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ESWATINI BEVERAGES’ ALCOHOL PLANT TO SHUT DOWN

13/09/2020 07:08:00 BY MBONGENI NDLELA

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MBABANE – It was bound to happen!

The ban on alcohol sale has provoked a decision that is more likely to seriously impact the country’s tax revenue collection and the economy at large. Apart from the financial effects, imminent job losses in the form of retrenchments are on the cards in the liquor industry as Eswatini Beverages has this week resolved to shut down its alcohol production plant in order to cut costs.

The company, which manufactures 60 per cent of its alcohol products and imports 40 per cent, took this decision after extensive consultation with beer industry movers in neighbouring countries and abroad, it has been gathered.

The decision comes just a few days after government decided to extend the alcohol ban, pending a review at the end of this month.

The Eswatini Revenue Authority (SRA), on the other hand, said companies that manufacture locally, contribute a larger chunk of tax and a shutdown would result in a huge loss to income tax.

Income tax is a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.

Minister of Commerce, Industry and Trade Manqoba Khumalo said he was not aware of a decision by Eswatini Beverages to shut down its manufacturing plant. “I am not aware of that, our conversation with them this morning (yesterday) was not on that topic,” the minister said.

Last week Saturday, Prime Minister Ambrose Mandvulo Dlamini listed five reasons why government had decided to extend the ban on the sale of alcohol, which, according to the premier, would be reviewed in October. The PM stated that alcohol had short and long-term effects on every single body organ; that alcohol weakened the immune system; that it alters one’s judgment or decision making; it also increases the risk of acute respiratory distress syndrome (ARDS) and that group drinking would result in imbibers failing to observe social distancing.

Subsequent to the extension, the Times SUNDAY established that Eswatini Beverages had no option but to decide on how it could sustain itself and prevent a further loss. It has done so by reviewing its working model by weighing options on whether it should continue with the production of liquor in Matsapha or rather stick to importation.

Eswatini remains the only country in the SADC region that has banned alcohol sale as part of precautionary measures to curb the spread of COVID-19. By yesterday, the entire management had agreed that the production department should be shut down.

Well-placed sources within the company confided that the general understanding was that government would not consider lifting the ban anytime soon. The sources argued that this was because the PM indicated that the Kingdom of Eswatini needed to attain less than 50 active cases to reduce the risk of transmission of COVID-19 if the ban was to be lifted – a target they said would be impossible to achieve. The sources explained that it was clear and sundry to all that with the current rate of infection, the targeted 50 cases would not be possible for now since active cases were still above 700. The sources further opined that health experts have projected November as a peak month for coronavirus cases. The sources believe that the peak might force government to consider a ban once more to flatten the curve in the spread of the virus. This would be if government would lift the ban over the next days before October.

The sources confided that the proposed shutdown would result in alcoholic beverages that include Sibebe Premium Lager, Castle Lager, Castle Milk Stout, Hansa Pilsner and Black Label no longer being produced locally.

international award

Last year, Sibebe Lager hoisted the country’s flag after scooping an international award for being one of the best beers in Africa.

Even though these products would continue to be available in the market, they would be imported. For example, Heineken is not produced locally but is widely available in the country because it is imported. Other brands supplied by the company include Reds, Flying Fish and Smirnoff brands such as Pine Twist and Smirnoff Spin.

Bridget Makhura, Country Managing Director of Eswatini Beverages, has confirmed that the company has considered closing the manufacturing plant. Makhura revealed this when responding to a questionnaire that had been sent to Mpumelelo Makhubu, the Head of Legal and Corporate Affairs, regarding the company’s future plans.

Makhura stated that the COVID-19 trading environment has proved to be one of the most challenging times in collective memory.

“In a bid to survive, many businesses have had to take various measures to ensure their long-term viability. Eswatini Beverages is no different, following a 16-week ban on the sale of alcohol; the business has come under significant pressure and as a result, has initiated a process of reviewing its business model to explore a cost-effective means for supplying the market. The options include discontinuing local production,” she stated.

operating uncertainty

She explained that the impact of the 16-week ban on alcohol has been severe to the industry, and has led to significant operating uncertainty for business, the company’s partners, as well as colleagues in the industry, including participants in the entire value chain.

“The protracted nature of the ban has made maintaining the manufacturing plant costs during the ban unfeasible. Throughout this crisis we have remained committed to ensuring business continuity and as such implemented a number of interventions to soften the impact of the bans, including cutting salaries for all staff by 10 per cent, from July 2020. We understand the impact a closure in manufacturing will have on jobs in our business and the entire value chain and we have initiated a process of proactively engaging stakeholders including employees in manufacturing and other departments who will be directly impacted by the outcome of the review,” stated Makhura.

