South Africa’s alcohol industry faces ‘economic abyss’ as alcohol ban continues
With the third ban now having lasted a month with no date set for its end, liquor associations say many members are now near closure.
The country’s alcohol industry – and associated livelihoods across the supply chain - had already suffered from more than 100 days of alcohol bans in 2020.
In a letter sent to President Ramaphosa today, liquor and tavern associations say the tavern sector is 'at risk of collapsing' and over 250,000 jobs are at risk of dissipating if the ban is not lifted by February 1.
‘Our members have reached their last mile’
The South African government introduced the third nationwide ban on the sale of alcohol on December 28: citing a rising number of cases, increased pressure on health services, and the threat of a new more contagious variant.
The National Liquor Traders Council and Liquor Traders Association of South Africa highlight their coalition of traders employs more than 282,000 workers, across taverns (250,000), bottle stores (18,000) and independent liquor traders (14,000). Together, these operate around 34,500 taverns, 4,000 bottle stores and 1,400 retail stores.
Such operations are often small businesses, 'being that of a hand to mouth type of enterprise and largely run by a breadwinner that supports all the key needs of a householding including eductation for the children'.
They are calling on the government to allow liquor sales to resume on or before February 1 ‘to avert a township economic catastrophe’.
In their letter to President Cyril Matamela Ramaphosa, the organizations say: “Our members have now reached their last mile in terms of survival and failure to fully open their businesses in the next seven days will render their existence as part of history. We fear that over 15,000 taverns will not be able to operate should something not be done to reverse the current ban.
"Almost 500 independent liquor traders operating as bottle stores have indicated that they will not be able to meet their rental obligations come month end January and this means their lease agreement will be terminated and licence to trade ground to a halt with over 3,000 jobs at stake in the bottle store space alone.”
The associations add they had not been consulted on the ban before it came into effect, and are able to propose ways for the sector to operate in a safe way during the pandemic.
Lucky Ntimane, the Convener for the Liquor Trader Formations, said, “Should the ban on alcohol sales not be lifted in a matter of days, and we envisage seven days to be a breakeven period, then we should be prepared to part ways with a significant number of the 250,000 jobs that are at stake this very moment. The situation is dire and requires urgent intervention at a level of the President to resolve, the first step of which is allowing the sale of liquor to take hold without delay.”
Earlier this month, AB InBev subsidiary South African Breweries (SAB) announced it will take on the South African government's third alcohol sales ban in court: challenging the constitutionality of the ban.
“Legal action is the last resort available to us to protect our employees, suppliers and all the livelihoods we support,” it says.
“Whilst SAB supports all lawful measures that curb the spread of the pandemic, including an earlier curfew to limit movement, reduced indoor and outdoor capacity at gatherings, measured alcohol restrictions by channel, and heightened law enforcement, we strongly disagree with the introduction of yet another outright ban on the sale of alcohol.
“SAB believes that any ban, including the current one, goes far beyond what is reasonable and necessary to contain the spread of the virus and unlawfully restricts various rights that are enshrined and protected by our constitution. These include the right to freedom of trade, the right to human dignity, privacy, and the right to bodily and psychological integrity.
“Challenging the constitutionality of the ban, which removes the South African public’s right as adults to responsibly consume a beer safely in the privacy of their own homes, is an integral part of SAB’s action. The damage to the South African economy and impact on the alcohol value chain arising from the ban on the sale of alcohol is, in SAB’s view, disproportional and unlawful.”
Meanwhile, the industry says the ban not only ‘plunges entire industries into a financial abyss’, but also reduces much-needed government revenue while promoting development of illicit sales of alcohol.
The South African Liquor Brandowner’s Association – which counts Distell, Diageo, Pernod Ricard, DGB, KWV and RGBC among its members - estimates that around 15% of the market is accounted for by illicit trade or organised crime: ‘a significant portion of market share in the hands of syndicates who have only been further entrenched by the COVID-19 lockdown period’.
Sibani Mngadi, Chairman of the South African Liquor Brandowners' Association (SALBA), said the industry supported the Government's efforts to curb the rising spread of coronavirus infections. However, such measures should be applied rationally and not merely resort to imposing the knee-jerk reaction of prohibition.
"The Government also has a duty to recognise the devastating social and economic consequences resulting from shutting down an entire sector of the economy," he said. "Apart from the resultant 'pandemic of poverty', the ban is creating, the increasing illicit trade in alcohol is a severe threat to the South African economy. There is an enormous loss of taxation including VAT and excise, as well as the loss of jobs contributed by legal alcohol producers and merchants to the fiscus."
It points to the publication of research from Transnational Alliance to Combat Illicit Trade, which “showed overwhelmingly that crisis-driven COVID-19 related prohibitions on alcohol beverages have… promoted the development of parallel illicit markets, plunging entire industries into a financial abyss and reducing much-needed government revenue".
In 2019, the alcohol sector accounted for 3.4% (R173 billion) of South Africa's nominal GDP. The Government is estimated to lose around R6.4 billion per year due to illegal alcohol trading, estimates SALBA.
Research conducted by the Transnational Alliance to Combat Illicit Trade sets out four recommendations for governments:
- Avoid prohibition laws as emergency response measures to protect people from the spread of virus. The benefits are conjectural, while the negative consequences are many and counterproductive to interdependent health, employment, and economic objectives.
- Ensure availability and access to legitimate products that conform with social-distancing objectives without inducing demand for illicit substitutes.
- Avoid the imposition of “emergency tax” increases on alcohol. A quick fix approach could end up being as reckless as the imposition of prohibition laws, resulting in lower consumption of legal beverages, smaller pools of tax collections and an increase in demand for untaxed, cheaper illicit alternatives.
- Ramp up implementation of enforcement measures to ensure that illicit trade activities caused by the pandemic do not become permanent features of the post-pandemic economy.