Sechaba Brewery Holdings Limited has decided to engage government and negotiate the application of the alcohol levy on its products. The Levy has had a negative impact on the company’s overall earnings in the recent past.
The company hosted a media and analysts day on Tuesday to brief participants about the company’s financial performance for the year 2016 and future prospects.
The common denominator in the briefing was how the alcohol levy has impacted the company in the past and also the likelihood of future negative impacts, as the government is set to increase the levy going forward. The brewery giant hopes to convince the Ministry of Investment, Trade and Industry to engage in a discriminate increase of the levy as a sweeping increase will greatly affect their business.
Sechaba, the local brewing behemoth, said that a new levy was gazetted with the effect date of the first of April, continuing a trend that spans seven years since the introduction of the alcohol levy.
The levy which was introduced in 2009 by President Lt Gen Dr Ian Khama at 30% is now at 55% after successive increments of 5% each year for the past 5 years. The alcohol levy has since inception channelled more than P1 billion as revenue to the government, and the levy’s total collections is expected to breach the P2 billion mark by the end of 2016.
The levy which has become an easy money making scheme for the government is once more expected to raise tempers as the latter and Sechaba face off in negotiating the new calculation method which is expected to have a negative impact on Sechaba’s performance.
It has since been revealed that negotiations are ongoing and that there is mutual understanding between the government and KBL, an associate of Sechaba, on the impact of levy. The final proposals on the new calculation are expected before end of this month.
“We have requested that all alcohol with a percentage greater than 5% should be levied at 55% while the ones under 5% should be levied 50%,” said Johan De Kok, Sechaba’s Managing Director. Sechaba Brewery Holdings recently reported an 8.5% increase in profits for the year, which was underpinned by increases in sparkling soft drinks and clear beers volume growth. The total volume growth was down by 0.2% after the opaque beverages registered a decline of 16% in volume growth. In terms of volume contribution, sparkling and soft drinks enjoy the largest share of 34%, followed by clear beer at 31%, while the struggling opaque drinks contributes 29%. The Non Alcoholic Beverages (NAB) and Alcoholic Fruit Beverages (AFBs) contribute 4% and 2% respectively.
While the alcohol levy continues to impact the overall performance of the company, the company managed to push the clear beer volume performance by 7.9%, this was despite the out of stock constraints which affected the overall performance considerably. The company highlighted that the growth was driven by the success of the 750ml Returnable Glass Bottle bulk pack at 6% and the phenomenal success of the 440ml Can. Carling Black Label continued to be KBL’s flagship brand with a growth of more than 16% on previous year. Castle Lite volume grew by 4% while the local brand St Louis Lager is on the road to recovery as the brand finished 9% up from previous performance.
Sparkling and Soft drinks registered a solid performance of 6.8% despite the popular coke brand suffering a slight decline. The company says the market share of sparkling and soft drinks was under pressure due to the success of imported products. The opaque beverages suffered the steepest loss as their performance went down by as much as 16%. The decline in volumes was the result of water and electricity challenges which impacted production.
However, the company was pleased with performance in the Northern region where their Chibuku brand is popular and continues to show growth through the 2L and 1L cartons which constitute 97% of the opaque product range. Sechaba is bullish about the 2017 financial performance based on the recent stability and predictability of water supply.
Alcoholic Fruit Beverages (AFBs) pulled an impressive performance, registering growth of 95.7%. The strong showing in performance was driven by the increasingly popular Redds Lemon Vodka while another local brand Core Original played a critical supporting role. Other contributing factors to the strong performance was the preference for the AFBs’ 660ml pack, new product launch and the recovery of Redds Apple which had initial failed to pick momentum.
For the year under review, the Company’s capital expenditure (Capex) was up 33% as the company spent P206.5 million to acquire and upgrade physical assets. The notable increases in spending were largely reserved for introducing new bottle lines, warehouse extensions, production expenditure, fleet replacement and expansion. Sechaba expects to spend more on Capex for the 2017 financial year, with focus on new bottle lines, beer powder expansion, containers, fleet, technical capex and other expenses.
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.
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.
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”