A conversation with Richard Adjei, CEO, Kasapreko Company Limited (KCL)
Like many other countries in the region, Ghana has long had an over-dependence on the extraction of the glut of natural resources with which it has been endowed. However, history is replete with evidence that without diversification into manufacturing and services and away from simple resource extraction, the sustainable and inclusive long-term economic development of nations remains an elusive goal.
Over the course of the last 20 years – particularly the last decade – there has been a significant shift towards increased industrialisation with many assessable benefits; one being the influx of Foreign Direct Investment (FDI).
For instance, despite projections by the United Nations Conference on Trade and Development (UNCTAD) that Global FDI inflows would decrease by up to 40% in 2020, from their 2019 value of US$1.54 trillion, Ghana has seen a more than 400% rise in FDI inflows in the first half of the year alone.
In 2018, Ghana became West Africa’s largest recipient of foreign direct investment (FDI) in West Africa, attracting US$3billion and raising its FDI inward stock to US$36billion in 2018, up from just US$10billion in 2010 and this was propelled by manufacturing as between 2015 and 2018, US$3.8 billion out of a total US$11.7 billion in FDI was in this sector and this trend continued in 2019 and 2020.
At the fore of this drive has been indigenous, wholly-owned beverage manufacturer, Kasapreko Company Limited.
Founded in 1989 by serial entrepreneur and businessman, Dr. Kwabena Adjei with the immediate aim of providing quality and affordable drinks to Ghanaians and the wider goal of facilitating economic growth. From its modest beginnings, Kasapreko has grown into a multinational corporation employing some 600 persons, almost entirely indigenes and has duly attained certification by the International Organization for Standardization (ISO).
The company’s flagship product – Alomo Bitters – has been well accepted locally and internationally, achieved great acclaim and has been responsible for a plethora of awards won. Recently, Kasapreko has expanded its portfolio, in terms of products – introducing wide range of alcoholic and non-alcoholic beverages – as well as markets – exporting to West, Central, East and Southern Africa.
Consistent with the current administration’s industrialisation drive, most notably, the flagship One District, One Factory (1D1F), Kasapreko has further expanded its operations locally.
With the African Continental Free Trade Area (AfCFTA) coming into effect, not merely to boost intra-African trade and raise income by US$450 billion, but to enhance growth, reduce poverty, and broaden economic inclusion by industrialising the continent. It comes, then, as no surprise to observers that Kasapreko was the first indigenous company to export under the agreement
In this wide-ranging interview, the B&FT’s Bernard Yaw Ashiadey and Ebenezer Chike Njoku sat down with the Managing Director of Kasapreko Company Limited, Richard Adjei (RA) on trade, portfolio composition, COVID-19, AfCFTA, ownership, taxation, health & safety, among other themes. The interview respected all COVID-19 protocols.
B&FT: What does being the first indigenous company to export mean for Kasapreko?
RA: For Kasapreko, we would like to take advantage of the business environment being created for indigenous business and the AfCFTA is one of the policies that has been introduced to boost growth through industrialisation. We thought it wise that once this opportunity is coming, we had to take advantage of it.
B&FT: Should it come as a surprise, to observers, that Kasapreko was the first?
RA: I do not think so. In the beverage industry, we are the biggest exporter and one of the largest exporters in the Non-Traditional Exports (NTEs) space. We export a lot to other countries within the sub-region and to the wider continent. It should not be surprising for Kasapreko to be one of the first to take advantage of the agreement. We were shipping to other African countries before the agreement. The agreement enhances our efforts that we have put in place.
B&FT: In your experience, were there any significant administrative bottlenecks encountered?
RA: I would not say there were bottlenecks. In Ghana, I do not think there were any problems, we got a lot of support from the relevant state institutions – everyone was excited that we were going to ship under the AfCFTA and we already have a culture of support for export.
We went through the rigors of learning all the requirements for AfCFTA and made sure that we met all the requirements before we shipped. I think the only issue we had was that when we shipped – we shipped to South Africa, which was seeing a rise in the number of COVID-19 cases, and there were restrictions on the consumption of certain goods including alcohol – that is the only issue that we faced but I think the support from the relevant agencies here in Ghana was very enormous.
