Illicit trade of alcohol bigger than ever

Banning of alcohol sales during lockdown was initially intended to help protect communities but the reality is, the illicit trade of alcohol is bigger than it has ever been.

Director of Regulatory and Public Affairs at South African Breweries, Hellen Ndlovu, highlighted four things known about illicit alcohol trade and its current impact on the South African economy and its citizens.

In President Cyril Ramaphosa’s address this week, he admitted and apologised for any mistakes government may have made during this indefinite lockdown. He particularly (and vaguely) talked about certain regulations that may have caused a public outcry.

Although he didn’t mention it specifically, Ndlovu believes the alcohol ban was definitely on the top of the list. According to her, this ban has given rise and funded a criminal enterprise, unlike anything the local alcohol industry has ever seen. “Today, the illicit trade of alcohol is bigger than it has ever been and it is syphoning millions of Rands from our economy in a time when it really needs it. Some economists predicting that it would take South Africa at least six years to recover from the impact of this lockdown,” said Ndlovu.

Ndlovu says illicit trade thrives in any market where the normal conditions that affect supply and demand are artificially altered.

“Consistently, high excise tax in this country has been a primary factor in driving the growth of the illicit alcohol trade in recent years. This led to a well-established and fully operational illicit marketable to manufacture, smuggle and trade under the counter.”

She says before the lockdown, Euromonitor’s 2018 Illicit Alcohol Research Review indicated that illicit trade in alcohol was valued at almost R13 billion in 2017 relating to roughly 50 million litres of absolute alcohol (i.e. 100% ABV). Illicit alcohol sold represented only 15% of total alcohol volumes in South Africa. “Today, with the alcohol ban, it is safe to say that the illicit alcohol market in South Africa represents 100% of the market,” said Ndlovu. She says the estimated excise tax losses due to illicit trade represented roughly 30% of the total excise contributions to SARS. With the lockdown and ban underway, 100% of this revenue is lost to criminal enterprises. “This goes way beyond lost excise tax. We are also talking about the loss of subsequent VAT and income tax, which would have otherwise gone to the country’s fiscus,” added Helen. Ndlovu says that illicit alcohol also poses a great health risk for its consumers. “While beer represents the majority of legal alcohol volumes sold in South Africa, this doesn’t hold true in the illicit market.” Euromonitor found that illicit traders focus on high margin, low volume products. This makes beer undesirable for illicit traders. Illicit trade is more focused on high alcohol, low volume products where the opportunity to make higher margins are greater.  “It goes without saying that illicit hard liquor, poses a great danger to our society as those looking for a drink will get more than they bargained for,” said Ndlovu.



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