Founder: Turnaround Talk
One of the industries in South Africa that suffered the severe impacts of the Covid-19 Pandemic was the liquor industry. The lockdown enforced by Nkosazana Dlamini-Zuma created the perfect platform for the growth of the illicit trade of alcohol.
The South African liquor industry has been fighting hard for the past two years to try and battle this, only to be faced with the dual challenge of inflation and the energy crisis which is now impacting wine farms and breweries.
Yet, the industry was heartened by the 2023 budget speech. In this article, we take a look at the good, the bad and the ugly of one of South Africa’s key industries.
A key industry
South Africa’s alcohol industry is well known worldwide and its beers – such as Castle Lager, Carling Black Label, and Lion – are all highly sought after internationally.
However, south Africa’s legend was not built on beer alone. Wines such as Boschendal and Spier are also highly sought after and are viewed in the same light as French and Italian wines as some of the best wines in the world.
So how much does the alcohol industry contribute to the South African economy? According to a 2022 article by BusinessTech, the beer industry contributed R 71 billion in gross value added (GVA) to South Africa’s Gross Domestic Product (GDP) in 2022. That means that R1 for every R79 of the country’s GDP is attributable to beer-related economic activity. This means the beer industry made up roughly 1.3% of the country’s GDP.
The article adds that The South African beer sector spent R33 billion with local businesses on products and services. Payments of R7.6 billion went to providers of business services such as accountants, engineers, marketers, and lawyers, followed by producers of mineral products for cans and bottles (R6.7 billion), and then transportation and storage companies (R6.7 billion).
According to the Oxford Economics Study, beer supported 107,000 jobs, R6.6 billion in tax income, and R27 billion in GVA contributions to South Africa’s GDP through local procurement alone.
The restaurants, bars, pubs, clubs, sports arenas, and other hospitality establishments that sell beer to consumers make up the downstream value chain for beer. The downstream value chain of beer provided 68,000 jobs or 0.4% of all employment in South Africa.
Turning to the wine sector, a News24 article points out that in 2021, total export volumes grew by 22% to 388.1 million litres. The value of wine increased 12.1%, to R10.2 billion. Notably in 2018, export volumes of 420 million litres only fetched R9.1 billion.
The article adds that in 2019, export volumes fell to 320 million litres due to the impact of drought. In 2020 volumes dropped slightly to 319 million litres as the industry battled the impact of the Covid-19 pandemic on restaurant and holiday trade.
Picture by: iStock
Welcome relief
Like many nations in the world, South Africans are fond of a drink every now and then. Government has taken advantage of this in the past using sin taxes as a low hanging fruit to increase its coffers. However, this strategy has been questioned in the past with industry associations calling for a reprieve to ensure the stability of their industries.
In his 2023 Budget, the Finance Minister did not raise sin taxes significantly. This was a popular move, Liquor Traders convenor, Lucky Ntimane, said that Finance Minister Enoch Godongwana charted a clear path to recovery for the sector.
“The growth and sustainability of our businesses, which are the backbone of the township economy, relies heavily on the accessibility and affordability of the goods that we sell.
“The inflation related excise duty increases will ensure that we stabilise our businesses and set them on a path to growth,” Ntimane said.
However, he added that the power cuts were countering any growth.
Loadshedding pressure
Loadshedding is proving to be a major challenge for the alcohol industry.
An article by Times Live points out that brewers need at least nine hours of uninterrupted electricity supply to brew beer, which means load-shedding above stage 3 makes it impossible to complete this process.
“Power outages have also disrupted the delivery of raw materials to produce beer, as well as the packaging and delivery of beer to customers. Some craft brewers have invested in alternative energy supplies to keep their businesses operational, including generators, inverters and batteries. However, this has added major financial strain on these businesses who were still trying to recover from the Covid-19 lockdown.”
The article adds that, on average, production across the craft beer sector is down by 25 to 40%, while operational costs have increased by 15%. This loss of brewery income has forced some businesses to lay off workers, with many craft brewers indicating they will not be able to continue operating if load-shedding continues at current levels.
Power outages are having a significant impact on wine production as well as the industry as a whole. “Load shedding has forced us to constantly readjust our production and vineyard management,” says Peter Pentz, communications manager.
Wineries such as Groote Post have had to rely on generators to keep production going, despite the rising fuel prices in South Africa. “The costs of running a generator are extremely high, which significantly raises production costs.” This, however, is not a cost that the wine estate can pass on to the end consumer, as Pentz explains, as it is a very competitive industry, and they need to keep costs low.
Producers are facing challenges not only in the cellar, but also in the vineyards, particularly with the threat of rolling blackouts during the harvest season at hand. He goes on to say that where vine irrigation is required, a continuous supply of water is required. Failure to do so can have serious consequences for the quality of the grapes.
While wineries are suffering from frequent power outages, Pentz notes that there are several alternative power supply options available, but the ultimate responsibility remains with Eskom.
“Eskom has to get its ducks in a row,” Pentz says. “Alternative energy production, such as solar and wind energy, are viable options, but the initial investment is prohibitively expensive. That is still not the final solution, and the onus is on the national energy supplier to sustainably supply us with power.”
Despite these obstacles, Groote Post is determined to continue producing high-quality wines. “We have backup generators and other measures in place to mitigate the impact of the power outages,” Pentz says. “We’re also keeping a close eye on the situation and collaborating with industry leaders to find solutions to the ongoing load-shedding crisis.”
Picture by: Boschendal
Do all roads lead to Rome?
The meaning of the proverb: all roads lead to Rome is that different paths always lead to the same goal. Applied differently, one would assume that with the interventions that Government is putting in place to address the electricity crisis, will the patience that various industries need to have when it comes to loadshedding lead to a light at the end of the tunnel?
While it is crucial that Government addresses the electricity crisis, it is equally important for them to offer support to businesses who want to look for alternative sources of power. Taking huge industries off the grid, or at least significantly decreasing their demand on the national grid, will ensure profitability and will result in fewer jobs being lost. This will be a winning situation for all.