B&FT: That is good to hear but are there any areas you reckon can be improved across the entire chain?
RA: I would say, better and improved communication between the shipping country and the country receiving the goods.
B&FT: When you say ‘better’ communication, what do you mean? Let me put it this way, does it mean other countries are not as prepared as we are?
RA: I would say so. With time, I believe such communication across Africa will improve the trade agreement and I think overtime, all the other countries will have a better appreciation of it. It came into effect only a few weeks ago so certainly, there will be a few hitches here and there.
B&FT: Was there a situation where because you are shipping under AfCFTA, you were not going to pay any import tariffs at the other end and these countries were saying you have to pay?
RA: Not necessarily. We shipped to one country but beyond that, we need to understand that tariffs are going to be reduced over the course of the next 10 years so it is not like it is going to be zero. However, it was certainly a reduction when compared to the previous years.
I am saying that the excitement about AfCFTA in Ghana may not necessarily be the same as in other African countries because the Secretariat is in Ghana, we have, perhaps, had more information than in other countries and I believe the government here was really pushing to make sure that companies benefit from this. But I do not think it has been the same across other African countries and I believe that would take time.
B&FT: What advice will you give to other Ghanaian companies that want to export under the Agreement and face similar challenges?
RA: They should communicate with the Ministry of Trade and Industry (MOTI) and make arrangements for any available support. At the same time, get the receiving countries on board before the goods set off. So get relevant information from MOTI, GRA and other institutions and ensure that the same is done in the receiving countries.
B&FT: Beyond South Africa, what other markets are being targeted?
RA: Beyond South Africa – which is one of our biggest markets – we are looking at areas where we have a relatively low profile, like the East of Africa – Kenya, Ethiopia and Angola are countries we are targeting within that sub-region. And once we have that done, we will be looking at the Eastern to Southern Africa corridor – the Common Market for Eastern and Southern Africa (COMESA) -and we hope to drive more in the Southern African Development Community (SADC).
B&FT: Whilst exporting, are you looking to set up manufacturing plants in some of these countries?
RA: For us, we are not looking at setting up ourselves but we are in discussions with some partners. We have a partner in Liberia that is looking at producing some of our products over there. We have another person in Nigeria, and we also have a company in South Africa looking at producing our products in those markets, so these are some partnerships we are looking at.
B&FT: Explain how such an arrangement works
RA: Two kinds of partners are ‘co-packers’ and distributors. The co-packer is just doing a job for you, instead of importing a finished product, say Alomo Bitters from Ghana to South Africa, we have a co-packer who does the work for us.
B&FT: So what is co-packing, how is it done and is it done at a fee?
RA: If for instance, there is a manufacturer that has extra capacity on their manufacturing line, they can produce for you as a service. What you do is send them your ingredients, and if possible source the packaging materials in the country where the co-packer is, deliver it to them, they produce, and then your distributor picks it up. So they are more or less like middle men. They produce for a fee and after they are done, your distributor picks it up.
B&FT: What about you setting up and doing the whole thing?
RA: So it is all about investments, if you are starting in a market, sometimes, you do not need to invest so much initially. You can start with the co-packing arrangement as the co-packer would have done the investments and are not utilising their investment 100%, so it is a win-win situation for the short to medium term.
So let us say a manufacturer has a line capable producing 100,000 units but is using 50% of it, they can offer to use the remaining 50% to produce for you and maybe after some time when your product is solidified in the market, you can then look at setting up. In this case, you do not have employees there; you do not have manufacturing plants there. You are not going to be paying for all these things. You just outsource the production to another company.
B&FT: But would not that require that the co-packer is not direct competitor?
RA: Not necessarily. We fight in the market; we compete in the market but in the background we collaborate. It is a purely business decision. That is how business is in the beverage industry.
B&FT: We know that there is a protectionist clause in the agreement which will allow countries ban certain goods that they produce and consider essential. Are you in favour of more protectionist stance?
