SA Government should consider the impact of its domestic decisions on the southern African region

Media Statement

  • Intra country and cross border smuggling is the fastest growing segment of the estimated R44,5 billion illegal alcohol trade market
  • Some SADC countries are achieving higher vaccine coverage rates than South Africa

South African Liquor Brandowners Association (SALBA) has urged the South African Government to align its country’s response to the emergence of the Omicron variant of COVID-19 with the responses of other southern African countries equally affected by the unjustified travel ban that has been imposed on the region.

SALBA spokesperson Sibani Mngadi said the economies of SADC countries are interdependent and economic restrictions in South Africa have implications for the neighbouring countries as well.

“When South Africa bans domestic alcohol sales, the stock we sell to neighbouring countries ends up not leaving South Africa’s borders. Instead, it is sold domestically in an increasingly lucrative illicit market in South Africa. We cannot allow this lawlessness to happen, undermining our own South African Revenue Services,” said Mngadi.

Alcoholic products are sold from South Africa to neighbouring countries without customs duty on the understanding that they are liable for duty at the destination country.

“These products become highly competitive in the South African market as we sell them duty-free. When they are sold in South Africa, they have almost a 50% pricing advantage over local drinks that have paid taxes,” said Mngadi.

SA decision to ban domestic alcohol sales also undermines the tax revenue potential of countries within the Southern African Customs Union (SACU) who depend on South Africa for collecting all excise tax revenue and redistributing it amongst SACU countries (Botswana, Lesotho, Namibia and Swatini).

“South Africa will need to learn from other SADC countries. Zimbabwe has not banned alcohol sales since the beginning of the COVID-19 pandemic. But Zimbabwe and Botswana have managed infections and have a higher vaccine coverage rate than South Africa,” said Mngadi.

A commissioned report, Illicit Trade: Alcoholic Drinks in South Africa in 2020 (Euromonitor Consulting), indicated that alcohol smuggling operations were the fastest-growing categories of illicit alcohol trade in 2020 thanks to high-profit margins for spirits. Smugglers have a profit margin of around R90 per bottle that they can play with due to no excise tax paid.

The illicit alcohol trade has grown at a compound annual growth rate (CAGR) of 17% since 2017 and now stood at 12% of the R177.2 billion total industry market value. By 2026, the illicit market will be worth R44.5 billion.

The loss to the fiscus is staggering. According to the report, the illicit alcohol market in 2020 was worth R20.5 billion, of which 42% is attributed to smuggling. The loss to the fiscus was R11.3 billion, of which 39% is attributed to smuggling.

“The report confirmed a clear correlation between the sales ban and the increase in the demand for illicit alcohol. The tragic indirect consequence of this has been the rise in homebrew consumption-related deaths and an increase in criminal activities,” said Mngadi.

The alcohol sector is committed to work with SARS, the South African Police Service and other law enforcement agencies in tackling illegal alcohol trade. The Industry understands that viable and better alternatives, such as ramping up the vaccination programme, are more effective. We can tackle the pandemic without the irrational imposition of prohibition that threatens the livelihoods of many people whose jobs and access to income depend on the alcohol industry.

 

NOTE

Issued by FTI Consulting on behalf of the South African Liquor Brandowners Association (SALBA).

salba@fticonsulting.com