Capital Markets Corporate

June 2, 2015

South Africa’s National Liquor Policy: Is The Party Over?

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By Pietman Roos, Senior Consultant

Background to Liquor Policy

The Department of Trade and Industry (DTI) published their National Liquor Policy on 20 May 2015 with an invitation to stakeholders to submit comments within 30 days (i.e. by 20 June 2015). The current document is a policy discussion, which means a Bill to amend the National Liquor Act will also need to be published with 30 days of public comment.

The policy discussion proposes several restrictions that will have far-reaching impact on the liquor industry – including manufacturing, distribution, retail, and hotel and leisure. The proposed restriction on advertising will further directly impact industries like media and advertising, sport and recreation, and retail property landlords.

There are a number of fundamental objections to the substantive policy proposals which range from adding to the cost of doing business, limiting consumer choice, impracticality and disproportionally infringing on constitutional freedoms. Despite the reasonable and worthy aims of the policy to reduce alcohol abuse, it is patently clear for any observer that the policy and ultimate legislation will not achieve this goal, but rather introduce restrictions that will cost the economy money and lead to resource wastage.

To be precise, the policy will cut jobs and investment and most likely foster a culture of non-compliance. This is a worst-case scenario for any policy as a culture of non-compliance can easily spread to other legitimate regulations culminating in a general passive protest. A good example is how the popular campaign against the electronic tolling of the Gauteng highways by SANRAL has been entrenched in the community and has effectively created a forum of dissent against additional government interventions.

 

Strategic considerations

Before delving into the comments on salient substantive proposals, it is helpful to consider the following:

  1. The push towards restricting alcohol advertising has been an internal discussion point in government and civil society for a number of years.
  2. The Department of Health by way of Minister Aaron Motsoaledi has been the most vocal in this policy objective but has had no legislation to effect it.
  3. The current policy proposal is an expansion of the earlier call to limit alcohol advertising that also encompass increasing the legal drinking age and creating a fund that will manage social awareness on alcohol abuse.
  4. The addition of the fund to be managed by the National Liquor Authority (NLA) demonstrates the input from the DTI as this is its preferred method to increase bureaucratic relevance.
  5. While the policy does contain some research on the health and social impact of alcohol abuse, it is necessarily an incomplete document as it does not consider its own economic costs and unintended consequences.
  6. The DTI is supposed to be a champion of Regulatory Impact Assessments (RIA), which would detail the benefits and costs of the proposed policy against the current baseline.
  7. The DTI has commissioned, or internally conducted, RIA’s in the past but has a very poor track record of publishing the reports as the findings are presumably not in line with their assumptions and policy views.
  8. The earliest that the policy can possibly become law is 2016, which is relevant given the 2016 Municipal Elections which are expected to be hotly contested. Many of the substantive proposals are very politically sensitive, especially the proposal to raise the legal drinking age to 21 from 18, as it will likely antagonise that demographic. Even though younger people vote less, the 2016 elections will be a powerful signal to that constituency about the ruling party policies potentially restricting freedoms – and may even spur voting for an opposition party from this age group.

Given the broad and significant impact of the policy across several economic sectors and all demographics, and the political fall-out that the current policy will bring, it is fair to assume that the Bill will require vast political capital to push through. This is at a time when the South African government already has to manage negative sentiment regarding increases to living costs from higher income taxes, e-tolls, higher fuel levies and higher excise taxes, not to mention higher electricity costs.

 


The long and winding road from policy to legislation

  • It is highly unlikely that the policy will become law within 2015 due to the potential extension of the comment periods for both the policy and the amendment Bill – and given how controversial it is.
  • A possible referral to NEDLAC consultation that would add several months to the process, parliamentary committee sittings and the actual vote on the amendment Bill in parliament, are all likely scenarios.
  • This ignores the fact that several pieces of legislation have waited (and still wait) for months after being voted in for presidential sign-off before they can be promulgated.
  • The Bill can also be challenged for constitutionality after the sign-off, which can also delay full implementation if not stop the Bill if the challenge is successful.
  • Remember that the DTI will have to consider each comment, which can increase the post-consultation period as a number of stakeholders are expected to submit their inputs.

