It has been a few weeks since South Africa's latest ban on the sale of alcohol was lifted. While a relief for many large and small sellers, the resumption of sales might well have come too late, and many will close down regardless. It is imperative that the government not implement such a ban again. The negative effects of restricting economic freedoms are long-lived, and deep.
On 15 January 2021, South African Breweries announced the cancellation of a R2.5 billion capital investment. This follows from an earlier R2.5 billion cancellation in 2020. Last year, Heineken cancelled a R6 billion investment for a new brewery and recently announced that it would let go of 70 of its 1 000 employees.
Consol Glass CEO Mike Arnold said that: 'The financial damage incurred in the two previous lockdowns will be repeated if the total ban remains in place indefinitely. The company is again having to bear considerable cost to keep its assets operating — in the region of around R8 million per day.' In 2020, Consol Glass cancelled an investment of R1.5 billion.
These billion-rand disinvestments are the stories that make the headlines. But no entrepreneur or business of any size can operate in an environment as restrictive – and at times uncertain – as South Africa's. The cancellations of capital investment will only continue.
In its fervour to combat Covid-19, the South African government defaulted to its worst invasive and regulatory tendencies, and the effects on people’s lives and livelihoods have been devastating.
Restrictions on economic freedom
When economic freedom is restricted, businesses are forced to adapt. Those who suffer the most from these restrictions are employees, many of whom lose their jobs as businesses try to stay afloat. The cancellation of investments obviously has a knock-on effect on the government's own plans to implement grand 'job creation' and infrastructure plans. Without capital investment and tax revenue, the best-laid government plans are moot. No job summit is going to cure an errant approach to governance that causes unemployment.
If the government is as concerned as we often hear about the country’s rising unemployment rate (currently over 11 million South Africans are out of work), it needs to proceed exceedingly carefully before implementing policies that may have even the most remote chance of negatively affecting economic freedom. The alcohol ban is an example of such a policy, and one that should never be contemplated again.
Interconnectedness
We always have to keep in mind the interconnectedness that enables the products of all sorts of products that we may take for granted. People specialise in various aspects of the final bottle of beer that is consumed; from bottle manufacturers, to farmers, to the manufacturers of the equipment needed for the factories, to trucking companies, to people involved in management and logistics, to security for the warehouses, to the owner of the bottle store, to the cashier, to restaurant owners and employees. In various ways, everyone in the economy contributes in some way to each alcohol product, and is harmed, however distantly, by the inability to sell those products.
A ban on a product affects everyone up and down the value chain, and negatively affects the ability to earn a living. People no longer have the additional income from their work to spend on other goods and services, or on their families. Economic activity steadily declines – and getting it back to previous levels is not a simple matter of flipping a switch.
Tax shortfall
According to the latest budget from finance minister, Tito Mboweni, 2020/21 tax collection is expected to show a shortfall of around R213 billion. The latest ban would also have entrenched even deeper illicit markets in the trade of alcohol products, and these habits will not easily be shifted now that the ban is lifted. We have devalued the notion of criminality by criminalising harmless activities, and we should not be surprised if many South Africans ask themselves why they should ever buy another beer legally – with its associated taxes – again.
There will be a large gap in tax revenue collections for many years to come – and citizens who need government services will continue to suffer, because government's ostensible priorities are to give funding to vanity projects such as South African Airways.
The ban on alcohol thus hindered the government's own ability to provide services and support to those citizens who desperately need assistance — unless one considers turning a water cannon on vulnerable citizens to be 'support'. In terms of lost sales revenue, the alcohol industry estimates that it lost more than R36 billion over the total span of the respective bans; lost tax revenue amounted to R29.3 billion.
The South African state has over the years taken on the responsibility of providing more and more goods and services for citizens. The billions in lost tax revenue due to the alcohol and tobacco bans could have been used to improve the delivery of the most basic services, such as water and ablution facilities, in poorer communities – and this in the midst of a pandemic when hygiene is of the utmost importance.
A more nuanced path forward would have been to allow for the sale of alcohol for at-home consumption. Or, allowing people to buy and consume alcohol at restaurants, taverns, and shebeens, and having a curfew in place. The former blunt hammer approach systematically destroyed livelihoods – with the concomitant negative health and psychological effects, such as stress, anxiety, and fear regarding one's future ability to provide for one's family.
The government did not use the time spent during the hard lockdown to more adequately prepare healthcare facilities for the rise in Covid-19 cases – which they always predicted would come. This ought not to result in regulations and restrictions that infringe on citizens' right to earn a living. One would hope that breathing room provided by the latest ban would have been used to bolster healthcare facilities and services.
Now, in the midst of a recession and pandemic, and with millions of South Africans struggling to stay afloat, it is imperative that the government shift its ideology and policy from paternalism and control. Fewer regulations, inhibitions, and taxes are needed now, if the country is to have any prospect of real transformative economic growth.
This article was first published on Daily Friend on 27 February 2021.