I first became curious about the Nigerian beer market after reading one of the opening chapters of Steven Drobny’s “Inside The House Of Money,” which profiled Jim Leitner of Falcon Management (whom the book introduced as an example of “The Family Office Manager”). One point in Leitner’s interview with Drobny that particularly resonated with me was that Leitner really loves The Economist, as do I. On his success as an investor, Leitner explained the weekly periodical’s role in his methods, and specifically in how he found Nigerian beer as a possible trade:

“I read a tremendous amount of books and papers, I subscribe to research services, and I read The Economist religiously. If somebody asked me how to get involved in global macro investing, I would say start with a subscription to The Economist, read it every week, and think about what you learned this week that you didn’t know the week before. If you read about an oil discovery, start thinking about how to develop it into a trade. The idea is to do as much research as you can just reading and thinking about anything in the world before reaching out to your network. . . [One] example is Nigeria. A few years ago The Economist had something on Nigeria, stating that average beer consumption had dropped from 34 liters to 3 and then rebounded to 4. That signaled to me that there must be a trade there. There’s something going on when beer consumption drops 90 percent in a hot country and then starts to rebound. We started buying Guinness of Nigeria, and it’s gone straight up over the last three years. It was as close to a no-brainer as you can get. I’m sure many funds wouldn’t want to touch it because of expropriation risk, illiquidity, and various other risks that they might have a hard time explaining to their customers, but to me, all that matters is performance. Nothing else.”

Nigeria? Beer trade? Really? I did some research. In fact, beer (and particularly stout) is still considered one of the fastest growing industries in Nigeria, Africa’s most populous country, and it is the most popular of all alcoholic beverages consumed, constituting roughly 96% of all alcoholic drinks sold. Last August, International Herald Tribune reported that Nigerian sales of Guinness overtook revenue in the stout’s native Ireland, making the African nation the second-biggest market for the beer outside Britain, accounting for 41% of global volume sales of stout (despite the fact that stout costs twice as much as lager) and half of the Guinness brand international market. And despite half the population, Nigerians drink more Guinness than Americans. Nigerian Guinness is brewed with maize and sorghum, an indigenous crop of Africa, and is produced in Nigeria, Kenya, Lesotho, and other areas throughout the continent, where the growing and importation of barley is restricted in an attempt to support the African grain industry and strengthen weak economies. Sorghum is the leading cereal grain on the African continent, with Nigeria holding the position as second largest producer of grain sorghum in the world.

Industry wonks point to several factors for Guinness’ Nigerian growth. One, there is a defacto duopoly in the Nigerian beer trade, with the principal players being the aforementioned Guinness of Nigeria, and the other being Nigerian Breweries, which is partially held by Heineken and in 2006 launched Gulder Max, a dark beer that it hoped would win over some of the market share of stout drinkers). Two, stout is considered very similar to traditional African dark beer. Right behind Nigeria, other key African markets for stout include South Africa, Cameroon and Kenya. And in South Africa, for example, stout is popular in lower-income areas and has a solid consumer base, particularly within the large Zulu population of KwaZulu-Natal. And according to a paper written by ethnoarchaeologist John W. Archer, entitled “Brewing beer: status, wealth and ceramic use alteration among the Gamo of south-western Ethiopia” published in 2003 in World Archaeology, the role of beer is even greater than even most beer industry analysts give it credit for:

“In recent times, one-eighth to one-third of grain crops in Africa has been processed and consumed as beer, which attests to the importance of beer in this continent. In many African societies, beer is a highly desirable luxury foodstuff that socially binds people together and serves to reinforce social hospitality and communality during ceremonial and everyday activities. It represents a common cultural marker of wealth and status; it is a commodity of reciprocity, hospitality and communality; it may represent a payment of tribute to chiefs, and is an essential food in the redistribution of wealth. The processing and consumption of beer pervades many cultural acts and, because of its great social, economic and political value, it is of great significance, both as a dietary staple and as a ‘luxury’ food.”

According to the IHT piece, Guinness poured money into a Nigerian-directed advertising campaign called “Guinness Greatness” which was meant to appeal to ‘cachet-seeking male drinkers’ and which made no qualms about making the sexiest ads possible. In fact, while EU rules on advertisements do not permit any reference to alcohol being good for the health or the libido, in Africa the alleged ‘aphrodisiacal qualities’ of the drink have more than enhanced its popularity. Add to the mix a rich cultural tradition of beer drinking that dates back to British influence and presence, and a newfound booming nightlife (see Lagos) and the decision by Diageo (Guinness’ distiller) to invest in Nigeria now seems like a no-brainer. Meanwhile, the Irish are spending far less time in the pub (where most Guinness sales habitually occur), especially in light of the nation-wide smoking ban in public places, and the fact that commutes are longer for the average worker.

In Nigeria, Guinness is sold in bottles as “Foreign Extra Stout” and has a higher alcohol content than the draft version sold in Britain and Ireland. But with an eye on what it perceives will be a stubborn increase in competition, further brand development is constantly being deployed and tinkered with. Foreign Extra Stout was recently launched in 300ml and 500ml cans, for example, because domestic beer is mostly sold in glass bottles and Guinness hoped that cans would be seen as a more trendy and convenient option. Back in 2005, Guinness Extra Smooth, a smoother version of Guinness with 6% (versus the normal 7.5% for Extra Stout, and 4.2% for Draft) abv, was introduced in Nigeria in an effort to target younger lager drinkers and encourage them to switch to Guinness. And in Cameroon, Malta Guinness Quench, a non-alcoholic beverage, was launched in 2007 and marketed as retaining the natural goodness of malt but combining the more refreshing qualities of traditional carbonated soft drinks.

Is beer still a viable trade? What would Leitner say? Catherine Mars, an analyst with Euromonitor International, writes that “Africa will be a key growth region for stout over the mid to long term, driven by strong demand in Nigeria (30% growth by total volume 2007-2012) and Cameroon (44% volume growth over the same period). Despite the introduction of challenger brands, Guinness is expected to maintain its leadership position in these markets although new brand extensions may be required to bolster Guinness’s position in the future. It is possible that the brand will follow developments in other markets. In Asia, for example, [we] have witnessed the launch of stout with added ginseng by players such as Carlsberg (Danish Royal Stout Ginseng in Malaysia) and Asia Pacific Breweries (ABC Extra Stout Ginseng in Singapore).”  If ‘all that matters is performance,’ per Leitner’s standard, then the stout market in Nigeria still seems like the beverage of choice.