In this interview, we explore the complexities facing Ethiopia’s beverage sector, featuring insights from key players like Coca-Cola Beverages Africa (CCBA) and Habesha Breweries. The discussion highlights the impact of government policies, economic factors, and social responsibility initiatives on the industry’s landscape. Here is an excerpt from Habesha Beer’s Corporate Communications and Government Affairs Manager Adane Teka and Coca-Cola Africa Legal Communications Director in Ethiopia, Niguse Alemu.
Capital: What are the implications of the government’s policies on the alcohol industry?
Adane Teka: Laws that are regularly referred to as tax reform have a huge impact on the beverage industry. Because the greater the amount of tax that the producer pays, the more they increase the price at which they are sold. Nine years ago, one box of beer was 192 birr, but now it’s 1,050 birr. It’s not just about taxes; it’s about related factors. The price of beer is set at an average of 70 birr. Due to the increase in prices, customers may reduce the amount they drink or may not drink at all. In particular, the excise tax has increased from 965 to 1,060 birr in the past.
Capital: The consumption rate of the beverage industry is declining, according to data. What is the impact of this on the production process?
Adane: If we look at previous data to analyze this in detail, for example, in 2018, the consumption rate per capita was around 12.8 percent in the surveys studied, but it has now dropped to 7.4 percent. This has to do with purchasing power. In the past, a person who drank four beers would drop to two when the price increased. Anyone who consumes two beers will not drink until the end. That’s why the opportunity to switch to traditional drinks is greater. Previously, there were radio and television commercials so that the product could be promoted well. Consumers had the opportunity to choose the product they wanted.
For example, if we look at how purchasing power is related to the consumption rate: bread that used to sell for 9 birr is now about 8 birr. When the price of beer increases, it is perceived as a luxury for the family, rather than a necessity.
Capital: What are the biggest challenges for the beverage industry right now?
Adane: The increase in taxes, the ban on advertisements that used to hang on billboards, and the fact that everyone who was on television and radio has been stopped continue to be serious bottlenecks for the beverage industry. That’s why some companies are going to shut down. Another major challenge is the increase in fuel prices, resulting in an increase in transportation costs. To offset those transportation costs, it will also be necessary to increase prices on the products. So there’s a huge impact on the value chain. For example, we pay for the transportation of raw materials from Djibouti to Debre Berhan, which is directly related to fuel. As a result, the cost of transportation increases, which is still the reason why the company is selling the product. In general, we will increase the product price and hand it over to hotels to cover other related costs, including taxes, so that the price increase will rest on the consumer to cover their costs.
The lack of foreign exchange is another challenge that needs to be addressed. We are not able to produce as much as we need due to the lack of raw materials coming from abroad and the shortage of foreign exchange.
Capital: What are the effects of the peace and security issue on Habsaha Beer and the industries in the sector, and what measures have been taken?
Adane: There are a lot of problems in our country that are related to peace, especially in the northern part of our country, which limits our ability to reach our goals because drivers refuse to go to the area due to the threats they face. In addition, due to the security problems in some areas, production has to be started from scratch to transport goods to those regions. As I mentioned, the cost of transportation is very high, and there are challenges in accessing the areas where we need to get our products. So, I think what happens is that when there is peace, there is stability.
Another issue is that we have lost customers due to security problems, primarily because of the lack of access to our products. We have agents who have started working for us; they are hired by local people. If the agents don’t have a product, they won’t have anything to sell.
Additionally, there will be a volume of sales that we have planned for that area, and if we don’t sell as much as we would like, we will lose our sales volume, which will affect our annual profit. As with any organization, if we don’t adhere to our plan, our costs will increase, and our revenue will decrease.
Capital: What are the challenges facing the industry due to the taxes imposed by the government?
