarge in 1998; production is doubled in 1998-2001. Current production: 220.000 Tons, Market share 44%) Tanga Cement Company ( belongs to the Holcim Group Market share 18%) Tanzania Portland Cement Company ( belongs to the Hieldelberger group market share 38%) 33 Cement production in Uganda Hima Cement Company ( owned by Bamburi Cement, part of the Lafarge group since 1999. Current production 250.000 Tons annually; market share 55%). Tororo Cement, independent, market share 45% 34 Cement production in Kenya Bamburi Cement (owned by Lafarge; market share 60%) East African Portland Cement Ltd ( used to be owned by Blue Circle and became part of the Lafarge group when Lafarge merged with Blue Circle; market share 34%) Athi River Mining ( partly owned by Bamburi Cement; market Share 6%) 35 The East Africa Cement Producers Association In 2001 « The East Africa Cement Producers Association » (EACPA) is created. It includes cement producers of Tanzania (Mbeya Cement and Tanga Cement Company), Uganda ( Hima Cement and Tororo Cement) and Kenya ( Athi River Mining Limited, Bamburi Cement Limited and East African Portland Cement limited). Together these companies have a market share of 62% in Tanzania, 100% in Uganda and 100% in Kenya. According to an offical publication of the French Ministry of Finance, the object of EACPA is to promote East African Cement Industry and to lobby East African governements so that they will take appropriate measures to fight cement imports from Egypt. 36 From Price Competition to Price Fixing (December 2002) 1 « Representatives of almost all local cement producers met last week and set a price range for cement of between LE167 and LE176 a ton. Just hours before the meeting, the price had fallen to an exceptionally low LE 125 a ton. The drop had caused serious worry among cement producers, pushing traded cement shares over the edge and rendering the sector less appealing to foreign investors. » « Cement company representatives discussed other solutions in the meeting. « We could agree on another plan to fix market share for different cement companies according to their production capacities », Said Maged Nezar, head of Suez Cement sales departement. While Nezar agrees that such agreements would violate market forces, he believes they would be better than the price wars (…) » 37 F.Jenny 1) Al Ahram, December 19 2002 Cause for Concern Interview of Mr Collomb CEO Lafarge,Les Echos, June 10 2002 Question: your group has given high priority to emerging markets; has this policy been successful? Answer:Absolutely, in 2001 more than 40% of the cement profits (of Lafarge) were realized in emerging markets and we have roughly multiplied by 2 the share of Asia in our activities. This strategy has also given very good results in South Africe, Jordan, Morocco, Honduras, Venezuela, Brazil, Chile. Question: Globally, is the evolution of prices favorable for Lafarge? Answer: In 2001 and 2002, in most countries, maybe except in Germany, prices have moved favorably for Lafarge; this is true, in Particular, in certain emerging economies where prices were abnormally low because of local operators who did not have 38 a sufficiently realistic appraisal of the necessary profit level. Lessons from the Recent History of the Egytian Cement Industry -1) In spite of trade liberalization, Egyptian cement producers cannot export freely to the Canary Islands -2) Consumers of cement are hurt in the Canary Islands. In Egypt, consumers benefited from the low prices during a short period of time but they will pay monopolistic prices for a long time. Indeed the fact that a large operator has shown a willingness to punish its competitor by using predatory price pratices is likely to discourage local cement manufacturers from engaging in price competition on the Egyptian market in the future. -3)The Egyptian government is powerless to prevent either the predatory pricing or the price fixing because there is no antitrust law in Egypt -4) Without some form of international cooperation, it is unlikely that the EU Commission will be able to use its power to sanction 39 the anticompetitive practices on the market of the Canary Islands Lessons from the Recent History of the Egytian Cement Industry (Ib) The Egyptian consumption of cement in 2002 was 26,682,000 tons. The cement producers agreed to increase the price of cement from LE 125 to LE 171 ( on average), an increase of about LE 46 per ton. The annual cost to Egyptian consumers of this price fixing agreement is LE 1.227 billion or US$ 227,291,111 per year Note, for comparison purposes, that the annual budget of the competition authority of South Africa is US$ 9, 000,000. The enforcement activity of this authority has just been peer-reviewed in the OECD Competition Committee and considered to be quite satisfactory by international standards. Even if the annual cost of a competition authority in Egypt were twice the cost incurred in South Africa, this cost would be recouped even if the authority 40 F.Jenny did nothing more than stop the cement price cartel for one month. Setting the stage for competition inthe beer market in Tanzania and Kenya 1997 Kenya South Africa Tanzania Kenya East African Breweries Ltd (95% Sth African Breweries Mkt share in 1997) Sth African Breweries Int (SABI) (98% Market share) (Plants in Mwanza and Kenya Breweries Ltd Dar es Salaam) Tusker SAB has already established Kibo Breweries itself in sub-Saharan Africa and (Plant Moshi) Kenya Castle accounts for more than half of the beer produced and sold in the Breweries continent through breweries in (Starts construction of plant Swaziland, Lesotho, Botswana, 41 Zimbabwe, Mozambique, Zambia, in Thika in 1997) Tanzania and South Africa KBL’s attempt to raise barriers to entry on the Kenyan beer market 01 October 1997, African Business The most worrying competition ( for Kenya Breweries Limited, the giant bottlers controlling 95% of the beer business in Kenya, is from South African Breweries who already have two bottling lines in Mwanza and Dar es Salaam in Tanzania, and who have decided to bring the battle to Kenya Breweries on their own turf by putting up a bottling plant at Thika. 