South Africa: AB InBev to invest R2.8 bln in its South African operations

The world’s biggest brewer, Anheuser-Busch (AB) InBev, said on July 10 that it planned to invest R2.8 billion in extending its plants in South Africa and in two new packaging lines for returnable glass bottles at its Alrode and Rosslyn facilities in Gauteng, the Independent Online reported.

The company said the investment was part of its expansion strategy for new packaging lines and returnable glass bottles.

It said the investment would add to R1 bln the brewer agreed to spend over five years as part of the regulator’s condition for AB InBev’s purchase of SABMiller.

However, analysts warned on July 10 that the investment would not result directly in the creation of jobs, because the company was implementing cost-cutting measures.

BayHill Capital equities trader Jordan Weir said the planned expansion would be more material to the company itself.

“With InBev looking to officially introduce the Budweiser brand, as well as other major African brands owned by AB InBev, such as Kilimanjaro (Tanzania) and Hero (Nigeria), Inbev would need the extra capacity in order to meet the new demand. South Africa is listed within the top 20 countries in the world for beer consumption per capita, and it is growing.”

Weir said InBev had made it clear that its investments would be crucial to driving the company’s lesser-known products into new market.

“With new expansion plans being rolled out, the likelihood of a more automated production line would mean that a material impact on the weaker job market environment in South Africa wouldn’t necessarily be on the cards in the foreseeable future,” he said.

In 2016, AB InBev indicated that it would invest in South Africa’s agricultural sector, promote enterprise development and boost local manufacturing - areas that were crucial for job creation.

The brewer said it would spend R1 bln on investment in agricultural development, enterprise development, the promotion of manufacturing, exports and jobs, and on making a contribution to the improvement of society through sustainability, alcohol harm reduction and educational initiatives over five years.

Neil Brown, fund manager and equity analyst at Electus Fund Managers, said AB InBev committed to investing in South Africa when the deal to acquire SABMiller was given the green light last year.

“AB InBev is the largest brewer in the world and is extremely well managed.

“While AB InBev is a good brand manager, they are probably best known for being tough business managers, continuously cutting costs, and have best-in-class working capital management,” Brown said.

However, Brown said although AB InBev would spend the appropriate amount of capital on plant and packaging, “we would be surprised if InBev increased their total number of South African employees”.

AB InBev said the agricultural development initiative would help to establish thriving barley, hop, maize and malt industries in South Africa.

The company also said that it would strengthen rural employment and job creation, accelerate the development of emerging farmers, and enable South Africa to become a net exporter of hops and malt by 2021.

The group said it would invest R610 million of the R1 bln in developing the capacity of 800 new emerging farmers, and develop the capacity of 20 new commercial farmers, to add 475,000 tonnes of barley to be malted (compared to 2015, when South Africa was a net importer of 75,000 tons of barley), with the aim of creating at least 2,600 new farming jobs in South Africa.

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