Adane: The government has directed regions and cities to find ways to generate their own income. As a result, there are many places that have set up checkpoints everywhere and charge taxes on vehicles and goods. It’s not just concentrated in one area; these checkpoints require payments at multiple locations. If this continues, there will be an increase in the price of beer. It would be beneficial if there were a consistent system from federal to state levels to address this, and if the laws that were enacted could be reconsidered, or if the federal and provincial governments could pay more attention to revenue collection.
Capital: Is it possible that the government has paid little attention to the manufacturing industry?
Adane: If the manufacturing industries approach the government and highlight the problems they face, we need to ensure that the direction provided by the government is clear, and we need to understand our challenges as well. The current factories employ many workers, and the taxes imposed on them and their activities are paid to the government. This means that if these issues are addressed, the revenue generated will increase if companies are able to operate sustainably over many years.
However, it should be noted that companies can be shut down under the pretext that they generate a lot of revenue at once. So, if a solution to this problem is found, companies will be able to pay taxes sustainably, benefiting the country as a whole.
Capital: The taxes imposed by the government, what are the challenges facing the industry?
Niguse Alemu: This is exactly what is happening at the district level right now. Coca-Cola has a total of 400 cars. It distributes its products in every country. In the past, it was commonly called Kote, but now it is informal, especially in the Oromia region, where it is legally enforced. The bill was passed by the House of Representatives at 30 to 50 birr per bill. This adds 1 birr 50 santim bottles. As a result, we were forced to pay more than 90,000 birr for the increase in the amount of money we had previously paid. We can’t afford to increase the price of our products. It is not possible to increase it, since excise taxes have been raised there, and it and others have already raised prices to cover costs. In other words, there is another threat to the drinking industry. There are taxes that the federal government imposes, and they are being collected and paid. There are excise taxes, VAT, corporate income tax, and others that we are now asking for in addition to that. But I don’t get that hearing. No one is asking what they are doing at the federal level.
Capital: What are the implications of the federal government’s policies on the beverage industry?
Niguse: There is a directive issued by the Minister of Finance without adequate consultation, which states that beer and alcoholic beverages should have stamp duty on each of their products. It takes a lot of money to do it. From installing a machine, there are periodic stamp fees for them from abroad. This decision is a blow to the industry. Another legal framework should be taken into account by the industry: the increase we make rests on the consumer, which ultimately affects the consumer, thus making it more likely that the cost of living will be affected.
Capital: What are the implications for peace and security for Coca-Cola and the industries in the sector and the measures taken?
Niguse: If the issue of peace and security is not improved, it will become increasingly difficult to keep up with the market. For example, when we build a factory at the national level, we see the potential of the country. Two years ago, we built a very large factory on a scale that helps distribute it at the national level, so it’s not working at full capacity. We have a modern factory in the Amhara region, Bahir Dar, and when we built it, it was designed to be distributed to the Amhara region and the Tigray region. Now it’s not fully functioning. We don’t have the luxury of being able to drive our cars to full capacity. So we’re not doing as much as we can do in general.
Capital: Is it possible that the government has paid little attention to the manufacturing industry, like Coca-Cola?
Niguse: Yes, we don’t pay much attention to the industry, which is the polar opposite of the economy. There are gaps in the process of evaluating the work being done.
Capital: What are the steps taken to deal with this problem?
Niguse: We are not working at full capacity right now, but we have not done so when we can do more to support the national economy and create more jobs than we have now. But we are doing what we need to do to make the best of our ability. For example, we are working on a plan to reduce the amount of money that can be used to import.
Capital: What is the company’s work on Corporate Social Responsibility (CSR)? How is the outcome defined?
Neguse: Coca-Cola operates in 15 countries, including Ethiopia. Beyond profit, the company is more than just a partner to the community. We built a school on the beach that was in difficult condition. We did the same thing for another school. We’ve done a lot of work on empowering women and young people. Recently, we had 261 wood-carrying women engaged in various jobs during our project on Entoto Park. We also do a lot of work that benefits the broader community. We have provided clean water to 7,000 people in the area. The largest water project is being completed in partnership with Drop of Water on the coast, which will benefit 17,000 households.
