Multinational companies continue to ramp up their investments in countries across sub-Saharan Africa. The most recent major investment announced is SABMiller plc (OTCMKTS:SBMRY) (LON:SAB)’s plan to invest $100 million to expand its brewing facilities in Ghana. This $100 million investment will double the company’s brewing capabilities in Ghana.
Beer and alcohol consumption generally rises as countries develop and incomes rise. The more money people have, the more they can spend on non-essential goods, such as beer. The World Bank projects sub-Sahara Africa growing by a solid 4.9% this year and an even better 6.3% next year. Some African countries, such as Rwanda, are even emerging as success stories.
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Africa’s middle class success story
Africa’s middle class is among the fastest growing in the world. Wal-Mart Stores, Inc. (NYSE:WMT) and other major international companies have been working to expand their presence in the region. With growth in North America and Europe peaking in terms of wealth and population, and Asia having evolved into a highly competitive market, Africa may represent one of the best possibilities for rapid growth.
The number of middle class consumers has expanded by 60 percent over the past decade to 313 million people. This nearly tops the entire population of the United States. While middle class consumers in Africa do not have as much discretionary income, earning between only $2 to $20 dollars a day, they do represent a potential source of growth and consumption. Still, 61 percent of Africans remain in poverty, earning less than $2 dollars a day.
Compared to only twenty years ago, conditions in many African countries are now far more stable. Numerous nations, such as Rwanda, Sierra Leone, and the DRC have suffered from traumatic civil wars and even genocide. While many African nations still suffer from poverty and must deal with corruption, conditions have been gradually improving. As conditions do improve, consumer consumption should rise, which will likely result in more beer being consumed.
SABMiller plc (OTCMKTS:SBMRY) (LON:SAB)’s moves make sense as the company was originally founded in South Africa. This should give the country a competitive advantage over other brewers as it is already familiar with conditions and cultural differences across Africa. Although SABMiller plc (OTCMKTS:SBMRY) (LON:SAB) has since moved its headquarters to London, it still remains very active in the region. The company is already South Africa’s largest brewer and has even been brewing cheap, traditional cassava beer to woo local consumers.
SABMiller reported strong growth in Africa
SABMiller plc has already reported strong growth in consumption in Africa. The company also notes that African countries are “more concentrated”, which will make distribution across the continent easier. SABMiller plc (OTCMKTS:SBMRY) (LON:SAB) considers Africa, along with Latin America, to be a sweet spot in terms of ease of distribution and long term growth potential.