FATSANI BANDA: Price stability continues to be an uphill battle

After a long period of silence from the SA Reserve Bank inflation has once again taken centre stage in the macroeconomic discourse. Last week the Bank presented its first monetary policy committee statement for the year, which indicated that it will take a couple of years for inflation to cool off.  

The inflation expectation for 2023 is that it will remain unchanged at 5.4%, and there is a slight upward revision to inflation expectations for 2024 to 4.8%. For 2025 the expectation is that headline inflation will come in at 4.5%.

In short, given the macroeconomic environment prices will continue to face upward pressure — indicating that both consumers and businesses will have to endure further constraints on their purchasing power and cost lines respectively.

For instance, the basic food basket has had to deal with sharp increases in the prices of bread and cereal products, amounting to 20.6% on average at the close of 2022, while maize meal prices rose 33.7% in the 12 months to end-December.

Domestic businesses have also had to navigate the knock-on effects arising from inflationary pressures emanating from geopolitical tensions in the east of Europe.

Rising input costs due to sharp increases in global commodity prices have subsequently affected global value chains, changing how cost efficiencies are achieved, if at all.

In this context, the beer industry and beer value chain overall have shown incredible resilience, even though our cost base, like many other local manufacturing industries, has been hard hit by large increases in input costs, the rise in power prices and the frequency of cuts, and water security issues in parts of the country, all of which have affected our breweries.

The beer industry has had to come up with new and sustainable ways to maintain operational efficiencies. However, the business environment has been tough, and filled with large uncertainties that the combination of fiscal and monetary policy must hope to propose answers for — if investment and employment are to return to pre-pandemic levels.

SA Breweries’ long-standing contribution to the national budget cycle and the tax consultative process has been to ask for greater certainty in the excise adjustment. This has involved tabling the suggestion that the medium-term budget policy statement provide a three-year excise tax outlook, thereby increasing the predictability of the excise adjustment. 

By design, the medium-term budget is intended to give the country a three-year view and associated estimations of what the macroeconomic environment and fiscal policy will shape up to be (if there are no significant economic structural breaks). While national budget legislation makes the proposal stickier to consider in a deliberate way, in the long term we still believe there is a fundamental missed opportunity to give a comprehensive tax outlook that provides details on excise tax expectations in the tabling of the medium-term budget. 

Still, it needs to be acknowledged that the continued variability of the excise adjustment above inflation has made business planning and investing a difficult task. Add to that an uncertain geopolitical environment and you have a beer industry compelled to show resilience due to two unknowns — an ever-changing macro environment and unfettered excise taxes, known for moving outside the parameters of the policy framework.

That’s a double hit of uncertainty, in low-growth and cash-strapped circumstances. If there was ever a time for fiscal policy to provide certainty it would be now, by keeping the excise adjustment in line with projected inflation for 2023.

• Banda is excise & public policy manager at SAB.