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Heineken in Africa

?. ?. Consolidations. Licences. Participations. Licence and Participations. Export. Heineken in Africa. Economic Impact Assessment (EIA) study of Sierra Leone Brewery Limited (Heineken Company) in Sierra Leone. For Companies:

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Heineken in Africa

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  1. ? ? Consolidations Licences Participations Licence and Participations Export Heineken in Africa

  2. Economic Impact Assessment (EIA) study ofSierra Leone Brewery Limited (Heineken Company)in Sierra Leone

  3. For Companies: Enables management to tune decisions more towards enhancing the local economic impact and thereby achieving a better fit in the society. For Governments: Understand the wider impact that a company has on development and tune policies and legislation towards enhancing it’s economic impact. For Non-Governmental Organizations (NGOs): Maximize development impact in cooperation with companies. Why Economic Impact Assessment (EIA) Study?

  4. Corporate entities in developing markets can be perceived like: “Earthworms” or “Eggplants” Earthworms take what they need from the soil, but put back rich humus. Thus they enrich the soil and leave it better than they found it. Eggplantstake all the goodness out of the soil and leave it totally denuded. They put nothing of value back and depend on the soil for sustenance Analogy by Darlyne Bailey and Rose Bator

  5. Foreign company Foreign company Economic activity Exploitation Industrial production Jobs Extraction of (hard) money Unfair labour practices Incomes and taxes Low salaries and tax advantages Corporate entities can contribute to development but some perceive them negatively Companies can contribute to development … … but some perceive their presence negatively Two views are two sides of the same coin

  6. September 8, 2006 Doing Business in sub-Sahara Africa • Doing business in Africa is hard work. The World Bank study measures things like red tape and taxes […….]. • But of the 35 least business-friendly countries, 27 are in sub-Saharan Africa. Some are impossibly hard: • if firms paid all taxes due in Sierra Leone, they would spend almost three (3) times their total profits [….].

  7. Taxes represent 33% of gross revenues and 50% of net revenues Sierra Leone Brewery Limited Indexed 2005 Profit and Loss statement of Sierra Leone Brewery Index(revenues = 100)

  8. Food Poor Poor Non Poor 24% of the people in Sierra Leone Have too little to feed themselves sufficiently Because they live on less than $0.35 per day Therefore they typically do not consume SLBL products 46% of the people in Sierra Leone Have too little to meet their broader daily needs Because they live on less than $0.75 per day They typically consume only locally brewed Star and Guinness 30% of the people in Sierra Leone Are not considered poor Because they live on more than $0.75 per day They consume imported Heineken and Star/Guinness SLBL impact on inequality can be quantified using EIA model SLBL specific information Household economic information Information about salaries provided by SLBL and the average dependency rate in Sierra Leone Information about how the three income groups earn and spend money in Sierra Leone eco-system EIA model definitions:Quantifying the effect of SLBL on inequality. Inputs

  9. Extract 1:The Sorghum Project (started in 2005) Imported Malted Barley Locally Grown Sorghum Since 2005, SLBL has increased the “local content” of its beers by partially substituting imported Barley with locally grown Sorghum.

  10. The Sorghum Project (started in 2005) December 2005

  11. Advantages of partially substituting imported Malted Barley (an essential ingredient of beer) with locally grown Sorghum: For Sierra Leone Brewery Limited: Reduced cost and reduced dependence on foreign currency Increased local development impact Increased local acceptance of the company For Sierra Leone Country: Money for local farmers – poverty alleviation Co-operation with NGOs and farmers to efficiently grow Sorghum Training of farmers who have never been involved in commercial farming Involvement of women in farming Construction of facilities (drying floors, warehouses, etc) Stimulation of co-operatives and credit groups The Sorghum Project (started in 2005)

  12. In 2005, Sierra Leone Brewery Limited spent USD 210,000 on the substitution project. Approximately 3,000 farmers participated. The indirect impact of keeping this money in the Sierra Leonean economy was estimated as approximately USD 790,000 which brings the impact on Sierra Leonean production close to USD 1,000,000. This increase of production generates USD 630,000 in household income. The economic effect of substituting Sorghum is very positive for the local economy

  13. Buying Sorghum locally benefitsthe poor relatively the most Distribution of household income increase over the three income groups(100% = USD 630 k) Household income increase per group

  14. Direct jobs provided (for employees and contract workers): 165 Jobs provided by distributors: 180 Jobs provided by retailers that can be attributed to SLBL: ~5,400 Jobs provided by suppliers attributable to SLBL:(including sorghum farmers) ~1,200 Total employments due to presence of SLBL: ~6,900 Extract 2: JOBS:(Because of the labour-intensive nature of its business, SLBL indirectly supports a large number of jobs.) • Each job at Sierra Leone Brewery generatesapproximately 40 jobs in indirect employment • 32 in distribution and retail • 8 in Sorghum agriculture

  15. (In)direct SLBL-related cash paid to the three income groups Consumption of SLBL products by the three income groups Net Cash inflow to the three income groups Non poor Poor Direct cash Indirect cash Food poor $ mln $ mln $ mln But SLBL’s presence generates indirect cash flows for the food poor (in the supply chain) Which makes them net beneficiaries ofSLBL’s presence Beer is only consumed by the poor and especially non poor but not by the food poor Although non-poor benefit the most from SLBL’s presence it is also beneficial for the food poor and the poor

  16. All SLBL Competitors only import brewed products. What would happen if SLBL ceased local beer production and reverted to only importing beer i.e.: Discontinuing local production of Star, Guinness and Maltina; On the assumption that the total beer consumption does not change in money terms and in origin from the three income groups; Also on the assumption that the tax rates and margins of imported (Heineken) beer remain unchanged. Extract 3:Local Production of Beer vs Importation

  17. An import scenario would reduce SLBLcash flows to industry by 64% Direct and Indirect cash flows from Sierra Leone Brewery to industry will be less by 64% USD (mln) -64% Current situation Import scenario

  18. Current cash flows to different income groups Cash flows to different income groups in import scenario Cash flow(USD mln) Cash flow(USD mln) In the import scenario SLBL would be a cash extractorfrom the point of view of households

  19. The simple message is: If you want local beer you have to brew it yourself!!

  20. Sierra Leone Brewery Limited behavesmore like a Bee than as a Locust. Thank You.

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