E-Malt.com News article: Botswana: Government’s levy on alcohol hampering SABMiller’s growth

SABMiller PLC is anticipating another soured year in Botswana as the government’s tough stance on alcohol sales bites and the beer giant’s business here adapts to a lower-margin environment, Dow Jones communicated on December, 9.

A 30% "social levy" on alcohol introduced in November 2008 has weighed heavily on beer volumes and had an even sharper knock on revenue as drinkers have shifted to less profitable soft drinks. But the levy, aimed at cutting consumption, isn’t having the desired effect and is encouraging smuggling and dangerous home brews, SABMiller’ s managing director for Botswana said.

"We’re sympathetic to the concerns" about alcohol abuse, Hloni Matsela said in an interview. "But we don’t believe a one-size fits all approach is effective. We’re not seen it effective elsewhere."

The London-based drinks company in November said the levy, together with an economic recession spurred by a sharp drop in exports of diamonds, resulted in a 47% drop in lager volumes in the six months through September. Traditional beers, often cloudy and made from sorghum, were 14% lower for the period but soft drinks volumes grew 7%.

This was despite an increased focus on Africa and lower-priced beers by SABMiller.

Matsela said lager volumes are expected to fall between 5% and 7% next year, and revenue to drop 20%-22% as the sharp decline in sales seen in the wake of the levy levels off.

"The business remains profitable" at these sales volumes, Matsela said, predicting that as the effect of the levy tapers off the Botswana arm of SABMiller will again begin to increase sales.

"But are we allowed to grow? I doubt it. We could face another levy," he said, adding the company was now operating under this cloud of uncertainty.

The levy was introduced by President Ian Khama, who succeeding Festus Mogae in April 2008. Khama secured a new five-year term in elections in October.

The president in his state of the nation address in mid-November said the levy, an alcohol awareness campaign and reduced hours of sales were yielding good results in reducing irresponsible drinking. About 180 million pula ($26.4 million) had been raised from the levy to that point, which would be put into programs for youth, Khama said.

Average consumption of alcohol in Botswana is in the region of 27 liters per person a year, above the African average of about 14 liters but below the South African average of about 60 liters and the roughly 100 liters consumed in western Europe.

"Africans tend to have a beer culture," Matsela said. "But there’s a strong correlation to wealth. As disposable income increases, so does consumption."

He said SABMiller has met on several occasions with the government, although its recommendation that a levy be replaced with what it describes as targeted intervention hasn’t met with success. The company would prefer that existing regulations on alcohol abuse be more strictly enforced and that campaigns target areas such as sales to youth and drunk driving.

Since the introduction of the levy there has been an increase in consumption of beers brewed at home, which often have dubious ingredients and can be dangerous, Matsela said, pointing to a cheap, high-alcohol wine sold in plastic bottles for 70% less than even the cheapest beers.

"We know that it is happening. [The country is] being inundated with cheap, highly potent products," he said.


11 December, 2009