African Craft Brewing & the Pandemic

By: Calvin Obbaatt  

The negative impact of coronavirus has been felt globally in all sectors of the economy, resulting in a worldwide production deficit. With consumers being unable to access products, large and small companies have been forced to stop production or produce less than usual. Companies in the hospitality sector have suffered a major blow as pandemic regulations have caused many businesses to shut down completely. Among the companies significantly impacted is the brewing industry, specifically craft brewery. 

  Initially, craft breweries enjoyed massive sales that yielded millions of profits in Africa alone. The industry also employed a vast staff, and production was increasing day-in and day-out. Compared to their competitors, craft breweries stood out for producing unique products that suited customer demands. In Africa, craft breweries thrived, and craft beer was some of the most consumed beer. Nearly all pubs, restaurants and bars sold craft beer. These products became more popular with the introduction of cheaper and smaller packages that are accessible and cost-friendly. 

  Unfortunately, with the emergence of the coronavirus pandemic, millions of breweries in  

Africa were directed by different governments to stop on-site consumption of beer completely. The taprooms that had become popular drinking places and earned the breweries massive income were shut down for hosting large amounts of people. Consumers were instructed to stay at home and avoid any public places. Similarly, parties and public events were also shut down. Clearly, parties and events were significant markets for the breweries. Bars, significant purchasers of beer products, were closed indefinitely, causing beer sales to drop significantly. This, in turn, caused breweries to take tough measures that impacted that production greatly. Many brewery workers were laid off, a move that increased the workload of the remaining staff. 

  The breweries were also forced to adopt creative but expensive delivery services. The companies adopted a pick-up and delivery system whereby the drinks were transported to each individual who ordered. The idea proved costly to the producers as they had to incur transportation costs as well. Additionally, the producer was forced to use glass and aluminium packages for all the products distributed by these criteria. In other countries with strict measures, breweries were required to produce hand sanitizers to accompany their products. 

  Restricted consumption of brewery products has led to the expiry of billions of kegs of beer on the African continent. This loss will be directly felt by the breweries as bars and restaurants purchase the products on loan and only pay after the sale. The loss of millions is likely to see some bars close completely. These closures mean that breweries lose potential customers as well as the money owed from the bars’ debts to them. 

  Breweries also face challenges of inadequate carbon dioxide since the production of CO2 has also been affected by the pandemic. The inefficient quantity of CO2 is likely to stop beer production due to the lack of a carbonator. The low availability of carbon dioxide has shot its prices to levels quite uneconomical to producers. Additionally, the small amounts of highly-priced carbon dioxide available are highly sought by multiple organizations and industries that are in a constant scramble for the commodity. According to a recent survey carried out by EABL, 60% of breweries in Africa have wholly stopped production, and only the large companies are still producing. These large companies, such as the East African Breweries Ltd (EABL)., have suffered a significant loss in enforcing the measures advised on by the experts to contain the pandemic. These measures will cause the company to lose $86.4 million in net earnings. Accompanied by other issues from the pandemic, EABL will lose at least 25% of its annual revenues: 28.7 million dollars. 

  EABL is based in the Eastern part of Africa and operates in the four countries of the East African Community. Countries within this trade block, such as Kenya, Uganda and Rwanda, imposed some of the strictest laws to stop the spread of the pandemic. Meanwhile, neighbouring countries like Tanzania, Burundi and South Sudan were reluctant to impose COVID-19 restrictions. The reluctant countries blamed the pandemic for imposing an economic tragedy, a road that they were unwilling to walk down. 

  According to Paul Mwai, CEO of EABL in Kenya, the pandemic was not only felt by the breweries but also in all sectors of the economy, including manufacturing, hotels and catering. The brewery further reported a worse decrease as the situation was not getting better. Workers, who were the major consumers of beer products, had lost their jobs and thus income due to layoffs, business closures and job losses.  

  The pandemic has led to shareholders pulling back their resources when it comes to investing in the company. Most Boards of Directors advised their shareholders and the public that company profit will decrease significantly from the previous year when breweries recorded massive profits after taxation. Previously, EABL faced the problem of high taxation that increased after every financial year. The trend is worrying to the EABL Board of Directors, as the government – specifically the Kenyan government – has imposed hefty taxes on bottled beer brands. 

  The company’s woes were further castigated by the government when an excise tax of 5.2% was introduced on beer and a resounding 15% on spirits, making these drinks unaffordable to many consumers. A similar situation was felt in Uganda when the government banned spirits from being sold in plastic containers. The Ugandan government’s ban on plastic reduced the growth and sales of spirits. 

  The majority of breweries in Africa are internationally owned, predominantly by European and American entities. Travel bans imposed by the African countries have made it difficult for international owners to access these institutions. For instance, the EABL is owned by British Diageo, accounting for 50.03% of the shares. The restrictions and the inevitable losses predicted have made the Board of Directors rethink their judgment and resort to returning the shareholders’ investments in the form of dividends. The pandemic has put the companies in a situation that demands high capital investments that will enable them to pull through during the unfortunate events. The financial pressure is mostly felt by the shareholders who are in the tightest position on whether to invest more and risk in order to salvage the situation or withdraw entirely and wait for better seasons. 

  Major stakeholders, such as the banking industry, have also withdrawn any lending activity as advised by the central banks globally. The European Central Bank has also advised against paying dividends to shareholders. 

  The coronavirus pandemic has led to the loss of lives of some of the best brains in the breweries. With labor and expertise being a major driving force in the success of any economic sector, the impact of the loss is felt heavily. Breweries depend widely on human labor. Loss of this labor will be felt long-term as replacing some of these workers will not be a walk in the park. Training a new individual will take time and money. For instance, EABL had some of its technical staff trained efficiently in the developed countries, and these people have been a significant asset for the company. The death of such experts minimizes the production potential of the company to extraordinary lengths. 

  Currently, most organizations have adopted medical policies to cater to the welfare of their staff, a way of promoting the efficacy of workers. However, with the rise of the pandemic, the brewing industry has incurred considerable expenses in staff treatment. With the disease tending to attack people through contact, many people within a single organisation will likely get infected within a span of one week. The companies, at this point, will have no option but to provide for the entire sick staff as stipulated within their agreement. Such a move is likely to render the organisation bankrupt and incur huge losses. 

The situation is likely to worsen if the pandemic persists as the government is relentless in reducing the pandemic through control measures. However, hopefully, scientists will overcome the situation and produce a viable vaccine, getting the brewing industry back in business and thriving once again. 

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