From malt to Bordeaux

Ethiopia’s rapid economic development and the general prosperity of its peoples is an issue which the government is pursuing with dogged determination. The agriculture centered growth strategy is based on the nation’s overwhelmingly agrarian character and its efficacy can not be understated as Ethiopia’s future is obviously tied to its vast and still largely virgin land.
These economic policies also envision manufacturing industries becoming more prominent in the share of GDP input. The development of industries that link up with the agricultural sector is a prime example of agriculture led economic growth.
Among these industries is the beverage sector and most notably that of beer production. Breweries by definition require large amounts of agricultural produce on a sustained scale. This arena is being effectively spearheaded by BGI-Ethiopia, a division of CASTEL Group, a global beverages company. Present in Ethiopia since 1998, BGI-Ethiopia operates two state-of-the-art bottling plants in Addis Ababa and Kombolcha, North Wollo.
The founding president is Mr. Pierre Castel, who was on a visit to Ethiopia for talks with PM Meles Zenawi on various matters, including the prospects of establishing a world class winery in Ethiopia. Teguest Yilma conducted an exclusive interview with Mr. Castel along with Mr. Jean Paul Blavier, BGI-Ethiopia General Manager and Marketing Manager Isayas Hadera during which Mr. Castel announced an ambitious new venture: high class vineyards and winery.

How is business in Ethiopia? How do you rate BGI Ethiopia’s performance?

Mr. Pierre Castel We have achieved excellent results and we are very happy with both our facilities at St. George Addis and Kombolcha.

Where do you place BGI-Ethiopia on the Ethiopian market?

Castel: To tell you the truth, we have reached 100,000 hectoliters per month. I think we have a little more than 50% of market share.

Would you say BGI has brought more dynamism to the Ethiopian beer market?

Castel: Yes, I think so. We have trained a great marketing team and today they are at a high professional level. We have also formed a very competent technical team and we are delighted with their performance. But I must say it is not very difficult to get good skilled labour here. I think this is one of the few countries in Africa where we can recruit personnel with ease and train them up to professional level. There is much potential in Ethiopia.

Isayas Hadera: The country was emerging from a command economy, so like we have done around the world, we applied our experience. To mention some, we have introduced new bottle designs, pasteurized draught, diversified products, new brewing technology and the distribution of coolers. Socially, we run an effective HIV/Aids support program. We also participate in the construction of sport stadiums, namely in Mekele, Nekemt, and Assela. In the historical and cultural arena, we finance the Dire Dawa Rock Art project.

What is the proportion of expatriates in your labour force?

Castel: Aside from the brew masters and the general manager, the entire team is comprised of local staff. When we set up an enterprise, we have a policy of employing locals, thereby helping in job creation.

Isayas - In 1998, when BGI started work here, there were at least eight expatriates; today there are only three, including the general manager. On a team of 24 management staff, there are 21 locals and three expatriates. Of course, during the installation and set up period, there were more expatriates. But we must note here that there was only one factory (St. George) while today there are two. So we have fewer expatriates while the volume of production has quadrupled.

What are your plans for the future?

Castel: We have reached sizable production figures, but in the beer industry the sky is the limit. Now we need to analyze the trends in market demand in order to further increase our client base.

What would you estimate is the size of the Ethiopian beer market?

Castel: Today the existing market is 2.4 million hectoliters. However there are a large number of consumers of traditional drinks like Tella and Tej, and we would like to draw a portion of this potential market.

How do you plan to do this?

Castel: Through a consistent supply of quality products and promotion such as beer tasting ceremonies which are very crucial as they have a great impact on the market.

Isayas: In addition, with the predictable rise in the purchasing power of the population, people will turn to consume industrial beer. Infrastructure developments such as roads and electrification in a remote area promote the beer tradition. As soon as a road is constructed, the demand for beer increases dramatically.

Jean Paul Blavier: Another important point to which we give a lot of emphasis and effort is the logistics and distribution. A case in point would be Western Wollo and Humera areas where our strategy was not to just concentrate on the main roads but to enter the villages and expand our distribution networks. If the product is not available, then the marketing alone is useless. So we made considerable efforts in terms of ensuring access to the product; which makes it easier to convince people to consume industrial beer. Ensuring that the beer is fresh and chilled is also another important marketing tool. It is a combination of all these efforts that give the desired outcome.

It looks as though you are well set up. Should we expect new investments, expansion or even plans to acquire other breweries?

Castel: Acquisition will not be possible as there are not any attractive enterprises put up on the market. So we can only conduct internal development.

What about the government’s privatization plans? The three beer factories were put on the market on various occasions.

Castel: Yes, but they were not successful attempts. We have four competitors who are also doing well, so I don’t see why they would be on sale.

Esayas: Internal expansion is our preferred choice. We have transformed the factory in Addis and based on market demand, we will focus on the internal expansion strategy and that could very well be at Kombolcha.

Blavier: It is clear that even if there were factories on sale and we were considering acquisition, the brewery we buy should bring us an added value whether it is at the marketing level or in technology. Maybe this was not the case four years ago but today, we feel more confident in internal expansion. So we would rather use the money this way than on new acquisitions.

Are there other areas of investment interest to you?

Castel: Yes, we are interested in vineyards and a winery. The Prime Minister is also interested in the production of high quality wine with first class grape varieties. This is a project under process that has been decided today. [31st January 2007]
Vineyards require a lot of work. First we have to send experts to start the plantation and plant the vines between 80cm. and 1 mt. deep. 500,000 grafted and ready to plant vines have to be imported in order to have good grape varieties. Importantly, this needs to be done at the right time in order to have high quality wine. We intend to grow vines from Bordeaux, France.