 

Substantive comments

The policy document seeks to reduce alcohol abuse and open the industry to transformation, both of which are admirable aims. However, it is our considered opinion that the proposals will not further the goals but rather introduce several layers of economic cost and wastage, and introduce counterproductive unintended consequences. Please note that the list below is not exhaustive but rather comprises a selection of issues arising from the problematic proposals.

The document proposes the following policy initiatives in broad:

  • Restrict the advertising of alcohol and prohibit sponsorships

The restriction of advertising will have a multi-billion rand impact on several industries ranging from advertising and media, to sport and recreation. Marketing restrictions create unintended barriers for market entrants that will be counterproductive to transforming the industry.  Advertising gives accurate information to consumers on what they are ingesting.

It also provides legitimate alcohol producers a marketing edge over unsafe illegal distillers. If companies cannot publicly communicate why their brand is safe, many consumers will choose bootlegged alcohol that does not meet health and safety standards.

  • Create a DTI managed fund to be financed by contribution from liquor sales

The contribution from liquor sales is an additional excise tax that will be levied directly on consumers. There is also significant administrative costs involved in levying any type of fee, ranging from introduction, awareness raising, enforcement and corporate governance. This will add a bureaucratic layer without any guarantee of greater government efficiency. It is necessary to cost the introduction of this policy suggestion.

  • Introduce liability for alcohol sales to intoxicated persons that extends to manufacturer, distributor and retailer

The extension of (presumably civil) liability to the alcoholic beverage value chain for the actions of a single person is bad in law as it is contrary to established South African law of delict principles of harm, conduct, wrongful conduct, fault and causation. On causation alone, it is frankly impossible for a manufacturer to establish and enforce retail policy on sale to intoxicated persons.

If this principle is logically extended, the manufacturers of the chemical components (e.g. alcohol, water, colorant, flavouring) that are used for alcoholic beverages as well as the agricultural value chain should also be held liable. The aim of the policy and its sanction is grossly disproportional.

  • Raise the minimum legal age for alcohol purchase from 18 to 21 years

There is very little proof that the increase will have any impact on existing alcohol usage patterns and will, in fact, drive more activity underground. It is widely accepted that youth alcohol abuse is closely linked to social and economic factors and that regulation has little to no impact, besides opening a market for producers of illicit goods.

  • Prohibit the locating of liquor stores within 500 metres of most human habitation

The policy document provides that no liquor premises be located within 500 metres of schools, places of worship, recreation facilities, rehabilitation or treatment centres, residential areas and public institutions. Alcohol can also not be served near public transport. This restriction effectively relegates liquor stores to disused industrial parks and rural areas far outside of any city or town.

This restriction is unworkable as it will affect most liquor stores and in turn, the landlord of their premises. The restriction will impose the biggest cost of all the initiatives, will affect lower income consumers disproportionately and also infringes on the constitutional right to free enterprise.

Should your company submit a comment to the DTI?

Submitting a comment to a government department may seem comparative or controversial, but the submission is an important feature of the South African democratic process and government officials often welcome the interest and valuable industry insight.  It also provides a valuable platform for government to better understand the private sector. In fact, a submission creates an important link to strengthen relations with government to be better able to work towards policy that is of mutual benefit. In short, your company only stands to gain if you make your voice heard.


Guidelines on submitting a policy comment

  • DO be clear in the provisions that is of concern, and identify provision that you agree with
  • DO identify your company/institution and your interest in the policy
  • DO suggest alternatives to arrive at the stated policy goals
  • DO get the tone right and use formal but helpful comments
  • DO make use of legal advice on finer points of law if necessary, but
  • DO NOT rely on your lawyer alone to craft the language as it may not resonate with the policymakers and may even antagonise them
  • DO NOT engage peripheral ideological points
  • DO NOT use apologetic, or conversely, combative language
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