Saturday, June 22, 2024

Government shocks markets with alcohol levy

Government sent financial markets in a shock-wave Friday by imposing a 30 percent alcohol levy whose impact is likely to drive one of the titanic Botswana Stock Exchange companies to its knees and ignite inflationary pressures that would impact on the general economy.

In a statement released by the Ministry of Trade and Industry on Friday, the government said it “has decided to introduce a 30 percent levy on all alcoholic beverages consumed in Botswana as from October 1, 2008.”

“If there is no improvement, government will consider introducing additional measures, including the possibility of increasing the levy,” the statement added.

The bitterly contested move was initially mentioned two months ago when the government said that it intended to increase the levy by 70 percent but was stalled because an organization representing the captain of the industry wanted to make some presentations to government.

The new developments are likely to hurt the economy as the levy is calculated against the selling price meaning that the price of alcohol will go up by 30 percent.

KBL’s parent company, Sechaba Holdings, one of the big top five companies listed on the BSE, stands to be the causality on the board but it will pull down thousands of Batswana who have invested in its shares when it comes down on its knees because of the new measures.

Since the announcement was made some two months ago, the company, which was 1,33,014,875 shares on issue, has plummeted from 880 thebe to 1700 thebe ÔÇô shaving close to P 250,000 to date.

“That is the impact before the implementation of the levy. We are likely to see more and more people selling because of the new measures and this is going to leave more people less off, including those who invested through the pension fund,” one observer said on Friday.

One of the biggest victims will be the Botswana Development CorporationÔÇöthe government’s investment arm ÔÇö which holds 25.59 percent of Sechaba Holdings, whose share value is around P 600 million.

Further, alcohol accounts for 8.09 percent of the basket, which is being looked at when calculating inflationÔÇöand 30 percent of that would mean a big jump in the inflation rate which, according to the latest figures, stands at 15.1 percent.

If everything remains equal, it will mean that inflation at the end of next month will be as high as 17.5 percent- a move that would prompt the central bank to respond with an increase in bank rate. If the bank responds, it will push thousands of households into a debt trap, given the commercial banking sectors’ loan and advances which were given to households for the first six months of the year.

Barclays is topping the lead with a figure of P 3.5 billion in loans and advances to households in six month up to June.

Over the week, analysts were worried about the lending spree that is skewed towards households where the country is faced with high inflationary pressures, saying the default rate is likely to be high.

Some of the people who are likely to be affected include bar owners, restaurants, hotels and haulers who are currently engaged by the brewery.

On Friday night, KBL said in a statement: “ We have received with shock and disappointment the resolve of government to proceed with the alcoholic beverage levy, albeit at a lower level of 30 percent.

“We note that government has somewhat reconsidered its position. Notwithstanding, we remain resolute in our view that the levy in whatever form, shape or magnitude, will not solve the problem of alcohol abuse, if anything, it will exacerbate it.”


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