By Louise Lucas and Katrina Manson

Brewing in Africa is on a roll. With Americans spurning beer for spirits, British pubs closing at a rate of 16 a week and Russia slapping punitive taxes on ale, the $160bn industry is increasingly looking south of the Sahara.

SABMiller, which renewed its African adventures in earnest in the 1990s, is pouring $80m into a new brewery in Uganda, doubling the capacity of its Nile Breweries subsidiary. It also brings the brewer?s investment in the continent up to $1.75bn over the past four years.

Diageo, the distiller and brewer of Guinness, has invested more than ?1bn in the past five years. The privatisation of Ethiopian breweries was mobbed by multinationals last year, when Heineken picked up a duo for about $160m.

Africa is ?one of the most attractive emerging beer markets over the next three to five years?, according to Michael Steib, analyst at Morgan Stanley, who sees the main brake on growth as capacity constraints. ?The higher the beer production capacity, the higher the per capita consumption,? he says.

Only AB InBev, the world?s biggest brewer by sales, is absent. Its three main rivals, along with Castel of France, are forging ahead. Net revenues in the region?s $11bn market- forecast to surge on the back of young populations and economic growth – now make up 7 per cent of the global total, Bernstein Research estimates.

The brewers make generous margins in the region, estimated by Bernstein at 23 per cent on an ebit basis. That reflects the oligopolistic nature of the markets and, points out Mark Bowman, who heads up SABMiller?s African operations excluding South Africa, companies? use of returnable glass bottles.

Diageo, which has one in four of its employees working in Africa, says perceptions about the continent are changing from ?war, famine and poverty? to one that also offers opportunity.

?There is a bit of reframing going on,? says Nick Blazquez, president of Diageo Africa. The chief attraction is virgin terrain. An estimated 60 per cent of the population in countries such as Kenya are ?outside the formal market? – brewer-speak for those drinking hooch. Consumption is also low, at around one-tenth or so of South Africa?s 60 litres per capita per year, and economies are buoyant.

But there are challenges too. The political backdrop may have stabilised but currencies are still subject to big swings, and hedging markets are rudimentary. Distribution and infrastructure have improved (not least as a result of Chinese investment in resources) but are still far from standards elsewhere in the world.

?There is a real war for talent going on,? says Mr Blazquez – as the onslaught of foreign investment suggests. Currency volatility is partly addressed by local sourcing. Brewers are increasingly procuring grain within the continent, which ensures supply, gives a natural currency hedge and creates jobs for local farmers.

Governments, in recognition of the latter and also the role commercial brews play in weaning drinkers off illicit and sometimes life-threatening hooch, have responded by waiving or reducing excise duty. This in turn allows companies to create whole new markets. Lower excise duties mean SABMiller?s cassava beer is priced at a 70 per cent discount to regular beer. In Kenya, Diageo?s excise-free Senator Keg is bought by the mug for a quarter of the price of a bottled beer, and has generated sales of ?250m over the past four years.

But governments can still be unpredictable. Licensing laws introduced in late 2010 and designed to address the problem of alcohol abuse have unfairly penalised the legitimate industry, bar owners say.

At Simmers, a regularly packed downtown Nairobi bar, where live Congolese music is performed nightly for more than 300 people, beer sales have dropped by more than half. The fall is blamed on new licensing laws that forbid daytime drinking without food, and reduce night-time drinking hours.

?It has affected us so much – sales have really gone down, down,? says manager Carol Wairimu, as a disparate few

customers sip fizzy drinks at noon.

Ms Wairimu?s bar shifts as few as 80 crates a night, down from as much as 200.

Brewers were obliged to raise prices to offset the subsequent drop in volumes and the Kenyan market has flatlined while the rest of the continent soars. Simmers offers a timely reminder that in emerging markets, buoyant growth comes with risks attached.

? The Financial Times Limited 2012