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Mega Beer Merger Bets On the Rise of African Drinkers

With beer sales slowing in North America and Europe, Anheuser-Busch InBev has agreed to pay more than $100 billion for rival SABMiller, in large part to tap burgeoning growth in Africa, where many people still buy their beer from small neighborhood brewers.

LONDON (AP) β€” Charles Kwara and his friends sit around an earthenware pot, sipping a frothy gray drink through long straws as laughter fills the Charismatic Club in the slums of Kampala, Uganda's capital.

The men joke that the crude brew of fermented millet known as "malwa" makes them feel both high and as if they'd just eaten. It's also what they can afford: they can drink malwa all evening for the cost of a single bottle of branded beer.

"This is cheap," says Kwara, a 47-year-old marketing manager who heads a drinking club. While they'd like bottled beer, home brew is the only option if they want a full night out. "Drinking is also a way of socializing for us," Kwara says.

The Charismatic Club, and brewers like it from Uganda to Ghana to South Africa, have something the makers of Budweiser want: potential customers.

With beer sales slowing in North America and Europe, Anheuser-Busch InBev has agreed to pay more than $100 billion for rival SABMiller, in large part to tap burgeoning growth in Africa, where many people still buy their beer from small neighborhood brewers.

SABMiller, the descendant of South African Breweries, has stretched its tentacles across the continent, betting that Africans will shift to higher quality beers as economic development increases disposable income. It now has operations in 17 countries on the continent, with another 21 covered by Castel Group, in which it has a stake.

That foresight made SABMiller attractive to AB InBev, already the world's biggest beer maker, as it joins the list of international companies seeking to cash in on the newest growth frontier.

"Everyone is looking for the next big golden egg: It comes down to Africa," said Robert Besseling, a principal analyst on Africa at IHS, a global research firm. "Everyone is anticipating a boom β€” even though it hasn't happened yet."

The continent, with its 1.1 billion people, can no longer be dismissed as an economic backwater.

Four of the five fastest-growing economies last year were in sub-Saharan Africa, and the region as a whole grew 4.6 percent, compared with 2.4 percent in the United States and 1.3 percent in the European Union, the World Bank reported.

AB InBev's bid for SABMiller comes at a time when the growth of big brands such as Bud Lite and Stella Artois has stalled in the U.S. and Western Europe. Craft beers, wine and spirits are eating into profits.

In explaining the logic behind the takeover, AB Inbev declared Africa would be "a critical driver of growth." The continent was SABMiller's fastest growing region in the year ended March 31, with revenue jumping 9 percent to $7.5 billion and sales volume rising 5 percent.

AB InBev's fastest growing region in the year to Dec. 31 was what it described as northern Latin America, primarily Brazil, where sales volume increased 4.1 percent. Volume fell by 6 percent in Europe and 1.3 percent in North America.

"The African customer is rising," The Boston Consulting Group, or BCG, said in a report last year. "An African consumer class β€” and a set of thriving African companies β€” is emerging and starting to reach critical mass."

While Africa still presents big risks, highlighted by the recent ebola outbreak in West Africa and the civil war in South Sudan, increasing stability and improved infrastructure have spurred growth in recent years.

In sub-Saharan Africa, gross national income per capita has more than tripled since 2000, reaching $1,699 last year, according to the World Bank. Life expectancy rose to 57 years from 50 in the same period, and the portion of those completing primary education increased to 69 percent from 55 percent.

Those demographics are set to drive growth. With more than half its population now under 25, the highest percentage in the world, the continent will have a larger workforce than China or India by 2040, according to BCG.

"While most of the world is growing older, Africa will have a young workforce for decades to come," BCG said.

Kuwait's Mobile Telecommunications Co. sought to tap into this growth in 2005, when it paid $3.4 billion for Celtel International, gaining mobile telephone customers in countries including Kenya, Chad and Uganda.

The same year, London-based Barclays bank paid 2.9 million pounds ($4.5 billion) for a controlling stake in South Africa's Absa Group. Barclays' African unit now has more than 12 million customers in 12 countries.

Coca-Cola Co. last year said Africa was a "vital part" of its business as the company and its local bottlers added $5 billion to their planned investment in the continent this decade, pushing the total to $17 billion.

Experts say African countries are improving road and communication networks that are critical to broader economic development and go beyond past projects focused on getting minerals out of the ground and moving them to the coast for shipment around the world.

"I'm not ... deluding myself that all the problems will go way," said Peter Strivens, a partner at Baker & McKenzie, a law firm that works on mergers and acquisitions in emerging markets. "But I think it is indicative of what is happening in some parts of Africa."

While recognizing that Africans are healthier and living in more democratic societies than they were 15 years ago, the Mo Ibrahim Foundation noted this month that progress on improving governance had stalled.

"This is a warning sign for all of us," said Ibrahim, a telecoms billionaire who has championed the opportunities of Africa, in a statement.

For AB InBev, the opportunity to cut costs by eliminating overlap between the two companies is one of the main attractions of the SABMiller deal.

But buying SABMiller also helps reduce the risk of investing in Africa. Rather than starting from scratch, AB InBev can rely on SABMiller's expertise, distribution and infrastructure.

For now, AB InBev may be focusing on studies that show Africans are eager consumers.

Take Kwara, who drinks home brew with his friends. Their effluent-scented bar is a stone's throw from the tree-shaded villas of those who have made it. He's moving up in the world. He can taste it.

"I start with this (home brew), and if there is any extra money left then maybe I will have a Nile Special," Kwara said, referring to SABMiller's flagship bottled beer in Uganda.

A Nile special costs the equivalent of 60 cents and contains 6.5 percent alcohol β€” stronger than many beers and a selling point in the local market.

"They want to have their brands in reach of those consumers as they have the ability to buy," said Duane Stanford, editor of Beverage Digest. "They want to make sure when they have the money to spend on a nicer beer, they are there."

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