RA: We all have to change our mindset from leaning toward extreme protectionism side to be more open-minded for a more open-market because it is all about opportunity for us. I believe that in AfCFTA we should look at specialisation, as not every country can produce everything.
Take Liberia for example, which is a very big manufacturer of rubber. Now imagine if all of Africa is buying rubber from Liberia. The same applies to Ghana with cocoa and pineapples or South Africa, with wine. So we have to look at specialising in various industries especially if SA produces wine at the cheapest cost, Ghana and everyone else does not have to produce wine, because if we produce, it will be more expensive for me. So l just get my wine from SA.
If I know I produce rubber and it is more expensive than Liberia, why don’t we get all our rubber from Liberia because it is the cheapest. So countries now have to look at specializing in different products so that Africa relies on them. I believe that AfCFTA gives the opportunity for specialisaton so that competition does not become so much but in the Fast Moving Consumer Goods (FMCG) space.
Certainly we will be opening ourselves up for competition but that also gives opportunity to become belter with regards to quality and pricing. As people are coming into your market, you are also going into other markets. Look at Bitters for example, Ghana is the home of Bitters; not many other countries can produce Bitters even some trees are only found in Ghana. So it is ideal that we export our Bitters into other countries and they also export something over there that Ghana does not have into Ghana. I believe that we should be open to the opportunity to specialise than competing so much in the same space.
B&FT: What would be your response to the accusation that only mega-companies are ready to benefit from AfCFTA?
RA: I do not agree, I believe the only struggle for smaller businesses is going through documentation but from my standpoint, I believe AFCFTA will be beneficial for many small to medium-scale companies. For instance, for us at Kasapreko, we engage with a lot of smaller companies; we engage with many smallholder farmers and this in effect makes them a part of the arrangement because the more we export, the more we do business with persons who might not have the scale to engage directly in export to say, South Africa. Many smaller businesses will partake in it through their interactions with the bigger companies.
For smaller companies who want to export directly, like I said earlier, they should engage with the relevant authorities and if they are able to meet the requirements, I believe there is enough support. But through the bigger companies, we will see people like a small label supplier, a small bottler supplier, who may not have the muscles to export by themselves, but through their engagements with the bigger companies, they will be able to.
B&FT: By what rate, in percentage terms, do you see the rates and tariffs dropping by in 2, 5 and 10 years?
RA: I expect a drop in the cost of doing business to be seen, mostly from logistic costs. Logistic costs account for one of the highest components of overall cost. You may be buying something from Angola directly to Ghana or from Tanzania but there are not many routes between the countries, the ship may have to Europe then come back to Ghana. So we expect some of these issues to be resolved now that trade is going to be more between African countries.
So I expect to see a decrease in the cost of doing business by as much as 30 % within the next two years and by as much as 50% in the next five years. That will be on the cost of doing business side, especially with logistics. On the duty side, I believe the government has a programme that stipulates the exact percentage by which the duties will drop by; some are 10%, others 15% and it is going to decline annually.
B&FT: We can scarcely speak about 2020 and 2021 without mentioning COVID-19 and its impact on businesses, broadly speaking, how has COVID-19 impacted your business?
RA: We have certainly been impacted by COVID-19, mostly negatively but also positively. For us, on negatively, it is obvious we have had a drop in sales of our products primarily because of the lockdown and the restrictions on movement and how it has affected social event events, from schools to funerals, for more than four or five months.
Obviously all of these things have affected the demand for our products, and drinks in general. We have also seen a drop in our exports with major destinations like South Africa, at the height of the pandemic, there was an outright ban on some imports and a closure of bars and other shops. Thankfully, now it is getting better.
Then, there is Nigeria which was also severely affected as the outbreak of the pandemic coincided with the drop in oil prices, which has significantly depleted foreign exchange in Nigeria as such, we have also not exported into Nigeria for some time now.
Liberia is another one. In Liberia, we had an incident where our distributor was caught up in Lebanon for some time so orders were very low.
But beyond these, we have also had challenges on the in the supply-chain side. Spare parts that would typically take approximately three weeks to be delivered when ordered now take upwards of two months, and we find the same with imported raw materials. This has resulted in higher shipping costs and increased lead time.
