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Distell’s exciting Kenyan adventure

SA can learn from the largest East African economy’s privatisation initiative.

Is this ironic or what? African countries are revising their Growth Domestic Product (GDP) figures to take into account new booming sectors and these revisions are providing a comprehensive estimate of their economies that will act as a further magnet in attracting foreign investors.

Nigeria has already surpassed South Africa in terms of GDP. According to IMF data, as a result of these revisions, Kenya will become the fourth-largest economy in sub-Saharan Africa, behind Nigeria, South Africa and Angola. Kenya’s economy, which is predominantly services-based, saw GDP growth of  5.5% in 2013. Unemployment in 2012 was 9.2%.  South Africa is battling to hold on to its economic dominance in Africa yet still our government entertains the notion of nationalisation of key industries.

So, when the Kenyan Privatisation Commission (they clearly mean business) announces it is selling a stake in the government-owned spirit manufacturer, bottler and distributor to a foreign private company it goes a long way in explaining what’s driving the country’s economic success.

Distell has a 16 year relationship with Kenya’s KHEAL (Kenya Wines Agency Holding East Africa). It has been producing, bottling and distributing several Distell spirit brands through its distribution centres in Kenya, Uganda and Rwanda. For Distell the acquisition of a 26% stake in KHEAL makes perfect sense. The East Africa Common Market has a combined population of more than 150 million and an economy boosted by recent energy discoveries. This fits well with the direction management wants to take the company by providing impetus for Distell’s aggressive expansion in Africa. The R105 million ($9.81 million) transaction gives Distell a foothold in East Africa from where it can invest in infrastructure and market its products.

The acquisition is Distell’s latest in a series of strategic direct investments on the African continent. By partnering with local players in joint ventures, Distell has make good progress in the last few years in key markets of Angola, Ghana, Nigeria and Zimbabwe. The BLNS market (Botswana, Lesotho, Namibia and Swaziland) remains important. The group has exposure in Tanzania and Mauritius through interests in unlisted associates.

More recently, in June, the company unveiled a bottling plant in Accra, Ghana. It has also secured land in Nigeria and Angola for manufacturing plants both of which are scheduled to come on stream in 2015. In the six months to December 2013 profits from sub-Saharan African markets outside South Africa contributed 55.1% to foreign revenue off strong volume growth across all categories.

Expansion into Africa by beverage companies began in earnest in the mid-2000s. SABMiller snapped up assets in Nigeria, Zambia and Namibia in a bid to benefit from emerging market growth between 2008 and 2011. Latest annual figures put contributions to earnings from Africa (excluding SA) at 14%. Other groups active in Africa have been KWV, which derived 12.4% of operating profit from its operations in Africa (excluding SA) and Diageo (21,6% but this includes Eastern Europe and Turkey).

President Zuma would do well to watch the success of East Africa’s biggest economy. Kenya’s Privatisation Commission, which was established in 2011, has plans to sell a 51% stake in five sugar millers to strategic investors in a bid to make the industry competitive. It also plans to sell its shareholding in the country’s oil pipeline company, its main power producer and three luxury hotels. It’s not difficult to guess into which country foreign investors will choose to channel their funds.

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