42 Competition in the beer market in Kenya Global Information Network,NAIROBI, Nov. 24 1998 But for consumers, a beer is a beer. The war erupted after SAB entered the East African market. Within days of SAB unveiling Castle Milk Stout to compete with the local KBL local Guinness brand, another new brand by KBL, Pilsner Ice, targeting the urban youth hit the market. KBL has also started canning its Tusker beer to match Castle. A 0.5-litre bottle of Tusker costs 54 shillings, while Castle sells for 52 shillings. These prices are expected to drop as the competition intensifies. "Prices will no longer be determined by the company's accountants, but by beer drinkers," said Castle Kenya (SAB) Ltd Managing Director, Roger Smith. And, as the corporate war rages on, local beer consumers have become the major beneficiaries. "There is now a wider choice, beer quality has shot up and prices come down," said John Mwaura, an engineer. 43 From price war to market sharing I May 14, 2002 ,The East African Standard The beer market suffered a major jolt yesterday when Castle Brewing Kenya suddenly closed its operations in Kenya. At the same time, Castle's main rival, Kenya Breweries Ltd (KBL), announced that it was holding talks with South African Breweries International (SABI) with a view to taking over Castle's operations in Kenya. But as Castle was closing its Thika plant, KBL's parent company East African Breweries Limited (EABL), too was closing down its operations at Kibo in Moshi, Tanzania. And in what clearly emerged as a give-and-take arrangement, SABI will through its Tanzania Breweries Ltd (TBL) buy the Kibo plant from EABL. EABL dominates the Kenyan beer market through Kenya Breweries, while SABI controls the Tanzanian market via Tanzania Breweries (…). EABL External Affairs Director, Ms Brenda Mbathi, attributed the market re-alignment to the fact that the beer market in the region has been declining "Castle were losing money in Kenya and we were 44 losing in Kibo" she said. From price war to sharing the East African Market Kenya South Africa Tanzania Kenya East African Breweries Ltd (95% Mkt share in 1997) Sth African Breweries Sth African Breweries (98% Market share) Int (SABI) Cross licenses (Plants in Mwanza and Kenya Breweries Dar es Salaam) (100%) Tusker (100%) 20% SAB has already established itself in sub-Saharan Africa and Kenya Castle Breweries accounts for more than half of the beer produced and sold in the Tanzanian Breweries (Starts construction of plant in 20% continent through breweries in Thika in 1997) Swaziland, Lesotho, Botswana, (CSK) 45 Zimbabwe, Mozambique, Zambia, Each group closes its plant Plant Moshi In the other’s territory Tanzania and South Africa Jt venture to prevent competition in the beer market in Uganda I 30 October 1997,New Vision South African Breweries, one of the world's largest breweries, bought a 40% stake in Nile Breweries in a joint venture with the Madhvani Group, sources disclosed. Although the Group entered the venture' with the South Africans earlier this year, the level of equity participation had remained a secret between the two parties. Company sources said yesterday they recently stepped up capacity from the previous 300,000 HL per annum to 750,000HL. With the merger, Nile Breweries which is in direct competition with Uganda Breweries, hopes to strengthen its brand portfolio and expand its export potential in the region. "It is envisaged that the introduction of the SAB brands, led by Castle Lager, will strengthen the brand portfolio of Nile Breweries," said the source. Nile Breweries which manufactures Nile Special, Chairmans Extra Strong Brew brands boasts of a 57% share of the Uganda Beer market. Under the joint venture agreement, South African Breweries is to start bottling some of its household brands like Castle and Ohcesses in Uganda. Likewise, popular Ugandan brands like Nile Special and Chairmans ESB will be bottled in South Africa. The merger was a strategic one for Nile Breweries which envisages tough competition from foreign brands when government lifts the 46 ban on beer imports next year. Merger in the beer market in Uganda II 29 June 2001 Johannesburg Stock Exchange South African Breweries is the world's leading brewer in emerging markets, with major brewing and distribution operations in Africa, Central and Eastern Europe and Asia. It is the world's fifth largest brewer overall by volume with 82 breweries in 22 countries. Today it announced it has acquired, through its subsidiary company SAB International Africa B.V, a majority interest in Nile Breweries of Uganda from the Madhvani group of companies. This acquisition takes SAB's stake in Nile Breweries to 93.1%, with the Madhvani family still having an interest in the business. "To date we have been managing Nile Breweries on behalf of the shareholders and this is therefore a logical move for us in this region", said Graham Mackay, Chief Executive of SAB plc. "This acquisition represents another important step for SAB in Africa and illustrates our commitment to the continent." Nile Breweries was founded in 1951 and presently has a capacity of 700,000. hectolitres and its leading brand is Nile Special Lager. The Ugandan beer market grew by 52% between 1997 and 2001 and at the same time has seen increased competition and promotional47 activity over the last year.
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