Coca Cola bottling plant in Ethiopia shuts down

Elias Kifle | March 17th, 2009

EDITOR’S NOTE: Addis Fortune reports that Foreign currency shortage has forced Coca Cola bottling plant in Ethiopia to shut down. It is to be noted that Woyanne-owned or affiliated companies, such as Al Amoudi’s MOHA, are not facing the same problem. Importing material for building a large stadium in Mekelle is also not affected.

ADDIS ABABA (Addis Fortune) РThe newly operational production unit (left) with a capacity to fill 30,000 bottles per hour stays idle as East Africa’s door (above right) stays closed and trucks lined-up empty (below right)

For the first time in nearly half a century, bottlers of Coca-Cola and sister beverage brands closed their plant on Thursday, March 12, 2009, sending 1,000 workers on a forced annual leave, but with full pay.

The plant, located in Addis Abeba on Dejazmach Balcha Aba Nefso Street, and one of the two operated by East Africa Bottling Share Company (EABSC), was closed after instructions given last week to the Acting General Manager, Izan Bombom. The management told Fortune that the closure would be “temporary;” however, no one seems to know when production will resume.

The plant was quiet on Friday; machines were no longer running, and medium-sized distribution trucks, flourishing the company’s logo, were parked idle inside the compound. The scene outside was more revealing. The line of heavy trucks and trailers, that had been waiting for their load for the past three weeks had not yet disappeared.

But there were no workers to load them. Only a very few management staff members were still in their offices, and security personnel were guarding the facility when Fortune visited the complex.

Employees hope that this is just a temporary drawback.

“I expect to get my job back very soon,” an employee in the Supply Chain Department of the company, told Fortune. “In case this is not an alternative, I am hopeful that the company will do something for us.”

The supreme body of the company, the Board of Directors, are scheduled to meet next Tuesday, March 17, to discuss the crises, in addition to the regular agenda of reviewing EAB’s performance for 2008, sources disclosed.

The news of the closure of the plant was shocking to some of the shareholders. Dereje Yesuwork (Jambi) and Munir Duri, were two of the five shareholders informed about it by this newspaper when approached for comments.

“It can’t be true,” Dereje reacted on the night the plant was closed.

The company said it was forced to stop bottling beverage brands — Coca Cola, Fanta, Coca-Light, Sprite, Orange and Fanta Ananas (Pineapple) — and shutdown the plant because it is unable to import raw materials for production due to the shortage of foreign currency the country currently suffers from.

Recently, Ethiopia was confronted with a depilated amount of foreign currency in its reserve. This is what the International Monetary Fund (IMF) described as a positioning “into critical territory.” Ethiopia’s gross reserve, amounting to 906 million dollars in 2007/08, was the lowest recorded since 2004. Although modestly improved lately, and reaching an amount that could pay for seven weeks of the nation’s imports, commercial banks are no longer at ease with processing requests for letters of credit for imports of goods.

EABSC is one of the victims.

Restructured to its current format in May 1995, after businessmen bought the factory from the Privatization Agency for 10 million dollars, East Africa Bottling has been in continuous expansion. Its original shareholders – Negussie Hailu, Munir Duri, Bereket Haregot, Kassim Hussien and a fifth shareholder sold all or part of their shares to newcomers. Today, 73pc of the company is owned by the South African Beverage Company (SABCO), while Negussie Hailu, Munir Duri, Dereje Yesuwork and Abinet G. Meskel, own the remaining 37pc. The latter two are close confidantes of the Saudi tycoon, Sheikh Mohammed Ali Al-Amoudi, who, together with his wife, owns MOHA Soft Drinks Industry, bottlers of the competing soft drink, Pepsi Cola.

East Africa Bottling has grown so much ever since the mid-1990s. Its current capital is 400 million Br. Its expansion project, that cost 12 million dollars spent on procurement of two plants and a bottle washing machine, helped it enhance its production capacity from five million crates in 1995 to 21 million crates last year.

It was unable to fill a single crate of soft drinks beginning last week.

“Due to the current shortage of foreign currency, we are now faced with quite a shortage of crown cork,” said the management in a statement faxed to Fortune a day after the closure of the plant.

The management said that although it tried to substitute imported raw materials with locally produced ones, it was not able to substitute all of its requirements. Neither was the company permitted to receive loans of million of dollars from its major shareholder, SABCO, nor supply on credit for six months offered by Coca Cola International, as authorities from the central bank are reluctant to commit the country into debt, sources disclosed.

“The shortage is forcing us to temporarily stop the production of Coca Cola products,” EABSC said. “We are using this opportunity to maintain our machines and fleets.”

But there are many affected by this decision, in addition to the work force of the plant. Immediately hit are the 761 distribution vending shops, and the drivers and their assistants of the 250 trucks EAB contracted for deliveries. Around 35,000 outlets, scattered throughout the country will also be unable to serve Coca Cola and its sister brands for an unknown period. This will affect an estimated 150,000 beneficiaries involved in the value chain of the bottler, according to East Africa’s management.

And its customers are the most disappointed.

“Almost every customer asks for Coca,” a cafeteria owner around Piassa area, on Arbegnoch Street, told Fortune.

One of these could be Hagos Sahle, a Lada-taxi driver. He cannot spend a day without consuming Coca Cola.

“I am addicted to it,” Hagos told Fortune. “I don’t know what I am going to do.”

Industry observers see a wider effect of the problem than that simply confined to East Africa Bottling. Although bottlers of Pepsi Cola are still running their plant, owing to their opening of letters of credit earlier, they could face tough time in the months ahead should the forex crunch persist.

“We are alright so far,” Getachew Birbo, chief executive officer of MOHA, told Fortune. “We have planned our imports for up until June to July. And we’re supported by Dashen Bank; should there come the need, we’ll depend on the owner of our company.”

The two giant bottlers share the 40 million crates provided to the market almost equally. Nevertheless, Ethiopia’s soft drink market is estimated to reach at 100 million crates, 38pc of which is believed to be in the south. Both have series limitations in their capacity to satisfy this market, which is growing annually by 25pc, according to industry experts.

Industry observers believe it is just a matter of time before other beverage companies find themselves in the same position as the soft drinks bottlers, due to empty stock of raw materials. They anticipate that the breweries are next on the line.

By HILINA ALEMU | ADDIS FORTUNE

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