She further explained that the company remained committed to being a part of the solution and was supporting government’s COVID-19 response efforts with financial and material support.

She said the company also appreciated the regular engagements with government for the purpose of effectively navigating through this challenging period.

Meanwhile, Bongani Mdluli, chairman of the Eswatini Consumer Association, has requested government to consider lifting the ban with immediate effect.

“It’s a very unfortunate state of Affairs. Imagine the loss of employment and loss of revenue in taxes. The black market is now going to flourish. We request government to relax the ban and put stringent COVID-19 measures in the relevant establishments,” he said.

Secretary General of the Trade Union Congress of Swaziland (TUCOSWA) Mduduzi Gina said government should allow the company to at the least produce the alcohol for stocking even if it was for minimum production.

“If the news of the closure of the Inbev plant in the country is true, this will cause a devastating impact on the economy of Eswatini. We are aware that Inbev is concentrated on the alcohol brewing while Coca-Cola carries out the soft beverages manufacturing. The possible retrenchment of the workers employed by Inbev will increase the unemployment rate which is already high in the country,” he said.

He continued: “It is common cause that there are no industries of the magnitude of Inbev that can consume the workers. The country is bound to lose huge amounts in corporate and PAYE taxes, taking into account that the company was paying reasonable wages as compared to the other Matsapha companies. It is common knowledge that their products were widely accepted by its clients hence it follows that they were making huge profits which were then taxed.”

bad results

Gina said he had no doubt that the shutdown would yield bad results for the country’s economy.

Meanwhile, Business Eswatini said it had noted that the domino-effect of the alcohol ban was wide-ranging and far more deleterious to the economy than previously thought. Nathi Dlamini, the Chief Executive Officer, said the shutdown would be extremely unfortunate on many fronts because job losses would be inevitable. “Furthermore, each time a manufacturing plant closes down it means that we have to start importing from outside the country. This is tantamount to exporting jobs which is something we are trying extremely hard to avoid, especially during this season of rampant layoffs due to COVID-19. Also, when you import, foreign exchange reserves of the country are always adversely affected, again which is something we were trying to avoid. As Business Eswatini, we are hoping and praying that the reports of a possible closure are not true,” Dlamini said.

He said given the ban on alcohol distribution whose end remains unknown even to date, it would not be alarming to hear of rumours about plant shutdowns, Eswatini Beverages included.

“These companies have been bleeding profusely of late due to COVID-19. Eswatini Beverages at some point had to decant their inventory after it had expired, thereby suffering undue losses. This company is top-notch when it comes to paying taxes and being compliant with the laws and rules of the country. They have always been a model company and to see them on the brink of collapse for reasons not of their making is disheartening, to say the least,” he said.

He said currently the market has been taken over by bootleggers and smugglers who are bringing into the country copious amounts of illegal alcohol without paying government duties and taxes.

On top of that, he said the smugglers are practising price-gouging with impunity.

“People are imbibing and getting totally ‘smashed’ on alcohol from which government makes no revenue whatsoever, and yet when these people get recklessly drunk and spread the infections to each other, they will call a government number – 977. This is unfair to all concerned especially government who made not even one cent tax from that alcohol,” he said.

He said the situation, however, has somehow prompted businesspeople to re-assess the merits and commercial sensibilities of effecting a beverage lockdown.

unrestrained access

He said if people have unrestrained access to alcohol from bootleggers, what would be the point of what government was doing.

“The very sad thing though is that these unscrupulous individuals have invaded the traditional supply chain channels used by legitimate suppliers. Once the ban is reversed, which we hope can be soon, the damage done can take a long time to fix,” argued Dlamini.

He continued: “We have received disturbing stories from hotels that bar staff are already being retrenched as we speak. Not only them but also cleaning and security staff are all victims of this ban. Our economy is taking a huge pounding while government is losing millions a day. The math doesn’t add up anymore.”

He said businesspeople understood government’s position to strike a balance between health and a robust economy. He said in light of the situation at hand, it was difficult to claim that the country was making headway on either of the objectives.

On Friday, during a meeting held at The George Hotel by the Swaziland National Liquor Association, liquor traders announced a planned mass protest action.

They resolved that everyone who was affected by the ban on alcohol sale would be allowed to accompany the leaders of the association to deliver a petition to three government departments.

Eswatini Beverages Ltd (EBL) was a subsidiary of SABMiller until October 10, 2016 when it was acquired by Anheuser-Busch InBev. The company was formed in 1995 by the merger of Eswatini Breweries, Ngwane Breweries, and Eswatini Bottlers. EBL produces and markets soft drinks, beer, and other alcoholic drinks. Government suspended liquor production on April 8, 2020, and the ban has lasted for 16 weeks.