Policy certainty will stimulate investment appetite - SAB CEO
“We understand the role that regulation plays in the alcohol industry and it’s very important. I believe the alcohol industry should be regulated, it needs to be regulated given the nature of what we sell.
“But when we talk about excise certainty it’s about government agreeing that over the next three to five years, excise rates will increase in line with inflation. What we’ve seen over the last five or six years is that one year it’s double the rate of inflation, and another year it’s slightly above inflation. For a tax that represents 40% of the total selling value of the product, to have these huge swings in the amount of tax you pay makes it very difficult to plan for the long term,” said Rivett-Carnac.
He was speaking at this week’s State of the Beer Economy media event hosted by SAB and the Beer Association of South Africa (Basa) in Cape Town.
SAB is currently investing R920m into its Prospecton and Ibhayi breweries in Durban and Eastern Cape respectively as the company aims to grow production capacity. R650m of the investment total is going to the Prospecton facility, and this alone is expected to provide R3.1bn additional tax revenue and generate 24,000 jobs through the full value chain.
But Rivett-Carnac believes SAB can play a much larger role in accelerating the country’s economic recovery, if the government can provide assurances around excise hikes.
This year’s 5.5% tax sin tax increase for beer came as a relief for the sector following the 8% hike in 2021, as the alcohol industry worked to build back from the pandemic and several bans on sales.
Rivett-Carnac noted that excise taxes are a significant cost for beer manufacturers, and having the knowledge that they would grow more or less in line with inflation would allow companies to plan their capital expenditure, particularly as it relates to manufacturing capacity. “Government agreeing to link it to inflation… if that happens it would allow us to make very long-term investment decisions – building new breweries, building new malting plants…”
He added, “If we are investing and building breweries, it increases the amount of beer we can sell, and with that comes an increased tax taking for the government. But in an uncertain policy environment, we may not make that decision to build more capacity in which case we can’t sell more beer, which means tax revenue would decrease.”
Economic impact of beer production and sales
The State of the Beer Economy event was hosted to highlight the contribution of the local beer sector to the South African economy, as detailed in a recently released Oxford Economics 2022 report titled ‘The Economic Impact of the Beer Sector in South Africa‘.
According to the report, commissioned by SAB, South Africa’s beer value chain (including upstream and downstream activities) supported R71bn in gross value-added contribution to the country’s GDP in 2019, which included R43bn in tax payments to the government.
Beer manufacturers and retailers also contributed around 248,000 jobs to the local economy in 2019. At the time of data collation, this represented 1.5% of all jobs or one in every 66 jobs in the country. In Port Elizabeth alone, beer accounted for 67% of total employment.
The data for the Oxford Economics report was sourced from AB InBev (SAB), Carlsberg Group, Heineken and Molson Coors Beverage Company, with additional data collected by Oxford Economics.
Noted in the report and highlighted during the State of the Beer Economy event was the far-reaching direct and indirect impact of procurement within the sector.
The report estimated that, in 2019 alone, South Africa’s four major brewing companies collectively bought R33bn worth of goods and services from South African companies through their supply chains. Procurement alone was estimated to have supported over 107,000 jobs and generated R6.6bn in tax revenue.
Courtesy of Bizcommunity – read full article here.