3 August 2014

Ethiopia: Salary Increment Catalyses Unwelcome Increase in Drinks Prices

The government has been placing pressure on bars and shops in addition to the major companies in the industry

The Competition & Consumers Protection Authority is threatening a product boycott if the beverages industry does not return to old prices. The threat came after the industry allegedly increased prices following the announcement of salary increases by the government.

The salary increase was announced on June 23, 2014, by Prime Minister Hailemariam Dessalegn, with no further details coming for the following five weeks. After weeks of speculation, the Ministry of Finance & Economic Development (MoFED) and Ministry of Civil Service (MoCS) finally gave more details on Saturday, August 2, 2014, with increases ranging from 46pc, for the lowest salaries, to 33pc for the highest.

The officials said during the announcement that the government would complement the salary increase with price controls and free shuttle services for government employees. It was a day before this announcement that the Ministry of Trade (MoT), the Addis Abeba Trade & Industry Bureau (AAT&B) and the Trade Competition & Consumers Protection Authority (TCCPA) called 41 beverage factories to urge them to reduce the prices they increased following the announcement of the salary increment. This call came with a warning, not only of boycott, but also a legal challenge if the prices do not go back to old rate within a week.

The price of beer to the consumers has remained the same in some bars, while showing an increase of three to four Birr a bottle in other places after May 2014. The TCCPA accused the Dashen and BGI breweries as being the only companies in the industry to increase their prices, while it accused Meta Brewery, owned by Diageo, of delivering its beverages to selected clients and creating an artificial shortage. But Meta denies the allegation, claiming it does not represent it.

So far, only the Dashen Brewery, an affiliate of TIRET and whose board chairman is the former head of Government Communications Affairs Office and veteran Amhara National Democratic Movement (ANDM) member Bereket Simon, is the only one that has reverted back to its old price.

The participants of the meeting included 32 bottled water factories, two soft drink companies, six breweries and the Ambo Mineral Water Factory. The government officials met the representatives of these companies at the premises of the MoT located on Tito Street in Kazanchis.

The discussion was called because the companies made the price increase following the news of the salary increase, according to Merkeb Zeleke, director general of the TCCPA. BGI Ethiopia - the maker of St George beer and sister company of Castel Winery, which made the highest increase of nine percent on its bottled beer and 0.5pc on its draught beer - argues that it made the changes as a result of the increase in the price of malt and prior to the announcement by the Prime Minister, according to Essayas Hadera, marketing manager of BGI Ethiopia.

BGI's additional reasons, according to Esayas, are the depreciation of the Birr and the 10pc increase in the price of fuel over the past year.

BGI gets 40pc of its malt from the Assela Malt Factory, which increased its prices from 1,695Br to 1,795Br a quintal, starting from July 8, 2104. The reason for this increase, says Amare Waqjira, managing director of the factory, was because the price of barley had been increased by 360 Br a quintal to encourage more farmers to grow the crop.

Assela Malt Factory increase price by 100 Br on malt, due to the competition with Meta Abo Brewery in buying barley from framers in the area, by adding 200 Br which was the initial price was 800 Br and now reached to 1,000 Br. The factory was contemplating to increase price three months ago, but a disagreement between the financial head and the general manger held the discussin up until recently.

Nurdein Mohammed, advisor at the MoT, believes that BGI's increase was motivated by rumours of the salary increase ahead of the Prime Minister's announcement, while Amare says that Assela's malt price increase could hardly be the reason, as the factory obtained less than half of its needs from the domestic factory.

"None of the companies presented economically viable reasons as to why they increased prices," says Nuredin.

The price of soft drinks and bottled water has increased by one Birr, while plastic bottled soft drinks showed an increase of up to two birr, according to Merkeb. He mentioned such water bottlers as Classy, Yes and Origin among those that had increased prices.

Two bars that Fortune talked to received a crate of beer for 215 Br - up by 8.6pc from the previous price of 198 Br. One bar is in its second month since it increased the price of all beer products by one Birr, while another still sells a bottle at its old price of 12 Br. The wholesale price of a bottle of beer has increased from 8.25 Br to 8.96 Br.

"We made profit at the old price; we still make profit," said a waiter at this bar.

The government has been placing the same pressure on stores and private schools over the past few weeks, warning them not to increase prices. The Addis Abeba Trade & Industry Bureau shut down 400 shops because of related problems, Merkeb said.

BGI, the main focus of the latest meeting, is in discussions with its management in France to respond to the government warning, according to Esayas.

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