As South Africa ramps up taxes on alcohol, exports become more important

Feb 26, 2021

The South African government has proposed inflation-busting tax increases on alcohol and tobacco. Taxes on alcohol and tobacco already account for 3% of South Africa’s GDP. The move is a further blow to alcohol producers, who have been hit by 19 weeks of restricted trade as a result of the COVID-19 pandemic.

The South Africa treasury has forecast a 28% decline in tax revenue from alcohol excise tax due to the pandemic, and a three-year loss of R35bn ($2.3bn). It is forecasting a volume drop ranging from 21-24% for wine, spirits, and beer.

According to the WHO, South Africa has among the highest levels of alcohol consumption in Africa. Only Eswatini, Tanzania, Nigeria and Uganda consume more per capita. During the first ban on sales of alcohol in South Africa, which was designed to cut the rate of admissions to hospitals from alcohol-related injuries, the net death rate in South Africa actually fell even as the pandemic took hold.

South African trade bodies representing brewers, distillers and winemakers have reacted bitterly, warning of widespread job losses. The Beer Association of South Africa (Basa) called the announcement  “a kick in the teeth.” The South African Liquor Brandowners Association (Salba) warned of “tens of thousands of job losses within the sector” while wine trade body VinPro warned the increases “could inflict a final blow to many businesses that are already on their knees.”

Trendtype believes that higher taxes in South Africa will force South African distillers and winemakers to refocus efforts on exit markets. Those markets include the UK, where Brexit has made non-EU wine and spirits more attractive in price. Another market is Asia, where the Chinese market has provided high growth for winemakers and where a trade war between Australia and China is killing Australian wine exports.

Finally, other African markets will become more important. South African wine and spirits are already widely distributed across Africa. Most notably Distell has a wide distribution network. The expansion of supermarket chains including Shoprite, Pick n Pay and Game have also opened up markets like Nigeria and Ghana, with supply chains linking back into South Africa. Kenya especially is a popular market for South African wine because of the low price points and relatively good value of South African wine.

Overall, however, distribution practices are still haphazard, and while South African exporters tend to be more familiar with markets in the Southern cone (Namibia, Botswana, Mozambique, etc) they are less au fait with East Africa and West Africa. In particular, South African spirits brands are poorly penetrated and many wine distribution agreements are fairly transactional and focused on anglophone markets.

 

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