Businesses are starting to count the cost of South Africa’s prohibition on the sale of alcohol, with more companies indicating that plans for expansion and hiring have been put on hold.
Heineken South Africa said in a statement on Monday (3 August) that it remains invested in the country and has a long-term commitment.
However, due to difficult micro & macro-environment challenges, and with the additional strain brought on by the Covid-19 lockdown with restrictions on alcohol sales, it cautioned that it has had to reassess a number of its expansion ambitions including exploring the establishment of a brewery in KwaZulu-Natal.
The ban, it said, is placing immense pressure on the industry to retain jobs, create new ones and contribute to the local economy.
“Local production is hampered, resulting in ongoing efforts by the business to implement cost-cutting measures including, but not limited to, salary cuts as we desperately attempt to protect the jobs of more than 900 employees.
“Approximately 117,000 jobs were lost in the industry during the first ban on alcohol sales.
“Currently, countless businesses that rely on Heineken have had to close their doors or scale down their operations because of the sudden nature of the government’s decision to stop the sale of alcohol.
“This has caused job losses and untold suffering, stress and panic, with an estimated one million livelihoods at risks,” Heineken said.
The announcement from Heineken follows a similar announcement from the country’s largest brewer, South African Breweries (SAB), which stated on Monday that it has cancelled R2.5 billion of scheduled investments that were earmarked as part of its annual capital and infrastructure upgrade programme.
These funds were previously scheduled as part of its capital allocation programme for this financial year, while an additional R2.5 billion planned expenditure for the next financial year remains under review, the brewer said.
Brands in the group’s portfolio include Black Label, Castle Lager, Brutal Fruit, and Hansa.
“The cancellation of this planned expenditure is a direct consequence of having lost (as at 3 August 2020) 12 full trading weeks, which effectively equates to some 30% of the SAB’s annual production,” said SAB’s vice president of finance, Andrew Murray.
“This decision is a result of the first, and current, suspension of alcohol sales which has led to significant operating uncertainty for ourselves, our partners, as well as colleagues in the industry, including participants in the entire value chain, and which impacts over one million livelihoods across the country.”
The investments that were being considered included upgrades to operating facilities and systems, as well as the installation of new equipment at selected plants.
SAB warned that its decision will also have an impact on the external supply chain companies that had been selected for these upgrades.
Drinks maker Distell, meanwhile, warned of the cost the prohibition will have on the country’s fiscus. Brands in the group’s portfolio include Hunters, Savanna, Nederburg and Richelieu.
“We have to ask whether an outright ban on alcohol sales can be justified when the damage outweighs the benefits and there are smarter ways to achieve the same objectives,” said Distell chief executive Richard Rushton.
“The alcohol industry has already lost 118,000 jobs and projections show that a nine-week ban now will cost another 84,000 livelihoods and R15.5 billion in GDP.
“The long-term damage will be immense – wine farms, restaurants, glass container manufacturers and taverners are all bleeding and many will not survive.
“We’re facing a structural decline in output capacity in an industry that supports almost 1 million livelihoods and accounted for 3% of SA’s GDP in 2019,” said Rushton.
“I fear the impact this will have on the prospects of an economic recovery for SA, but more importantly, the ability of people who lose their jobs to feed their families.”
He added that industry estimates show the country is losing R206 million in taxes every day that the alcohol ban continues – the equivalent of 1,000 teacher salaries for an entire year.
Almost 800 micro and SMME liquor manufacturers, from wineries to craft brewers, face bankruptcy because of the alcohol ban, it said.
The glass container industry, which supports 26,300 jobs, is burning R8 million a day to keep its furnaces running, with the alcohol industry making up 82% of its business.
“We understand the government’s duty to ensure there are enough hospital beds to meet the expected need during the peak of the pandemic,” said Rushton.
“But the economic consequences of a ban are likely to cause more suffering down the line, in terms of hunger and hardship, than it can possibly prevent now.”