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Johannesburg - SABMiller [JSE:SAB] has cut production and fired more than half the workforce at its South Sudan unit as a lack of foreign currency and the soaring cost of beer holds back investment and stifles demand.
The world’s second-biggest beer maker has failed to make a profit in South Sudan since opening the East African country’s first brewery in 2009, according to Carlos Gomes, managing director of the unit, South Sudan Beverages. The company has cut 250 jobs in the past two months and reduced output of local beers such as White Bull to 15% of June volumes, he said.
SABMiller, a takeover target for larger competitor Anheuser-Busch InBev, has “invested $94 million in various packages and is not willing any more to put in money when there are no dividends”, Gomes said in an interview in Juba, the capital, on October 2. The London-based brewer hasn’t “got a single cent in return since we started operations”, he said.
South Sudan’s economy, which relies on oil for almost all exports, will probably contract by 7.5% this year as crude production falls after almost two years of civil war that has killed tens of thousands of people and displaced 2 million, according to the African Development Bank.
Inflation was 59% in August, more than doubling the cost of beer, while a shortage of foreign exchange in banks has meant businesses have sought funds on the black market, where the South Sudanese pound can trade at more than five times the official rate of about 3 per US dollar.
SABMiller generates almost a third of its revenue and profit from Africa, the world’s fastest-growing beer market. The potential of the continent is seen as one of the biggest attractions of the London-based company to AB InBev, which had a $100bn offer rejected by the brewer on Wednesday. SABMiller, which can trace its roots back to 19th century Johannesburg, has operations in 17 African countries, according to its website.
The retail price of a bottle of White Bull has increased to 10 pounds ($3.39) from four pounds, and 13 pounds in bars, forcing many drinkers to switch to home-made alcohol, according to Gomes. SSBL has halted supply to many parts of the country due to cost constraints, partly caused by the lack of dollars, he said.
Even so, SABMiller is “committed” to maintaining operations in the country, which gained independence from Sudan in 2011 after more than two decades of civil war. That allowed the population to legally drink alcohol after the end of Shariah law imposed by northern governments.
“We would like to continue to be here; however, our long- term stay is based on getting forex,” Gomes said. “We are just trying to survive.”
