Nigeria: Nigeria’s $6.5bn beer market threatened by government policies, infrastructure deficit

The recent decision of Diageo to sell its 58.02 percent shareholding in Guinness Nigeria to Tolaram heightened the already palpable tension in the nation’s multi-billion dollar beer market, Nigerian Tribune reported on July 1.

For many, the latest development represents the ailing status of the once thriving market, put at $6.5 billion and the gradual disinterest of investors in the market.

Though Diageo has given the assurance that its faith in the Nigerian market still remains unflinching, many, however, see the latest action as a continuation of a divestment process it commenced last year.

For instance, on October 5, 2023, Guinness Nigeria Plc announced its decision to stop the importation and distribution of Diageo International premium spirits products, a decision it described as in line with its ‘long-term growth strategy.’

However, besides being a growth strategy, it was obvious the company was taking the decision to keep its head above the waters.

The lingering foreign exchange rate volatility, induced by the policies of the newly sworn-in government at the centre, then, was taking its toll on its financials, hence the urgent need to restrategise to enable it to mitigate the adverse impacts of those economic reforms were having on its bottom line.

Interestingly, trends in the market segment revealed such financial insolvency is not peculiar to Guinness Nigeria Plc as it seems to be the lot of many players, especially the big brands in the market.

Investigations by Nigerian Tribune revealed that a whole lot of players in the sector are employing every strategy in their armoury to survive the turbulent economic times the floating of the nation’s currency, fuel subsidy removal and low patronage have caused them.

For instance, early this year, Nigerian Breweries (NB Plc) and another major player in the market, International Breweries PLC (IB Plc) are on their way to the nation’s stock market to raise over N1 trillion to enhance their operations and mitigate the notable effects the volatility of the naira and others are causing their businesses.

In April this year, NB Plc shut down two of its nine plants, a move many feared might not be without the attendant job losses, as part of its ‘business recovery plans.’

This decision followed the company’s loss of N106 billion in 2023 due to naira depreciation, high inflation, foreign exchange (FX) challenges and diminished consumer disposable income.

At its specially convened Board of Directors meeting in April, the board took the critical decision to seek shareholders’ approval to raise up to N600 billion capital through a Rights Issue to alleviate ‘substantial debt burden, resulting in a healthier balance sheet’ for the company.

Toeing the same path, International Breweries Plc (IB Plc), in the second half of the year, sought and secured the approval of its shareholders to raise the sum of N588.27 billion to offset the USD loan used to build its state-of-the-art plant in Ogun.

A source, who would not want his name in print, argued that these are signs that all is not well within the nation’s beer sector.

“Remember these are the three players that control the huge chunk of the market. And with all of them sneezing at the same time, I think that is why the market is beginning to catch some form of cold,” the source stated.

The source, who is a staff in one of the established companies in the sector, expressed concerns that the change of guard at Guinness Nigeria may result in job losses, thus worsening the economic situation of the affected individuals and the country.

“Just as we witnessed when Coca-Cola took over the ownership of Chivita, the Diageo’s transfer of its share in Guinness Nigeria will also not be without its attendant job losses. Remember, NB Plc’s decision to shut down two of its plants early this year also created some issues in the labour market,” the source added.

However, a finance expert and Chief Executive Officer of Wealthgate Advisors, Mr Adebiyi Adesuyi, is of the view that the latest development at Guinness Nigeria may not necessarily result in job losses.

He expressed concern that the insolvency challenge being experienced by some of the big players in the market may not abate soon in spite of the companies’ decision to resort to capital market to shore up their capital base.

The Wealthgate Advisors boss argued that investors are presently circumspect, regarding where to put their funds and, as a result, are not likely to invest their funds in a troubled market such as the beer sector.

“I think the bigger concern is the likelihood of these companies not being able to raise the money to stay afloat in the capital market.

“Remember, this is a period the nation’s financial institutions are being asked to increase their capital base and they also will be in that market too to seek the attention of investors.

“If you look at the financials of these two sectors, you will see that the banking sector has continued to record profits in the past few years despite the state of the nation’s economy, while it is the exact opposite in the beer sector,” he stated.

According to him, the beer sector is fast becoming a no-go area for the average Nigerian struggling to survive, a development he noted has resulted in drastic reduction in sales.

He highlighted: “And since the cost of production for companies in the beer segment is going up despite the drastic drop in sales, chances of returning to profitability in the nearest future are very remote and this may be a huge discouragement to prospective investors.”

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