eBusiness Weekly
The move this week by Delta Corporation, of all people, to ignore economic fundamentals and cut its own throat highlight, in dramatic fashion, the dangers of monopolies and the damage that can occur when a major monopoly goes off the rails but at the same time opens a sector that has been tightly controlled by that single supplier and allows big and small new entrants to make their mark.
Cash dollarisation of the Zimbabwean economy is not possible without exceptional economic damage. The fact that the money supply, at $9,4 billion is more than one and half times the annual export earnings shows, for a start, where the heart of the problem lies and outlines the appalling disaster that will occur if cash dollarisation is implemented.
There are simply not enough US dollars to fund an economic switch without a huge economic crash and the cutting of salaries and business by more than three quarters. Delta and others need to remember just how tough things were in early 2009.
The only solution is the one adopted by the present Government: keep money supply stable by sensible fiscal policies, to be precise by balancing the budget, and grow the economy and exports. It is not a quick fix, but there are no quick fixes and only one certain fix, the one being followed.
And cash dollarisation by a company whose inputs are overwhelmingly paid for locally — most raw material, all labour charges, all utilities and all services — just does not make sense. Following the example of others by boosting exports and, when no other option presents itself, raising prices a little to cover the higher cost of the small percentage of imported inputs sourced through a Zimbabwean exporter, would have been a more sustainable solution. But perhaps the pressure came from the ultimate controlling interest in Delta, Anheuser-Busch InBev SA/NV (AB InBev), a huge conglomerate that brews around 30 percent of the world’s beer. Delta is, literally, just a drop in that global ocean.
What is so tragic about Delta’s decision to charge hard currency for its products, is that the company has made such sterling efforts over the decades to build itself into one of the major Zimbabwean agro-processing companies, converting Zimbabwean-grown maize, barley and sorghum into a range of lager-style and opaque beers and recruiting, training and developing a large staff of Zimbabweans into the technical and marketing experts that comprise its entire payroll. Production imports are limited to hops, a critical but minor ingredient in clear beer, and packaging materials, admittedly a higher percentage of total costs since the switch from near exclusive use of reusable glass bottles.
On the soft-drinks side there is probably a higher imported percentage of costs, since Delta bottles international brands that require imported flavour concentrates to be added to Zimbabwean sugar and water, but there is another franchise holder of a global set of brands plus a couple of pure Zimbabwean manufacturers who have shown considerable foresight in launching their own brands.
However, thanks to Delta’s decades of development, smashing its monopoly will be rather easy now that it has opened the door. Farmers know what varieties of grain to grow; thousands of Zimbabweans know how to brew beer. The raw materials and the skills are there. What will be required is investment and possibly some regulatory changes.
For a start it is quite legal to brew beer at home for personal consumption and offer to visitors. Selling it is illegal. But home brewing is likely to become popular. Traditional opaque beer is the easiest to brew at home but home brewers do need to choose the right variety of sorghum, know how to process it and how to make the beer. Skills have been lost in many families over the decades.
But a business person, perhaps one of the specialised companies that is now processing the traditional foods appearing on our supermarket shelves, could perhaps find a few grandmothers who have a reputation of making a mean brew and assemble brewing kits, packs of the correctly processed sorghum of the right varieties, plus at least a starter yeast culture, and sell this with a suitable covered bucket and a set of instructions. Buyers would just add water and wait.
There used to be an enthusiastic group of home brewers of clear beer, with a Harare shop that sold all the ingredients in the right measures plus basic brewing equipment. The hobby has died out but again an enterprising business could restart it by assembling and selling kits. Admittedly these home brewers made a warm-fermented, or top fermented, beer rather than the cold-conditioned bottom-fermented lagers popular in Southern Africa, but the taste was apparently rather easy to acquire.
The next stage up for new businesses is the craft brewer. This is a rapidly growing sector in North America and Europe where the growth of huge industrial brewers, culminating in AB InBev, and the resulting billion bottle standard brews, has created demand for something a bit different and personal. There is already one such brewer in central Harare, well known to the cognoscenti, who sells three types of draught beer brewed on the premises and at Ecocash prices similar to bottled Delta beer in the bar next door. Zero packaging inputs must balance higher production costs.
It is not difficult to see that such modest sized businesses, run by people who know and love beer, could take off in Zimbabwe and even offer take-away beer. There are obviously licensing and taxation requirements but with the Ease-of-Doing-Business mantra these should be made simple and effective. Again there will be food processing companies that can expand by providing the suitable varieties of ingredients, almost all locally produced and processed.
Craft brewers could also arise in the traditional beer sector. It is extremely odd that a rich indigenous culture should now be represented by one brand and one taste when once every village had its own recipe. The experimentation to create a range of quality traditional beers should be enjoyable.
That will still leave room at the top for at least one more industrial brewer. Here we are looking for an investor willing to move into Zimbabwe. Most of the ingredients are grown here; skilled people are available and can be poached; indeed if Delta insists on cutting its own throat they might be readily available. It would be a good idea if there was some local participation in the investment. Again we need to ensure that doing business in Zimbabwe is easy.
A fourth scenario that might arise is AB InBev deciding to dump its Zimbabwean operation as not worth the bother.
It did this in Eastern Europe after buying out SABMiller just over two years ago. Here we might have to move fast to assist a management and local-shareholder buy-out and convert Delta into a true Zimbabwean company. It would be a challenge but one that would strengthen the economy.
The weird decision by Delta, or perhaps the weird decision imposed by AB InBev, has finally created the conditions for a serious growth in the beer sector and its supplier industries. This will not only end the de facto monopoly that is now proving so disruptive but will enrich Zimbabwean life. A people that prides itself on being beer lovers can surely do better than half a dozen varieties of bottom-fermented lager and one opaque beer, period, in an industry controlled by a single supplier.