On the positive note, there was the production of hand sanitisers. We were able shore up the shortage of sanitisers in Ghana especially in March and April 2020. We were swift to halt some of our production lines and begin producing sanitsers on a mass scale, which brought the local price for sanitsers down, as a lot of people were price gouging.
This had the dual benefit of generating revenue for us but more importantly, driving prices down as we were not the only ones producing. Once we started production, other companies joined in, I believe this shows the importance of the manufacturing industry in Ghana.
It highlighted our ability to produce essential goods that we need, which we should, instead of relying on imports. There was also the production of facemasks and other Personal Protective Equipments (PPE), Inasmuch the net impact of COVID-19 on our business has been negative, mostly from a revenue standpoint, it has been offset by some positives.
B&FT: How would you say it has affected work-life, we know that many corporations have had to resort to remote working but considering the nature of your business not every arm can operate remotely?
RA: Certainly, it has had its effect on work life. For us, we have had some of the staff work from home with more flexible hours, at least, those that can. But majority, which are on the production side of things are not able to because they need to be physically present to operate the machines.
But certainly, we have been able to implement a lot of the safety protocols – social distancing and facemasks on site, regular us of sanitisers onsite to reduce the possibility of spread of Covid-19. IT, HR and customer service are mostly working from home quite effectively and there has not been a major issue to date.
Other matters (health & safety, taxation and ownership)
B&FT: Across the board we have seen a rise in awareness of health and safety, mostly as a result of the pandemic, how has that impacted your plan of action?
RA: For us, on the one hand, there is still the production of hand sanitisers for a certain category of the market but broadly speaking we are looking at introducing more products with vitamins and protein to support the general wellness of the body. This year, you should see more of such products from us.
B&FT: Closely related to that, we know that at the height of the first wave there was a lot of emphasis on traditional and herbal cures everywhere from China to Madagascar. Kasapreko is a big player in the herbal drink category. Is there going to be any added emphasis on herbal products?
RA: Indeed, there will be. We plan to introduce more products in the herbal space this year. Beyond the vitamin and protein products, we are going to introduce some herbal products, remember how we have heard of a lot of people drinking the Neem, it shows there is also a market for products like that, which Kasapreko will meet the demand for this group.
B&FT: For a business like yours, you deal directly with farmers and operate within certain localities, what steps are you taking to promote environmental sustainability?
RA: We have invested a lot into our own farms, we have a farm in Kosetenten, that is around the Nsawam area, and we have a big farm in Wassa area. We have adopted two strategies: one is to plant five trees for every tree that is depleted in the line of production. Secondly, we use the bark of trees for most of our herbal products and we know that if the entire bark is removed, the tree would die. So we educate the farmers, tell them to use half of the bark of a tree, cut vertically, so that the other half can carry water and other nutrients to replenish the tree. After about two years, the other half would grow. These are two things that we try to do for sustainability in terms of afforestation.
B&FT: There is a quote attributed to the Managing Director in 2014, who said the company had no intention whatsoever to list on the Exchange? But to remain wholly family- owned. Has that position hanged?
RA: One, we have not seen the stock market being as vibrant as other markets but I would say our position to stay as a wholly family-owned business has changed as we are looking forward to other investors into the company from government to Ghanaian shareholders to foreign shareholders. For us, partnerships are the way to go. You cannot stay alone in isolation forever; you will have to open up to other sources of funding.
You will have to open up to other partnerships, as the saying goes, ‘you can be 100% of 0 or 1% of a million.’ We are looking forward to partnerships in the future, not necessarily through the stock market but we are definitely looking forward to partnerships. There may be equity funds or strategic investors that come in the future but we have not necessarily looked at listing on the GSE.
We are open to partnerships in the future but family-wise we still want to maintain the majority stake, but in terms of future partnerships, we are certainly open to working with companies that want to invest in the business. If SSNIT invests, it is Ghanaians; if government invests, it is Ghanaians that are investing.
I was reading an article that talked about the 1D1F, government should be able to invest in the 1D1F, it should not only be private owned. Government can also take up 20%, 30% stake in these 1D1F companies. I think it is a good idea. We are in partnership with many companies. Dangote is vested in some many partnerships, that is why he is so big. A family business can only grow so much.
