Serious trade imbalances between South Africa and the European Union (EU) are creating unintended consequences due to the continued prohibition on the sale of alcohol in SA, Sibani Mngadi, spokesperson for the SA alcohol industry, has warned.
South Africa is the prime export destination for European spirits in Africa, with exports amounting to 255 million euros in 2019.
An Economic Partnership Agreement was signed between SA and the EU in 2016. It allows for the export of 110 million litres of South African wines duty-free into the EU region. In return, the EU exports mainly spirit products into Southern Africa. This trade is now constrained due to the extended ban on alcohol sales in SA. The agreement contributes R5.7 billion in net export earnings for SA on alcohol per year.
The South African alcohol industry, including the National Liquor Traders Council, the South African Liquor Brandowners Association (SALBA), the Beer Association of South Africa (BASA), Vinpro, the National Liquor Traders Council, as well as manufacturers, raised the alarm on Tuesday regarding concerns expressed by the European spirits industry regarding these trade imbalances.
“It is important for the government to consider the overall effect of the ban when deciding on the next steps in response to Covid-19 to avoid prejudicing important trade partnership [with the EU],” Mngadi said on Tuesday.
“With progress being made in the health response to the pandemic, it is critical for the government to further limit the negative impact of the ban in the local economy and on our international obligations as a country. We are calling for government to provide clarity in terms of timing of lifting the ban.”
His comments come against the backdrop of an alarm raised from withing the EU itself, warning that the continued coronavirus ban on the sale of alcohol products in South Africa is creating “incredible risks” between the country and its biggest trade partner, the European Union.
Ulrich Adam, director general of spiritsEUROPE, which represents the interests of 31 associations of European spirits producers as well as 10 leading multinational companies, says he understands that there are a number of economic and other consequences to take into account as part of the debate regarding the ban.
Yet, for European spirits producers, its export channels to SA are completely closed due to the ban and they want to emphasise that a more reliable road map to restoring the bilateral trade situation is urgently needed.
He urged the SA government to provide a clear and reliable timeline to quickly lift the total ban on the sale of alcohol.
He points to a similar pattern in Europe where bans on the sale of alcohol or significant tax hikes have increased illicit activity.
“It takes a long time to get people back in the legal system. Simply stopping a ban is not like switching a light off and then on again. Consumers will not just quickly shift back from illicit trade and it will likely take a long time to reach pre-ban levels,” says Adam.
As umbrella organisation for spirits producers in Europe, spiritsEUROPE has flagged its concerns with the European Union regarding the negative impact of the SA ban on alcohol sales.
“Europe has also been hit by the Covid-19 crisis and our domestic sales have been down 20% to 30%. We are, however, now seeing a recovery. This is, therefore, the moment where we want to warn that a further crisis should not be allowed to develop within the existing crisis to further hurt our bilateral trade in spirits. We feel this is a very valid argument,” said Adam.
“We must be mindful that a broader scenario of trade protectionism is not triggered around the world. While we understand the issues are complex, we have to make sure trade is possible and to the benefit of our trading relationships to boost our economic recovery. It is not a good sign that we are hampering our trading relationship when we should be helping each other to boost our economies.”
Nedbank chief economist Nicky Weimar agrees that spiritsEUROPE has a point regarding them not being to export to SA while SA can export to Europe.
“It does create an imbalance and, in terms of reflecting their side if the tale, it is not exactly fair,” she says.
She notes that, should the EU in turn decides to “retaliate” and slap a ban on imported South African spirits, that would obviously create a further very negative impact for the SA industry.
“We need all the benefit we can get, especially since our industry cannot sell alcoholic beverages locally, yet it still has the same costs to deal with. The ban is also increasing illicit activities,” says Weimar.
“Ultimately lifting the ban is a decision for the SA government to make, of course. It is already facing a gigantic budget deficit and jobs crisis.”
Mngadi says the SA economy has already lost an estimated R13 billion in direct capital investments with South African Breweries, Heineken, and Consol Glass all halting their capital expansion projects last week due to the ban.
The alcohol beverage sector is one of SA’s biggest employers, accounting for more than a million direct and indirect jobs. The ban is having a devastating impact on small farmers, distilleries, packaging companies and hospitality outlets, many of which now face bankruptcy, the industry warns. It is estimated that the total loss in taxes (excluding excise tax) for the initial nine-week ban on the sale of alcohol in SA was R13.9 billion.
“Assuming an additional nine-week ban will increase the potential loss to between R23.8 billion. The latter is equivalent to 1.9% of tax income (excluding excise tax),” spiritsEUROPE says.
“The total loss in excise taxes for the first ban was R4 billion. Adding another nine-week ban will increase the potential loss to R7.2 billion. The latter is equivalent to 17.6% of excise tax income.”