Picture: REUTERS/Arnd Wiegmann
Picture: REUTERS/Arnd Wiegmann

The announcement by the country’s two biggest brewers that they will cancel R11bn in capital expenditure should come as no surprise to the government which, despite mounting evidence of the economically destructive impact of the liquor ban, continues to outlaw the sale of alcohol.

The government is showing no sign of sensible compromise as it battles Covid-19. Its wholesale ban is based on the premise that it frees up much needed critical care facilities in public hospitals, which had an increase in admissions when government permitted the sale of alcohol after the five-week hard lockdown.

Foreign investors have long been wary of capital investment in SA. In January, for example, in a small room above the main plenary hall in Davos, a handful of foreign investors with interests in the country gathered to sound out the SA delegation, led by finance minister Tito Mboweni.

Among them was the finance director of Heineken, who added her voice to growing worries about the stability of the country’s energy supply. “Your power cuts really hurt us,” said Laurence Debroux. It was a message echoed by the few investors concerned about the future value of their capital. The feedback the firm received must have soothed its board’s concerns as it had further okayed expansion in the country.

Now, however, Heineken has pulled the plug on a new R6bn brewery at Inyaninga near the Dube TradePort. It would have been the multinational’s first big expansion since it built its first facility at Sedibeng a decade ago.

It’s not alone in withholding investment.

AB InBev has also cancelled R5bn in SA capital expenditure over the next two years.

The decisions will have long-term ramifications for not only their expansion, but will serve as a warning to other potential investors about the impact of government decision-making on their ability to get a return on risk capital.

The decision by the rival brewers, who between them make nine out of every 10 beers consumed in SA, comes as a direct result of the renewal of the alcohol ban, which has been in force for most of the lockdown, which began in March.

In addition, Heineken, the company which makes its flagship brand as well as Amstel beer and Strongbow cider, has also cut executive salaries at least until December amid continued uncertainty as to how long the ban on the sale of alcohol will last.

Without the prospect of being able to deliver product to customers anytime soon, both multinationals will suffer. This is despite the fact that both of them have the capacity to not only create jobs, but also pay billions in excise duties to a cash-strapped fiscus.

This week, the Bureau for Economic Research at Stellenbosch said the lockdown had cost the state R82bn in lost revenues to the middle of July.

“Excise duty collection, which includes levies on alcohol, tobacco products and fuel, fell by 42% year-on-year in the three months up to June,” it said.

This revelation comes even as Bloomberg News points out that SA lost more in tax revenue in the first three-and-a-half months of its fiscal year than it borrowed from the International Monetary Fund (IMF) and the African Development Bank combined.

The liquor industry estimates 120,000 jobs have been lost across the alcohol supply chain so far, and as a growing number of bars and restaurants close, unable to wait out the ban on alcohol sales, it will only get worse. The longer the ban continues, the greater the long-term devastation to the economy. Remgro-controlled Distell has warned of a bloodbath among the small independent liquor manufacturers that have spawned a vibrant craft industry in SA over the past decade. It warns that hundreds could cease to operate should the ban continue much longer.

What the industry wants now, at the least, is a time-frame for when the ban will be lifted. And it has made a series of proposals to government on regulation that might mitigate the worst effects of alcohol abuse on strained state resources.

But, would you know it, it’s still waiting for a response.

*Whitfield is an FM associate editor, and the author of ‘The Upside of Down’, which was released in recent weeks.

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