On Tuesday, the Botswana Competition Authority (CA) heard submissions from a team representing Anheuser-Busch InBev (AB Inbev), a public company incorporated in Belgium and listed on Euronext Brussels Stock Exchange, Mexican Stock Exchange, Johannesburg Stock Exchange and the New York Stock Exchange, and SAB Miller, a public limited company incorporated under the Laws of England and Wales with a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange.
AB Inbev is looking to acquire the entire issued share capital in SABMiller. AB Inbev is the largest brewer in the world and boasts a 25% global market share and SAB Miller is the world’s second largest brewer. Should the deal go through, it will result in a “massive producer generating about one out of every three beers made globally.”
The competition watchdog’s interest in the deal is because SAB Miller owns a 40% stake in both the Kgalagadi Breweries Limited and Botswana Breweries hence does business in Botswana. The remaining 60% is owned by Botswana Stock Exchange listed Sechaba Breweries Holdings Limited.
Leading the merger parties of the transaction at the public hearing was Rizwan Desai, a partner at Collins Newman and Company. Asking that the CA approve their submission, Desai said there were no competition concerns nor were there concerns for coordinated effects.
“There will be no material changes to the structure of the market in Botswana,” he said. Further, Desai highlighted that the merger will not raise input or customer foreclosure concerns. The reasons for this Desai said were that “merger parties do not operate at different levels of the supply chain and that they do not supply inputs to each other’s competitors nor are they customers to each other’s competitors. Possible termination of DBG [distributor of AB Inbev’s products in Botswana] will not lead to uncompetitive behaviour. And merger parties do not supply inputs to third parties in the beer industry in Botswana.”
Desai also said the merger will not raise any public interest concerns: “There are no significant overlaps in activities of AB Inbev and SAB Miller. In particular, AB Inbev does not envisage the merger leading to involuntary retrenchments. Also, stakeholders, including suppliers, will not be affected by the merger for the reason that there will not be any material change in the structure of the clear beer market in Botswana,” he remarked.
The CA Review Committee raised a number of questions, among them, the citizen economic empowerment question now that SAB Miller was being acquired 100% by AB Inbev.
Responding, Desai emphasized that SAB Miller was not citizen owned, rather was a publicly traded company listed on both the London and Johannesburg Stock Exchanges which stocks are available for purchase even to the citizens of Botswana. He stated that the merger will not affect the shareholding structure of both the Kgalagadi Breweries and Botswana Breweries which are owned 60% by Sechaba Breweries Holdings Limited.
“Sechaba is owned in part by some local entities including pension funds managers who represent Batswana. Also, there are citizen empowerment schemes currently in place and these will not change,” said Desai.
The review committee also asked about the plan to continue engaging local suppliers post-merger. Desai responded that the issue was not specific to the merger as the business structure of Kgalagadi Breweries was not going to change. “They will be no material change to the merged entity within Botswana as no productive assets will be added,” he said.
Finally, the review committee asked what transaction specific benefits woukd accrue to Botswana. “There will be no direct impact in Botswana nor will there be an enhancement of merger party capabilities in Botswana. However, Kgalagadi Breweries will continue to procure from local suppliers provided they satisfy commercial terms,” responded Desai. The CA promised merger parties a response in less than 30 days.
For the deal to go through, AB Inbev needs to win over regulators in several markets including Botswana but most notably the United States and China where divestitures are needed to win government approval for a merger. Fortune Magazine has reported that to win approval in the United States and China, the two markets analysts most fretted about, AB InBev has announced separate deals to potentially sail past antitrust worries. In November, AB InBev agreed to sell the 50% stake that SABMiller owns in MillerCoors to Molson Coors in a $12 billion transaction, while in March, it agreed to sell SABMiller’s stake in a Chinese brewer for $1.6 billion. Both of those deals are contingent to the successful closing of the bigger SABMiller deal.
Meanwhile, the South African market is not making things any easier for the Behemoth Belgian brewer. The South African Competition Commission is reported to want to extend the deadline again for its investigation of the merger "This transaction raises certain concerns which should be considered and addressed," Competition Commission spokesperson, Itumeleng Lesofe was quoted as saying. "It is for this reason that we need more time to evaluate the transaction." The commission had been due to finish its investigation on Tuesday but Lesofe said it can secure an extension of up to 15 days. It has already extended the deadline three times.
AB InBev is active in the production, marketing and distribution of beer, non-alcoholic beer and soft drink products. The company does not currently source raw materials from Botswana nor operate a brewery in Botswana. Its beer products are imported and sold in Botswana through a third party distributor DGB (Pty) Ltd. These products are Corona Extra, Stella Artois, and Beck’s Blue. DGB is a South African company engaged in distribution as well as manufacturing and marketing of wine.
SABMiller is a multinational brewing and beverage company, headquartered in the United Kingdom. Through its subsidiaries it is engaged in the manufacture, distribution and sale of various types of beverages, including brewing and hop farming activities, and offers beer, soft drinks and other alcoholic and non-alcoholic beverages. SABMiller has operations in 75 countries across Africa, Asia, Australia, Europe, and Latin America. SABMiller operates in Botswana through Kgalagadi Breweries (Proprietary) Limited which produces and distributes beer and non-alcoholic beverages.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”