Sunday, September 20, 2020

Kgalagadi Breweries cautions government on the 70% alcohol levy

Kgalagadi Breweries Limited (KBL) has submitted a technical report to the Office of the President spelling out a gloom picture of what will befall Botswana should President Ian Khama go ahead with his planned 70% levy against alcohol.
KBL says while the introduction of the social levy may reduce sales of commercial alcohol it is unlikely to achieve the desired noble aim of reducing alcohol abuse.

On the contrary, the unintended consequences of cross-border trading, switching to cheap unhygienic home brew and further impoverishment of the poor are likely to exceed any benefits gained from reduced sales.

“The destruction of businesses that have contributed and continue to contribute to the development of Botswana, and the disruption of almost 42000 innocent lives due to job losses is most unfortunate and can certainly be avoided. We strongly recommend that the introduction of the levy be stayed until the scheduled workshops present to the authorities realistic and proven-to-work interventions,” says the KBL report.

The KBL report is a direct response to government challenge that, while there has been a lot of outrage at the government suggestions, nobody has so far been constructive enough to come forward with plausible alternatives on how best to tackle alcohol related social ills.

While government hopes to reduce alcohol consumption by the levy, KBL says the opposite is true. Even worse, KBL warns that the levy will shift drinking patterns towards illicit alcoholic beverages.

“The social levy is predicated upon the belief that significantly increasing the price of alcohol will reduce consumption. History, on the other hand, teaches us that, invariably, this never works. The possible exception is Islamic States, where the ideology of abstinence is shared by the masses.”
If KBL is to be believed, the ramifications of government action against the alcohol industry will be felt far beyond the confines of the industry as Botswana’s attractiveness as a destination for inward investment (and BEDIA’s) success in this regard will be diminished “by the perceived lack of transparency and consultation of policy makers and the resultant unpredictability of the trading environment.”

While it is not yet clear what modalities will be followed in implementing the social levy, the Ministry of Trade has been instructed to have put all the necessary infrastructure in place by September 1.

This is despite the fact that Government has not yet published the notice in the official Gazette as law dictates.

In their detailed report, KBL says the levy will bring about unintended consequences, chief of which is the 7000 job losses down the alcohol value chain.
This will impact on a further 42 000 lives who are dependents of the industry employees.
“A huge price differential within SADC will incite cross-border smuggling of alcoholic beverages, stir bootlegging and the creation of organised crime units and the sale of potentially harmful counterfeit products.”

KBL says, because the levy will make imported products cheaper than locally produced alcoholic beverages, local producers will, as a result, be disadvantaged as compared to importers.
Another unintended consequence is that “abusive drinkers in the lower income population will spend a greater degree of disproportionate spend on alcohol beverages.”

It is estimated that a 70% levy will lead to a correlating 70% drop in production volumes, “at which point the cost of production would outstrip profitability. The plant would have to be shut down. In addition our Maun, Phikwe and Kanye distribution depots will be closed.”

Among other things, the report, of which Sunday Standard is in possession, says that if the levy is introduced as government seems resolute then KBL will have no option but to close down its plant in Broadhurst (Gaborone) as it will no longer make commercial sense to operate the plant.
Not only will KBL and its sister BBL (Botswana Breweries Limited) see a drop in profits, it is projected that the holding company, Sechaba, which is listed with the Botswana Stock Exchange will lose P1 billion in market capitalisation.
In clear and non-apologetic terms, KBL decries the failure by government to consult before reaching a decision to slap the industry with the levy. KBL say had they been consulted, they would have saved P40 million investment plans they recently pushed ahead with.

As a result of the levy, and not least the failure on the part of government to consult, uncertainty also surrounds the lucrative contract KBL recently landed in the DRC (Democratic Republic of Congo) to supply that country with premium clear beer.
“There has been no consultation on this levy with the result that its implementation has been unexpected. Substantial losses are being realised as a result. We have, to date, committed in excess of P40 million in capital expenditure, an investment whose benefits and return on investment will not be realised.”

KBL further reminds government that the citizen economic empowerment drive started by the group about five years ago will also go under, with 100 direct jobs shed thereby impacting on an estimated 500 lives affected.

The report ends by reminding government that with the social levy in place, KBL Group will have no option but to also reevaluate their Corporate Social Responsibility programmes.

“Our contribution to CSR initiatives over the past 5 years has been in excess of P37 million. Our sports sponsorship within the period was around P21 million. We allocate funds to road safety, HIV/AIDS, Kickstart and other initiatives and, with the forecast decline in volume, our CSR Initiatives require a re-evaluation post introduction of the social levy.”
Instead of a “one-size-fits-all intervention” KBL recommends that there be a National Alcohol Policy under which stiffer penalties will be meted to transgressors.

KBL further argues that stricter enforcement of existing laws will go a long way in reducing alcohol abuse.

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Sunday Standard September 20 – 26

Digital copy of Sunday Standard issue of September 20 - 26, 2020.