John Campbell

Africa in Transition

Campbell tracks political and security developments across sub-Saharan Africa.

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Cassava Beer, Nigerian Guinness, and Western Companies

by John Campbell
September 22, 2011

Beer bottles roll on a conveyor belt at the East African Breweries Ruaraka factory in Kenya's capital Nairobi, February 17, 2010. (Thomas Mukoya/Courtesy Reuters)

The day before last, I attended an on-the-record discussion with two African heads of state here at the CFR. One talking point was a pitch for foreign investment in their countries. This brings us back to the debate over “Africa’s untapped potential,” and the costs and benefits of doing business on the continent. Responding to a previous posting on this topic, a blog reader commented tongue-in-cheek “Africa may not be a ready market for Western businesses because the West produces mainly higher added value products. But from where I type in Enugu, Nigeria, it is a goldmine for Chinese and Indian manufacturers,” whose products are much cheaper.

A recent Financial Times article suggests that Africa is, indeed, ready for products produced by Western companies—and that they should be thinking hard about ways to make their businesses on the continent work. The author quotes Nestlé’s head of emerging markets that there are three hundred million to four hundred million people in Africa who can already afford his companies products, and within a few years that could increase to six hundred million.

The many challenges of doing business in Africa—underdeveloped infrastructure and supply networks, political and financial constraints, not enough skilled workers—do not lend themselves to conventional business models. However, motivated companies have begun to find innovative solutions.

Food and drink companies that already have significant operations in Africa–Heineken, Nestle, Unilever, SABMiller, and Diageo (Guinness)—for example, are overcoming sourcing problems by purchasing from local farmers and, in exchange, providing training and a guaranteed price for the finished product. In some cases, the company will also provide seeds, fertilizers and even microfinance.

SABMiller is trying to create new products with locally available crops. For example, the company is using locally produced cassava in beer that will sell for seventy percent less than other types. Nestle has responded to supply network and transport issues by setting up smaller and cheaper “finishing” factories close to customers, which gives Nestle the flexibility to increase production when demand rises.

Who knows? Perhaps we will see cassava beer on the shelves in the United States before too long—or even Nigerian-brewed Guinness, which I’ve heard has acquired something of a cult following in the UK.

H/T to Asch Harwood

Post a Comment 7 Comments

  • Posted by U George-Nkemnacho

    This is certainly by far the most upbeat and optimistic appraisal of the African and indeed Nigerian environment I have read in this blog. A big welldone to its Author.

  • Posted by John Ojeah

    I can’t agree more with you, George. Its really a novelty.

  • Posted by Maduka

    During the Nigerian Civil War, the Biafran side made good use of Cassava beer! (there were no alternatives).

    I don’t know what it tastes like, but I doubt it will taste better than Guinness or Palm Wine (which is cheaper).

    Anyway, it’s worth a try.

  • Posted by Martins Iyorlu

    Such initiatives are what African countries need, because the ”common man” is been cheated and played up on in all ramifications; farmers been denied of fertilizer which Government propagates to been subsidized for them, but reached them at exulbitant prices, funds said to be allocated to small scale Farmers still not reaching them due to the curruption of our African Governments and the weathiers who draw their wealth from extortion of the Masses. Infact, the idea of dealing directly to local Farmers will be the best for AFRCAN develpent.

  • Posted by Maduka

    Ambassador Campbell,

    Apart from Oil and Gas, Natural Resources and selected high technology products and services, Africa is essentially a high volume, low margin market. The problem is that even these volumes may not be sufficient for most US businesses to consider Africa as a valid business proposition.

    I lived in Ikoyi, Lagos and I observed the lifestyles of Chinese engineers working for Huawei – they stayed four a flat and went to work in second-hand Toyota Camrys (four a trip). Contrast that with a typical Western engineer with similar qualifications /training – requires a cook, a driver, 24 hour diesel generator, 4 bedroom house, official car and security man.

    There is no way any Western company can compete with Huawei’s cost structure, and that is exactly why they are destroying the competition in Africa.

    China is near unbeatable in infrastructure.

    India is becoming to services what China is to infrastructure. If I am a small to medium business owner and I want either IT training or an IT product to run my financials or HR. India is the most logical destination for training or installation / support if I cannot source the skills locally. India’s strengths are not just in IT, they can provide management skills, engineering skills and financials skills at a fraction of the cost. And their skills may be more relevant because the Indian business environment is quite similar to the business environment in Africa.

    African consumers are not that brand conscious when it comes to electronic / white goods. They want cheap goods that work. Most Nigerians require cheap petrol generators and the Chinese can get you one for as little as $100. American firms like Cummins still operate in the 100 KVA market, they just don’t see the need to compete with the Chinese in the 2 KW market. Is this a wise move? Maybe not, because the Chinese are only a few years away from competing with Cummins in the 100 KVA market.

    The South Africans are major players in Telecommunications, Entertainment and Retail. A new “Shoprite” office was just opened in Enugu a few weeks ago and the South Africans seem to understand what African consumers want and how to attract them.

    Turkey is emerging as a major destination for clothing and textiles. China has a reputation for cheap but poor quality clothing. Turkey provides better quality clothing at a competitive cost.

    Western companies are still major players in pharmaceuticals, food and drink, due to concerns about food and drug quality (mostly China and to lesser extent, India) and brand loyalty. It will take emerging market competitors some time to build the same reputation for quality, but competition should be intense in future. (For e.g, South African or Brazilian drug / food makers could be really serious competitors to the West, since both of these countries have a reputation for quality.)

    The deeper question is whether Western firms should compete in all sectors in Africa? The answer is probably no or not yet. Western firms cannot compete against Indian or Chinese firms in an environment with poor infrastructure, corruption, lax regulations and bureaucracy (Anyone who can navigate through Indian bureaucracy can navigate through bureaucracy anywhere in the World!).

    Should Western companies partner with emerging market companies? Absolutely.

  • Posted by Jocelyn Nana

    China will have to raise its standards of living sooner or later; and at that time, its competitive advantage will be lost. Chinese engineers can squat four in a flat today, but will they continue to enjoy that situation when they are exposed to the comfort of a four bedroom house and air conditionning? What is the effect of a fifty cents raise of the minimum wage on China’s economy?
    My real concern is WTO. Will WTO really be a step up its predecessor, GATT, when it comes to enforcing the laws of free trade? Many have expressed the desire to see African products (beer etc…) sold in the U.S. But the very western companies that set up subsidiaries in Africa also limit them to the least lucrative markets, which constitutes a paradox in a globalized economy.
    Africa can produce quality products, and produce them cheap. But the problem has always been access to lucrative foreign markets. Africa should take more advantage of the opportunities granted by WTO and the current U.S trade policies towards the continent.

  • Posted by James Mcguire

    Beer sales in developed markets, according to industry sources, are losing sparkle so SABMiller is looking to the relatively untapped African market to help drive future growth. But with an estimated 315 million Africans living on less than $1 (N150.90) a day—roughly the same cost as a bottle of beer—commercial brews such as SABMiller’s Peroni and Miller Genuine Draft are beyond the reach of vast swathes of the population.

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