Kenya’s drinkers will pay stiff price for new alcohol tax – EABL CEO Karuku

By Morris Kiruga
Posted on Thursday, 26 May 2022 14:52

Bottles of Tusker Malt beer are seen inside a crate at the East African Breweries Limited factory in Ruaraka factory in Nairobi, Kenya April 6, 2018. Picture taken April 6, 2018. REUTERS/Thomas Mukoya

East African Breweries (EABL) is lobbying Kenya’s parliament to reject a proposed increase in excise duty on beer and spirits.

“It will really depress volume because somebody will have to pay for it, and that, unfortunately, is the consumer,” says EABL Group CEO and Managing Director Jane Karuku. “In an environment where we were just beginning to recover, we should be more focused on volume growth and not tax growth.”

In March, Treasury Cabinet Secretary Ukur Yattani proposed raising excise duty on beer by 10%, an increase that the region’s biggest brewer is worried might undo all the progress made during its post-Covid-19 recovery.

Yattani also proposed raising excise duty on spirits by 20%, and on locally manufactured glass by 25%. He also proposed imposing a 15% excise duty on alcohol advertisements.

In May, however, after spirited lobbying by EABL and other manufacturers, Parliament’s finance and planning committee rejected the proposed tax hikes, among others. “Increase in excise duty on beer may increase uptake of illicit brew,” it said in its report, “…the excise rate had been revised in [2021] and should therefore be given some time before review.”

Source of revenue

A subsidiary of the global conglomerate Diageo, EABL is the biggest source of excise revenue for the Kenyan government. As the country’s largest brewer, it contributes the biggest share of excise revenue from beer, wines and spirits, which combined accounted for 34% of the total excise revenue on commodities and services in 2021, according to figures from the Kenya National Bureau of Statistics.

Yattani’s bill, plus the committee’s recommendations, will now move to Parliament for debate. The excise duty issue is expected to attract some pushback from the government and the Kenya Revenue Authority, which are looking to increase state revenues. However, parliamentarians are unlikely to allow tax hikes that will increase the cost of goods for ordinary consumers in an election year.

The likelihood of increased taxes in its biggest market is a major concern for EABL, which made sales worth KSh54.9bn ($470m) in the second half of 2021 – a 23% jump – compared to sales in the same period in 2020, when successive Covid-19 lockdowns directly affected the company’s supply chains due to countrywide bar and restaurant closures.

Its best-performing unit that year was Serengeti Breweries Ltd, its Tanzanian subsidiary, which grew by 15%, partly because it was unaffected by lockdowns.

In the second half of 2021, the company’s profit after tax jumped by 131% on the back of strong expansion in its three key East African markets, where it recorded double-digit growth. Although it remains predominantly a beer company, it has recorded the highest growth in spirits and Senator Keg, a low-cost beer marketed as an alternative to illicit brews.

Tough times

“It has been tough. Just when we were recovering from Covid-19 lockdowns, we [got] all these other hits,” Karuku says, referring not just to the local regulatory environment and looming elections in Kenya in August, but also to the broader global macroeconomic trends that have disrupted crucial supply chains and depressed household incomes.

“We expect depressed disposable incomes because our consumers have to deal with all these challenges at the macro level,” she says. “These disruptions and their attendant inflationary pressures are one of the reasons the brewer is lobbying for a more friendly tax regime.

We are worried about cost inflation, as freight costs have really gone up, as have the prices of fuel, glass, and many other things

“When you operate in Africa, there are always these shocks that come at you,” says the CEO. “But this is one time when everything has come very closely together. We are worried about cost inflation, as freight costs have really gone up, as have the prices of fuel, glass, and many other things.”

Nevertheless, Karuku, who took over the helm at the listed company in January 2021, is optimistic that the company can weather the storm. “Across the entire organisation, we are always looking at cost efficiencies, because that is how we fund our margins,” she says.

EABL turns 100

Karuku’s optimism comes, in part, from the company’s history: EABL turned 100 years old in May, making it one of the oldest companies in the region. It has a presence across East Africa with 10 factories in Kenya, Tanzania and Uganda.

It is considered a blue-chip stock in the three East African countries, and its decades of good results have built a strong financial brand. In October 2021, the company issued a Ksh11bn medium-term bond that was oversubscribed by over 300%.

The CEO sees her primary role as preparing the company for the next century of its existence. Beyond the immediate challenges, she is also focused on furthering the company’s goals of sustainability, gender inclusion, and positive drinking.

The company is planning to shift to 100% green energy by 2030, mostly through solar energy and replacing the Heavy Fuel Oil (HFO) – a residual product of the crude oil refining process-it uses to fire up its boilers with biomass.

“We are not getting off the grid,” Karuku says, clarifying reports from 2021 that the company itself planned to generate more than 10MW of power by 2030 to run the business.

Karuku plans on a 50:50 gender balance within EABL within the next five years. “Diversity and inclusion help drive performance,” she says. “The fight for talent is tough, particularly for good women.”

To increase employee retention, the company offers six months of maternity leave in addition to annual leave. It also facilitates women in STEM disciplines, has a production line in Tanzania that is run by all women, and is commissioning a similar one in Uganda.

Regardless of the upcoming challenges, the business will continue, says Karuku. “Our purpose is [to] celebrat[e] life every day, wherever you are,” she says. “Over the years the business has learnt how to cope with such shocks. We will get through it.”

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