NIGERIA – Guinness Nigeria, a prominent brewing company, has announced its decision to discontinue the importation and distribution of select beverages supplied by its British parent company, Diageo, starting from April 2024.

The strategic move comes amidst a challenging business climate in Nigeria characterized by inflation and a shortage of foreign currencies.

The affected products include several flagship spirits brands, such as Johnnie Walker, Singleton, and Baileys, as well as other products imported under a sales and distribution agreement signed between Guinness Nigeria and Diageo in 2016.

The decision to halt the importation and distribution of these products was driven by Diageo’s plan to establish a new, fully-focused spirits business that will oversee the importation and distribution of its portfolio of international premium spirits in West Africa and Central Africa.

For Guinness Nigeria, this strategic shift will allow the company to refocus its efforts on its core business, which is the production of beer, as well as on activities that offer higher growth and value-added opportunities for the business.

The Diageo spirits portfolio accounted for only 6% of the company’s total turnover, which amounted to approximately $296 million at the end of the 2022/2023 fiscal year.

John Musunga, CEO of Guinness Nigeria, explained that this strategic change will help reduce the company’s foreign exchange requirements and mitigate the adverse effects of the ongoing foreign exchange shortages and exchange rate volatility on the company’s financial results.

“It will also strengthen the company’s capabilities in manufacturing, marketing, and distribution while reducing its exposure to foreign exchange risk,” he added.

Importantly, Diageo plc’s ownership stake in Guinness Nigeria is not expected to be impacted by this decision.

Despite the challenging economic environment, Guinness Nigeria managed to record a 16% growth in its net profit, reaching US$23.4 million in the 2022/2023 fiscal year, reflecting the company’s resilience and adaptability in the face of economic difficulties.

Nigeria’s annual inflation rate climbed to 25.8% in August 2023, from 24.08% in July and marking the highest rate since September 2005, reflecting the impact of the removal of fuel subsidies, the devaluation of the official exchange rate and security issues in food-producing regions.

Earlier this year, a recent investigation published by a local daily The Sun revealed that the high finance costs are eating into the earnings of Nigeria’s largest brewing companies threatening their ability to meet their financial obligations and by extension the future viability of the industry.  

According to the local daily, the high finance costs are a result of FX transactions done from the parallel market.

Forex is crucial for brewers as they need it to pay for materials sourced from abroad and to service dollar-denominated loans.

Net finance costs for Nigerian Breweries, Guinness Plc, and International Breweries Plc, the three largest breweries in the country, are for instance reported to have risen to N117 billion as a result of the surge in forex costs.