Data shows R36 billion in lost revenue due to impact of three alcohol bans

by | Feb 18, 2021 | Article

An assessment of the economic impact of the three alcohol bans in 2020, including the five-week ban between 29 December 2020 to 2 February 2021, which tracks the cumulative impact on the alcohol industry was completed on 12 February 2021, revealed the damaging financial implications of the government’s prohibition decree.

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).

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 2021YTD. 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 200 200 jobs, equivalent to 1.22% of national jobs in the informal and formal sectors are under threat due to the bans.”

Pillay said that the numbers spoke for themselves. “We stand by our commitment to being part of the president’s economic growth plan and the alcohol industry can—and does—play an important role as an engine of economic growth in SA,” she said. “The destructive economic effects of prohibition cannot be ignored and should not be reinstated again in the future. We again ask the Government to consider viable alternative measures that address alcohol misuse while maintaining the livelihoods of a significant number of people whose jobs and access to income are dependent on the industry.”

Convenor of the National Liquor Traders Council, Lucky Ntimane said that the impact of the bans has been devastating to the tavern industry and the entire alcohol value chain. “The country cannot survive such losses. The Government should find viable and better alternatives, and the sector has continually sought ways of collaborating with the Government to re-examine better alternatives to prohibition, said Ntimane.

“We urge the Government to work with concerned stakeholders and ourselves to find alternative effective measures that address the issues of alcohol misuse while maintaining the livelihoods of people whose jobs are dependent on the industry,” he added.

Vinpro Managing Director, Rico Basson said a valuable part of South Africa’s culture and economy had been damaged. “The wine industry is one of the country’s oldest agricultural industries and a unique asset,” said Basson. “We support 269 000 jobs throughout the wine value chain and contribute approximately 1.1% of GDP (measured at market prices) within the South African economy. The bans jeopardised the future of the wine industry.”

He noted that as a direct result of the alcohol bans, domestic wine sales were down by 20% (in volume). Additionally, the five-week export ban resulted in 300 million litres of uncontracted wine within 640 million litres of stock at a time when the industry had commenced with the 2021 harvest, which created a stock dilemma and placed huge pressure on storage capabilities.

“More importantly, the ban had significant socio-economic implications for our rural communities,” said Basson. “There were significant job losses among the farming community where each worker often supports more than six dependants. The impact of travel restrictions on wine tourism, which represents significant value for South Africa’s tourism industry, coupled with the prohibition of alcohol sales, has crippled the wine industry.”

Basson added that the South African alcohol industry and its stakeholders shared the Government’s concern over the pandemic and would continue to support meaningful measures to flatten the curve. “We do not, however, support outright bans on wine sales while alternative, effective and targeted interventions are available. The alcohol industry remains committed to principles of mutual public accountability, evidence-based methods and transparency with data and reporting.”

He reiterated that the alcohol industry continued to seek a social compact with Government, industry, and civil society to preserve the sector’s vital economic activity, save businesses and jobs while ensuring its workers’ safety, promote responsible trading and the sensible consumption of alcohol .

“The social compact aims to reduce the harmful use of alcohol and promote a culture of responsible drinking through a new compact with all affected social partners and stakeholders,” said Basson. “For each of the social compact’s focus areas – binge drinking, drinking and driving and underage drinking – stringent targets over the next ten years will be selected, in addition to suggested areas to collaborate with Government and civil society.”

A note on interpretation 

■ The methodology used for the analysis measures the impact of a shock to alcohol sales (i.e., the ban on sales) at a specific point in time. It provides a snapshot of transactions in the economy. The methodology does not control for dynamic adjustments in response to the ban on alcohol sales.

■ The impact of the alcohol ban on GDP is reported at market prices. GDP at market prices includes the alcohol industry’s contribution via net indirect taxes (i.e., indirect taxes (such as VAT and excise tax) subsidies). Therefore, some portion of the alcohol industry’s contribution to tax revenue is accounted for in the industry’s contribution to GDP at market prices. We nonetheless report the industry’s contribution to excise tax revenue and indirect tax revenue, and overall tax revenue separately to highlight the potential impact of the sales ban on Government revenue

■ The impact of the alcohol bans on employment and the potential threat of job losses. Companies implement various mitigation measures to stem retrenchments (such as wage reduction, reduction in hours worked, redistribution of remuneration, etc. The model does not capture these measures. Therefore, the impact on jobs presented does not necessarily result in job losses resulting from the alcohol ban.

■ The modelling captures the annual economy-wide impact of the sales bans, meaning that the results are annualised. This is practically implemented by allowing for a recovery in alcohol sales of 5 for beer, cider and FAB’s and 10 for the other categories. The recovery rates are based on estimates derived by the alcohol  industry from ePOS (Electronic Point of Sale) data, following the end of each of the previous prohibition periods. The measured impact depends on the assumptions used in the modelling process.

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