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Alcohol Levy has failed – BIDPA report

President Mokgweetsi Masisi and other relevant stakeholders are expected to seriously consider findings of a consultancy report carried out by government think-tank Botswana Institute for Development Policy Analysis (BIDPA) on the alcohol levy.

A 171 paged report titled: A study to evaluate the National Interventions against Alcohol Abuse in Botswana, has punched holes on the imposed government alcohol interventions with specific interest on Alcohol Levy. The study which was carried out last year as per the recommendations of Ministry of Health and Wellness (MoHW) has labelled the levy as redundant and costly for the economy.

Originally introduced in 2008, the alcohol levy was raised every year until 2015 at point which it was sitting at 55 percent. The levy has since been revised to between 50 and 55 percent depending on the alcoholic volume of the liquor. This year it was reported that the levy made P2.6 billion. Generally, it is said, the drinking behavior has not changed much since the introduction of the alcohol levy and its associated interventions such as restrictions in the hours of sale.


However, it is also clear that a combination of the intervention has potential and can make significant impact overtime. “An insignificant 2.5 percent attributed their change in drinking pattern to the imposition of the alcohol levy as a confirmation that the alcohol levy had very little impact on reduction of alcohol abuse in Botswana.”

The alcohol levy did not affect the decision of members to drink or reduce the numbers of households with at least one-member drinking. In terms of consumption expenditure, alcohol and tobacco remained among the top four commodities after food, transport and housing costs. It has been therefore concluded that the alcohol levy has resulted in a slight decrease in expenditure on alcohol and tobacco (0.4 percentage points) at national level which may have a positive effect on household well-being.

 “However, in rural areas the effect has been negative since expenditure has been shifted from food to compensate for the increase in alcohol prices due to the levy, and this has negatively impacted on the livelihoods of members of such households especially children and the elderly.”

BIDPA as per the research says the levy which was intended to curb excessive alcohol consumption has in fact increased consumption. People, as per the perception that alcohol is expensive have resorted to other means of getting themselves intoxicated.

“People are now drinking more, using money meant for basic households needs such as food, clothing, school uniform etc. to buy alcohol, drinking cheaper home brews, and increasingly using other substances such as glue sniffing and marijuana to sustain addiction,” the report read in part.

 As consumers switch to alcoholic beverages with high alcohol content and spirits, the local brand, St Louis has suffered as it has low alcohol content. In addition, the report states, the alcohol producer and distributors have observed that consumers have switched to buying in bulk as this is relatively cheap. “For instance, consumers have switched from buying 330 ml to 440 ml cans and more importantly to 750 ml bottled beer.”

BIDPA says before the implementation of this, there was need to be based on evidence. “The industry players argue that when the alcohol levy and other measures introduced to curb excessive alcohol consumption were introduced there was no research to back the interventions or benchmarking undertaken to ensure their effectiveness.” Further the report argues that “alcohol Levy Fund should be used for its original purposes such as building of rehabilitation centers to help those already addicted.”

The effect of the levy on household cannot be underestimated. “The reality on the ground is that since the introduction of the different measures to curb alcohol abuse many people who drink alcohol in excess have resorted to diversion of household income to alcohol at the expense of other pressing needs such as food switching to and drinking low cost alcohol resorting to the use of drugs such as marijuana mixing alcohol with drugs to get the maximum effect.”

The alcohol levy has made poor people poorer, according to the report. All their income is spent on buying alcohol. “All the money received is blown in one day … to buy nothing but this devil,” one respondent was quoted saying. The report which is expected to guide policy makers on other interventions reveal that the levy did not lead to a reduction in alcohol consumption. “Instead, people who drink continued to drink the same way they did before the imposition of the levy, some drink even more.”

 The alcohol levy, reduction in trading hours and other interventions meant to reduce excessive alcohol consumption have not been effective. Some of the interventions such as reduction in trading hours have been rendered ineffective because people have resorted to buying beer in bulk, mainly at bottle stores where it is relatively cheap, to later drink at bars outside the stipulated trading hours or at their homes.

 “A simulation exercise to analyses the impact of alcohol levy introduced in 2008 based on 50 percent temporary increase in alcohol prices and a 50 percent permanent increase in alcohol prices indicate that the levy had a slightly small impact on the demand for alcohol. In light of the results we can conclude that more investigations are needed to explore the real impacts of the alcohol levy,” report says.

The reasons as to why people drink varied from as high as 50 percent for those who drink alcohol in order to socialize. Other reasons that push people into drinking include, among others, enjoy the taste (31 percent) to get drunk (22 percent).
 Other reasons for alcohol consumption rated below 20 percent were; the urge to be mentally alert, relieve pressure and tension, as well as to forget about social problems and painful memories.

EFFECTS OF THE LEVY ON EMPLOYMENT

According to the research KBL indicated that after the introduction of the levy in 2008 and subsequent increase in 2010, job losses were minimal as they were able to absorb the costs through the sales of sorghum beer (Chibuku). However, the introduction of the Traditional Beer Regulations in 2012 resulted in loss in employment starting from 2013.

The traditional beer regulations made it mandatory for chibuku to be sold in licensed premises. Before the regulations were introduced the majority (over 80 percent according to KBL) were selling chibuku from their homes without licenses. After the introduction of these regulations the majority of the retailers, most of whom are women closed down their businesses because they could not comply with the law.

 As a result of their low income status they could not find suitable places to sell their chibuku and hence could not get licenses to do so. This drastically reduced (80 percent) the amount of chibuku sales by KBL and hence revenue. KBL had to close some of its distributions depots (Selibe Phikwe and two breweries one in Palapye and another one in Lobatse). This led to direct job losses, which KBL estimates at between 150-200 people.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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