Thursday, September 22, 2011

Cassava Beer, Nigerian Guinness, and Western Companies

This first appeared on "Africa in Transition."

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 NestlĂ©’s head of emerging markets that there are three hundred million to four hundred 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

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