Fresh trouble brewing for Lesotho’s beer industry

MASERU-FOR almost a year, the alcohol industry in Lesotho has been buckling under the massive weight of Covid-19 lockdowns. Thrice in the last 11 months, the government of Lesotho banned the sale of alcohol in a desperate attempt to deal with the Covid-19 pandemic. The idea, the government says, was to free up space in hospital wards that would otherwise have been taken up by road accident victims. Noble as that may have sounded at the time, that decision unfortunately hit the beer industry extremely hard. At a time when the industry had barely recovered, and was still reeling from the effects of the Covid-19 lockdowns, Finance Minister Thabo Sofonea came up with another shocker: a new 15 percent levy on alcohol sales. Players in the sector say the new levy could sound the death knell for the sector and eventually drive the final nail in the alcohol industry’s coffin. This is a double-edged sword that will affect tax revenues and hit companies in the alcohol business, Sesupo Wagamang, Maluti Mountain Breweries Managing Director, told thepost this week. Minister Sofonea told the nation in his budget speech last month that the government will impose the 15 percent levy as part of attempts to raise M289 million to supplement a budget deficit. Wagamang however says that move could come back to haunt Lesotho in the long-run and leave the alcohol industry teetering on the brink of collapse. “The imposition of an alcohol levy, massive losses in sales due to three alcohol bans and an eight percent excise tax increases for 2021 will severely affect the profitability of the industry and leave it in (ruins),” he says. The ultimate result is more misery for Lesotho. He says Basotho, who love to enjoy their beer responsibly, will most likely resort to more affordable illicit alcohol. They will also resort to smuggling alcohol across the country’s porous borders, a process in which the government will have no control over as alcohol will be cheaper in South Africa. The losses in tax revenue for Lesotho will be massive, Wagamang says. He says history has shown, time and time again, that increases in alcohol tax do not automatically translate into a surge in tax revenue. Wagamang cites the case of Botswana. The southern African country first imposed a 30 percent levy on alcohol products in 2008. By 2015, that levy had risen to a staggering 55 percent. “This was devastating for the local alcohol industry, with heavy drops in volumes and revenue,” he says. He says the levy, which was beside excise taxes levied on other Southern African Customs Union (SACU) countries, increased the price of beer with the cost being immediately passed on to the consumer. “In the end, the loss of jobs and livelihoods in the brewery value chain were catastrophic and much opportunity was lost,” he says. Wagamang argues that Botswana’s Kgalagadi Breweries could have doubled in size and provided much needed jobs at a time when the levy was in force. He says the government of Botswana could have earned 23 percent more revenue had they not introduced the levy. “This is the unintended economic impact of a levy in southern Africa but obviously Botswana was not looking to increase revenue but rather wanted to reduce harmful consumption of alcohol,” he says. “Not only were people drinking less but many drinkers were forced to procure more illicit and dangerous alternatives to their preferred brand of legal brew as well as shifting from low alcohol by volume products to high abv products which created more harm and put the health sector under pressure.” He says in 2018, the government of Botswana slashed the alcohol levy to 35 percent, down from 55 percent, in a fresh attempt to attract foreign investment and create jobs. Wagamang says previous ministers of finance in Lesotho have all pledged to support private sector growth through the crafting of investor-friendly policies. He says current Finance Minister Sofonea had gone even a step further when he extended “red carpet treatment for real investors”. Wagamang says he believes Maluti Mountain Brewery (MMB) “falls into the real investor category” having contributed M2 billion in taxes and dividends to the government over the last six years. The company employs 350 Basotho and directly supports 1 220 traders countrywide. He says the entire value chain could be providing direct and indirect jobs to at least 25 510 people. “If Lesotho goes the same way as Botswana, then the industry and its contributions to the government will no doubt follow suit,” he says. “Given the high unemployment rate in the country, this is hardly the outcome that the Lesotho government would want.” Wagamang says private sector growth goes hand-in-hand with investor-friendly policies. “Consultations with industry should be encouraged to ensure win-win solutions. We cannot survive under restrictive policies. Lesotho needs to make the smart choices and let industry in.” Staff Reporter