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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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Diamond industry crises not over yet – De Beers Chief

13th January 2021
De Beers Group Chief Executive Officer: Bruce Cleaver

Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry  started gaining  positive momentum towards the end of the year as key markets entered into  thanks giving and holiday season.

However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.

The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.

The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.

This halted movement of buyers and shipment of  the rough goods , resulting  in unprecedented decline of sales, in turn  ballooning stockpiles as the upstream  operations produced with little uptake by the midstream.

The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.

However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.

De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.

Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.

De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.

“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.

The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.

The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.

Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.

“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.

In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”

All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.

However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.

These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

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Gov’t coffers depleting to record low levels 

13th January 2021
Dr Matsheka

Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.

The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering  the year 2020 – a 12 months stretch of complete setback.

The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.

National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.

As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.

On the other hand the COVID-19 economic mess is  prevailing,  the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.

According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.

However reports indicate that the account could be currently holding just about P3 billion.  The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.

 

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

Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.

Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.

Meanwhile  should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian  aids and international donors, because  foreign reserves are also on slow down.

During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.

The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020.  This was revealed by President Masisi during State of the Nation Address in November last year.

The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.

However latest statistics(October 2020)  from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with  government’s share of these funds significantly low.

Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.

Furthermore, Value Added Tax has been signaled to go up  from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.

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Cresta signs lease agreement for Phakalane golf estate hotel. continues with growth agenda despite covid-19 impact

13th January 2021

Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio.  The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.

 

CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.

CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.  

 

“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.

 

“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”  

 

Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane  noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities.  We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.” 

 

CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns  with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour.  Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.

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