B&FT: How do we reconcile the contributions of alcoholic beverages to the economy, on the one hand, and also its adverse health impacts, on the other hand?
RA: For us as a company, about five years ago we used to be 100% alcoholic drinks-driven but we saw that that is not the way to go. We revamped our strategy to become a total beverage company, which we have been able to achieve, so we are currently doing 50% alcoholic and 50% non-alcoholic.
We also engage in sensitisation campaigns, especially targeted toward young persons, on the dangers of alcohol abuse. For everything, too much is bad. We have also started introducing more low-percentage alcohol products; we are also looking to introduce more non-alcoholic products. We are also aggressively promoting the consumption of herbal drinks as an alternative to sprits.
With the ban on celebrity endorsements of alcoholic beverages, I do not support it 100%. Celebrities can endorse alcohol, they can also at the same time preach to the youth not to abuse alcohol as the youth listen to celebrities.
The Food and Drugs Authority could have said if you are using a celebrity to promote your drinks, play your adverts after 8pm or 9pm or during certain programmes that kids do not watch. I believe that there are different ways to go about it. There are countries that alcoholic billboards have to be a certain distance from schools; there are different ways to go about it. A total ban is not the best for our industry but we cannot do anything about it. For me, if the government does something that they believe will curb the abuse of alcohol, we have to play around it and achieve our goals.
Certainly it is also affecting other industries because our radio adverts have gone down drastically. If there was more dialogue among the celebrities, manufacturers, the FDA and the media, we could have found ways to avoid the total ban.
B&FT: Have there been instances of the proliferation of counterfeit products?
RA: Sure, there have been instances but I believe it has gone down over the past year and half. The tax stamp is one that has come to help. The tax stamp can be scanned to see if it is fake or not. Where will counterfeiters get the original stamps as they cannot get it from the government? They have to resort to printing counterfeits which are easily detected and traced during routine inspections.
Due to the tax stamps, I believe counterfeits have gone down drastically, arguably by more than 70%. We have a taskforce between manufacturers and the Ghana Revenue Authority that meet and discuss some of these issues. Once we find a product with a tax stamp that is fake, we are able to track some of these. Retailers are also being encouraged to check the authenticity of the stamps. I believe the government is going to introduce the same into the garment industry and others like chocolate and biscuits.
To further explain, the government does not charge us, they know how many of these stamps have been given out so when they come to audit they know that Kasapreko was given perhaps 100 and there are 20 left, which means that we must have produced 80 bottles, and must provide tax for 80 bottles. Its introduction has really helped government bring in more revenue as its able to now track how much Excise Tax they are supposed to get.
Even though industry fought against it, the idea is certainly good. What we were against is the use of paper tax stamps. Other countries have digital tax stamps, like a QR code so as you are producing, you are slapping it on electronically.
B&FT: You once said it was going to delay production by 10%. Is that still the case?
RA: Certainly, production has gone down. For instance, shortage of the paper stamps or a breakdown of the machine halts production indefinitely, if it were digital that would be perfect. But government insisted, however, we still in talks with government.
Now government does not need to go around, they know that there is production going on at Kasapreko from their office. The digital is what we were and are still advocating for and surely there won’t be the need for the printing of paper.
B&FT: Do you recommend the adoption of the stamp in other sectors?
RA: If the government does introduce it, I will urge participants in whatever sector to accept it. I know government has spoken about it. It would weed out fakes even in the textile industry. Even at the port, importers of beverages have to put a tax stamp on it, before it leaves the port, this has reduced the incidents of importers evading taxes and quite frankly has reduced the number of beverages that are imported which has also boosted the local industry. I believe if it is introduced it will bring in more revenue.
Outlook for 2021
2020 has not been the best of years, even though we have managed to survived. Usually after elections the first year is slow, but we hope that government will continue to spend to drive the economy. We hope there is continued investment in infrastructure especially roads, and no significant hikes in utilities. Consumers should look forward to more products and we thank our consumers for their loyalty especially in these trying times.