Should the third alcohol ban currently gripping South Africa extend beyond 15 February, multiple businesses within the sector run the risk of drying up completely.
One particular sector at risk is the glass manufacturing industry.
Consol Glass chief executive officer (CEO) Mike Arnold said that 85% of Consol’s business was in the alcohol industry.
In an interview with Moneyweb journalist Nompu Siziba on SAFM’s Market Update, Arnold explained that the current ban was not yet adversely affecting Consol, because in terms of the legislation, the business is allowed to produce and fill alcohol, and store it in warehouses.
“But, of course, if the alcohol ban continues, then there will be an impact as orders dry up almost immediately. Then we’ll have to make a decision on how we run the business.”
Keeping furnaces burning
One aspect of Consol’s business that complicates the ban on booze is that furnaces must be kept hot and running, whether the company is producing or not, “from a safety perspective”, Arnold explained.
Another is the looming salary and wage cuts, which were already made in the first and second alcohol bans due to reduced production.
“Basically we lost 85% of our sales over that 12-to-13-week period. So that was the harm the industry has suffered. Of course, if [the ban] gets to an extended period of time, then you would look at actually shutting down operations – and that would then of course impact employment.”
Loss of investment
Consol cancelled an investment in a new factory in the Nigel area, which would have added 120,000 tones of capacity. This is approximately 15% of the total market.
Arnold said this investment was cancelled because of the Covid-19 pandemic and the country’s alcohol bans, which he said “had an impact on market demand as far as our customers are concerned, obviously their investment plans”.
But the negative effects of other failed investments in the alcoholic beverages industry will also trickle down and impact the glass manufacturing sector, Arnold said, referring to Heineken canning its R6 billion expansion plans, which included possibly establishing a brewery in KwaZulu-Natal.
“And that of course is a lost opportunity, not only for glass, but for the entire value chain.”
Consol contributes between R11.8 billion and R12 billion to the economy. If glass packaging were not available through Consol, it would have to be imported, which would “have a direct impact on foreign-exchange requirements”, Arnold continued.
Current ban understandable, but…
Arnold said the outright ban of alcohol over the new year was something the sector could not argue with. In the short term, this was a decision many could “get their head around”.
But should the ban continue past 15 February, and therefore impact the sector’s medium term plans, in Arnold’s view, this would be “both unreasonable and disproportionate.”
“We think retail sales of alcohol for home consumption should be allowed. We have no evidence to suggest that home consumption of alcohol will significantly increase hospitalisation and therefore impact on the capacity of hospitals, as well s the Covid-19 treatment,” he said.
“We fully expect that retail sales for home consumption would be the first step towards unbanning of alcohol consumption.”
Listen to the full interview below:
Compiled by Nica Richards.