A costly oversight by Government: the economic impact of the alcohol ban

Jonathan Faurie
Founder Turnaround Talk

One of the first decisions made by Government in response to the Pandemic in March 2020 was placing the country under a State of Disaster. Under the Disaster Management Act, Government has the right to impose significant restrictions on the sale of alcohol and tobacco-based products.

While Government had its reasons for the ban, it was placed in an impossible situation because the alcohol industry is a major contributor to economic growth beyond the consumption habits of South Africans.

Turnaround Talk spoke to Sibani Mngadi, Chairperson of the South African Liquor Brand Owners Association, to find out more about the economic cost of the alcohol ban. 

The Governmental line
The alcohol ban has been a much-debated topic. Government has been questioned about its reasoning for the ban on numerous occasions.

Government’s response has been the same:  the Covid-19 Pandemic has placed significant pressure on South African hospitals many of which are on the brink of collapse due to failing infrastructure. There can be no added pressure on hospitals in terms of trauma caused by excessive alcohol consumption.

Government has lifted and reimplemented the ban on alcohol sales on many occasions. Every time this occurred, there would be long lines of consumers at liquor outlets binge buying to tide them over until the next ban.

The business case
While Governments intentions for the ban were noble, in that they wanted to reduce the significant pressure being applied to hospitals, it was heavily criticised because it seemed to focus on the consumption side of the coin. What impact has the ban had on the alcohol industry as a significant investor and employer?

A report done by the South African Liquor Brand Owners Association points to some shocking statistics:

  • the cumulative impact of the three alcohol bans has put over 200 000 jobs, supported by the alcohol value chain, at risk in the nation’s informal and formal economy;
  •  the sales revenue lost as a result of the bans is approximately R36.3 billion;
  • the country’s annualised GDP loss due to the bans is approximately R51.9 billion; and
  • tax revenue loss (excluding excise) to the fiscus from the value chain arising from the bans amounts to R29.3 billion.

Excluding the potential unemployment risk, South Africa lost an estimated R117.5 billion from the alcohol ban.

“The alcohol industry and its stakeholders share the Government’s concern over the pandemic and will continue to support meaningful measures to flatten the curve. However, the industry does not support outright bans on alcohol sales while alternative, effective and targeted interventions are available. A ban on the legal sales of alcohol is not an effective nor a sustainable measure to reduce pressure on the public health system. We maintain that there is no scientific reason for banning alcohol sales in relation to both infections and hospital admissions. Alcohol restrictions were imposed at the same time as the curfew, so it is disingenuous to ascribe the decline in trauma cases solely to the alcohol bans,” says Mngadi.

The alcohol industry is a major money spinner
Photo By: Adam Wilson via Unsplash

A driver of distress
As a driver of distress, one has to seriously consider the alcohol ban as a unique contributor. Both to the fiscus and to companies within the industry and its wider ecosystem.

The report points out that Kurt Moore, CEO, South African Liquor Brandowners Association (SALBA), said that not only is the industry and its people suffering, but the Government itself was experiencing considerable losses to the fiscus.

“According to the assessment, the tax revenue loss (excluding excise) to the fiscus from the value chain arising from the bans amounted to R29.3 billion (equivalent to 2.3% of tax revenue) and direct excise tax revenue lost across the nation was R8.7 billion (equivalent to 21.2% of excise revenue),” said Moore.

Moore added that the country’s GDP loss was approximately R51.9 billion—1.0% of the total GDP measured at market prices due to the three bans. “If you factored in the loss of potential total capital formation—some R21.7 billion (equivalent to 0.3% of national capital formation, or fixed capital investment in 2019)—then the prohibition measures could only be viewed as a national socio-economic disaster,” he said.

Patricia Pillay, CEO, Beer Association of South Africa (BASA), pointed out the industry’s financial loss was considerable with impacts on the industry and the lives and livelihoods of hundreds of thousands of people in the sector’s value chain.

“The sales volumes of around 1.1 billion litres lost during this period may result in a loss of more than R36.3 billion in sales revenue—the equivalent of 24.8% of total sales value for 2020 and projected sales value for 2021 YTD. The beer industry alone lost approximately R18 billion in sales throughout the three bans,” she said. “But the job losses are exceptionally damaging to society and the economy. More than 200 000 jobs, equivalent to 1.22% of national jobs in the informal and formal sectors are under threat due to the bans,” said Pillay.

Welcome reprieve
The Third Wave of the Covid-19 Pandemic has hit South Africa like a tsunami. As of 21 June, the NICD were reporting up to 50 000 tests completed per day. It is no surprise then that South Africans were expecting harsh lockdown measures to be reimplemented when President Cyril Ramaphosa addressed the nation earlier in June.

“The surge in daily cases of infections is a warning to everyone to remain vigilant and adhere to health protocols – Limiting the size and frequency of gathering; social distancing, hand sanitising and wearing a mask in public, are still the first line of defence against infection. Industry is supportive of a risk adjusted approach of applying measured interventions focused on hotspot areas and adherence to COVID protocols –  the alcohol industry has waged strong campaigns with its clients and customers to ensure that these health regulations and protocols are enforced throughout the value chain.  The alcohol industry has issued stern warnings to liquor traders to abide by regulations and has cancelled supplies to the alcohol outlets whose licences have been revoked by the provincial Liquor Authorities for contravention of the COVID-19 and liquor trading regulations. The industry has donated more than 200 million litres of pure alcohol when the country was facing shortages of sanitizer. It has supported government procurement of PPEs and other consumables for hospitals, and hired community patrollers to support compliance with COVID-19 protocols in outlets, as well as financially supporting the recovery of the restaurants, bars and taverns sector,” says Mngadi.

At 20:00 on 27 June, President Ramaphosa addressed the nation about the Third Wave of the Pandemic that we are currently experiencing. Another complete alcohol ban has been implemented which applies to both onsite consumption (bars, restaurants and taverns) as well as sales. What will the impacts of this ban be and will it place the industry into distress?

Jonathan Faurie is the Founder of Turnaround Talk.