What level of investment do you have in mind?

Castel: It is very difficult to give you a figure now, without knowing the type of soil. In the first year, we plan to farm 100 hectares with the 500,000 vines. It is only in the third year that we get a harvest and then set up the winery. The very first bottle will be produced in the fourth year.

Would you be interested in acquiring an existing winery?

Castel: The winery we have in mind is of a different standard. We are aiming at vineyards with a winery that targets the export market. So we have to set up our own winery.

I understand you will need specific climatic and soil conditions for your vineyards. What region in Ethiopia do you think is suitable?

Castel: The government will offer us a choice of plots in various areas. We will need to take into consideration the precipitation and the quality of the soils. Only then can we decide on the location that will be most appropriate for this project.

What will the winery’s production capacity be?

Castel: We intend to produce around 70 hectoliters per hectare. So for 100 hectares, we can expect to get about 7,000 hectoliters which is around one million bottles a year of high quality wine for local consumption and for export to neighboring countries initially.

Do you have a similar experience in Africa?

Castel: We already produce export quality wine in Morocco and Tunisia where we are doing quite well. We also have a presence in Russia and China.

Was the winery the main topic of discussion during your talks with Prime Minister Meles?

Castel: Yes, it was and we also discussed other issues. The PM is very interested in the project. It’s something that he is passionate about and he has encouraged us enthusiastically.

This was not your first meeting with the Prime Minister. You seem to have a good relationship with him.

Castel: Yes I do. This is our third meeting. It would be difficult not to have a good relationship with him. He is very clear and precise in what he desires. To converse with him is a great pleasure. He is supporting the winery project fully.

Do you know when you will get the land for your project?

Castel: Very soon. The Ministry of Trade and Industry is in charge and they will not waste time. From my experience in Ethiopia, once something is decided, it doesn’t drag on like in some countries.

What was the outcome of your discussion with State Minister of Trade and Industry, Tadesse Haile?

Castel: We will send him the business plan with the programme, and as soon as the plot is allocated we will launch the project. We have a very good relationship with the minister, so I don’t think there will be any difficulties.

In terms of economic development, particularly with job creation, how do you think this project would contribute?

Castel: The wine production business requires staff for the vines plantation as well as the winery itself. So, many jobs will be created. It’s mostly the vineyards that require vast manpower. For 100 hectares it requires at least 40 personnel on a permanent basis.
Esayas: This is in terms of direct employment. But indirectly we will have individual farmers who could produce on their own land, say 10 to 15 hectares and we will buy back their production. This is the 2nd phase of our project. We will assist them in the beginning on the ramifications, so in four years time there could be 200 to 400 hectares that will be producing grapes.

How do you evaluate the African market and your standing?

Castel: I was 18 when I first came to Africa. So I know the African market very well. In some areas it worked well, in others with some difficulty. There have been ups and downs in my over 50 years presence in Africa but in general, and despite what some may say, Africa is not doing badly.

Which countries are important in terms of business turnover?

Castel: The biggest of course is Cameroon and then the Côte d’Ivoire and Gabon along with other small countries. And today we have the Democratic Republic of Congo that is starting off well. The DRC has for once conducted a democratic election and it now has a young leader who seems to be ready to unite the different groups and develop the country. However Ethiopia is also becoming a key country for the Castel Group.

There seems to be some kind of understanding or agreement, a consolidation with other breweries to direct the African market amicably instead of competing?

Castel: Absolutely not! We remain competitors. In the countries where our competitors do not produce, we enter into bottling agreements and produce their beer. For instance, we produce Guinness and Heineken this way.

Who is your no. 1 competitor globally?

Castel: I would say, Heineken.

What is your total production worldwide?

Castel: In terms of quantity, we produce 23 to 25 million hectoliters a year of beer and soft drinks of which Ethiopia contributes 1 million hectoliters.
There are of course numerous products such as wine, soft drinks, and beer, using our brands or bottling of other brands.

Would you say that Ethiopia was a wise selection for Castel Group?

Castel: Ethiopia has an economic growth rate of over 9% which is really great so we can expect an increase in terms of sales. Additionally, there is an abundant supply of water. There is a government that is maintaining such a high growth rate, which listens and evaluates conditions. So we are very encouraged as I was saying earlier.

Blavier: In Africa, one thing that should be said is that we had a difficult time but we did not leave. We stayed and took up when things got better. This paid off in the end and gave us a dominant position on the continent. Many breweries left during low periods. But by being patient, you can see that a country rises up again. Mr. Castel has been the only one who had confidence in Ethiopia and arrived first, resulting in the strategically advantageous position we have today.

What problems have you encountered here?

Castel: The market was really weak when we came here in 1998 and stood at one million hectoliters roughly. There was also the problem of taxation which was at 250% to 300%. We saw that it was practically impossible to start in these conditions. The local consumers could not pay for their beer at this price. So when I met the Prime Minister for the first time, I told him about this problem and explained that such rates do not exist anywhere else in the world. If a product is overtaxed it can not be sold.
He asked me to supply him with all the taxation rates in all countries. We collected the data and submitted them to him and two months later, the taxes were re-aligned with international rates. So today we have normal taxes. The state can also collect more tax revenue because the volume will be greater. It’s a win-win situation.

Any final comments? On the millennium perhaps?

Castel: The millennium is a very important event and a landmark occasion for Ethiopia. So we will contribute fully to its success.