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How Heineken beer survives in Congo

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THE Bralima brewery in Kinshasa, the capital of the Democratic Republic of Congo (DRC), is an island of modernity in a city where chaos is the norm. Inside a building near the docks where barges begin the journey up the Congo river, conveyor belts rattle as thousands of glass bottles are washed and filled with amber liquid. A generator hums to power the new brewing machinery, creating enough booze to fill 28,000 crates every two days.

Yet the real achievement of Bralima, which is owned by Heineken, a Dutch brewer, is not making the beer. It is what happens when it leaves the factory. Congo is one of the worst-connected, most dysfunctional countries on Earth. Four times the size of France, it has almost no all-weather roads. In large parts of eastern DRC, the state is a fiction and rebels control the roads. Yet there is scarcely a village where it is impossible to get a beer.

Bralima was founded in 1923. Its main competitors, Bracongo and Brasimba, both owned by Castel, a secretive French family firm that operates across Africa, have been there almost as long. They are among the only surviving companies from the colonial era. By his fall, and the start of the first Congo war in 1997, Mobutu Sese Seko, Congo’s flamboyant post-independence dictator, had looted almost everything else. Today Congo is falling back into conflict. Can the industry survive? And what can other companies learn from it about doing business in such a trouble spot?

Almost every other processed food in Congo is imported. Milk is brought in from France. But beer is patently local. Bralima, including its sales and the production of its raw materials, accounts for 2% of GDP, reckons its boss, Rene Kruijt. That is far less than mining, which makes up 22% of output. But with about 2,500 workers, the firm claims it is the biggest private-sector employer in the country. Primus, its main brand, labelled in the light blue and gold of the national flag, is “a source of national pride”, says Mr Kruijt, not implausibly.

Castel’s operations may be as large. The two compete fiercely. David Van Reybrouck, a historian of Congo, records how just a few years after a peace agreement in 2003, Bralima was instructing its marketeers to fight a war for business.

During the worst of the fighting itself, the real war and the war for business were arguably intertwined. Some even talk about “conflict beer”, on the same lines as conflict minerals. In 2013, when M23, a new rebel movement, emerged, two academics, Jason Miklian and Peer Schouten, estimated that third-party truckers selling Bralima’s beer might have been making payments to rebel groups of as much as $1m a year.

Today, no large towns are rebel-controlled but the work is almost as difficult. In 2012 Castel opened a brewery in Beni, a small city in the north-east of the country, at a cost of $125m. A year later, Beni suffered the first of dozens of massacres that have killed up to 1,000 people over the past five years. The roads out of the city are among the least secure in the world. Nonetheless, Tembo and Skol—Castel’s brands—are sent from Beni to markets far and wide.

Even moving in the peaceful parts of the country is expensive. Travelling 1,000km can take a lorry three weeks, at a cost of thousands of dollars. Producing beer in the DRC is also pricey. Heineken estimates that the cost of water alone is five times that in neighbouring Congo-Brazzaville. Even in Kinshasa, electricity is unreliable, making the Bralima generator—big enough to power a small cruise liner—necessary. They in turn have to be fuelled with imported fuel. And then there are the taxes and shakedowns.

Yet the companies also have impressive marketing and distribution operations. Beer companies in Congo are huge sponsors of music (so too are mobile-phone companies). The most popular stars can command large sums in exchange for endorsing Primus or Tembo—so much so that it has corrupted Congolese musicians, complains Lexxus Legal, a rapper. Meanwhile, the firms’ distribution networks are unparalleled. On the Congo river, barges operated by Bralima are among the only vessels left operating a regular schedule. Outside of the big cities, distribution is outsourced—presumably to people able to limit the extortion.

Can it last? In February, Heineken declared a €286m ($353m) impairment loss for 2016 in Congo, after closing down two of its factories. In western Congo, Angolan beer in cans—less tasty but cheaper than Primus or Tembo—has flooded the market. It is not sold at cost since the smugglers’ main aim is to acquire dollars to trade on the black market in Angola. In the east, as Joseph Kabila, Congo’s president since 2001, refuses to leave office, the violence is worsening. In South Sudan, another conflict-ridden failed state, the only brewery was forced to close in 2016. The South Sudanese now drink beer imported from Uganda and Kenya.

But in all likelihood, brewing in Congo will survive. Without Primus or Tembo, Congo would hardly be the same place. Even in wartime, the music plays—and who can listen to rumba without a beer?

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Japan still has great influence on global financial markets

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IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.

“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.

This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.

One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).

But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.

Tokyo storm warning

These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.

Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.

What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.

Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.

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