NOMPU SIZIBA: A number of companies adversely affected by the alcohol sales ban have decided to withdraw planned investments in South Africa for now, uncertain about the future as the industry continues to be shut. These include glass manufacturer Consol, beer maker Heineken and South African Breweries. The withdrawal of investment means additional jobs that could have been created will now not happen, or at least not in the foreseeable future. This is at a time when a lot of jobs in the sector have already been lost.
Earlier my colleague, Ryk van Niekerk, caught up with the vice-president of SAB, Andrew Murray.
RYK VAN NIEKERK: Andrew, thank you so much for joining me. We’ve seen in South Africa potential capital investment losses of close to R13 billion from three players – only three players in the local alcohol space. Admittedly, they are big players, But this may of course lead to a loss of investment in many, many other companies in the alcohol value chain. Do you have any perspective on the damage on an investment level the current ban on alcohol sales is having on the industry?
ANDREW MURRAY: It’s a great question. As you will know, our industry or value chain employees comprise roughly one million livelihoods across the full value chain, from farmers all the way through to the taverners who sell the products. I don’t have any specific information on the full extent of the investment that will be lost. As you mentioned, the big corporates have recently announced their investment decisions here. But, frankly, I expect the impact on a relative scale will be even more significant for many of the mid-size and smaller sized players within the value chain, if the financial position gets much more dire, and the dependencies they have are much more complicated.
Look, as in all businesses, I think you know, in assessment of what the future holds, some certainty around what can be expected in order to make these investment decisions is required. And right now in the country, there’s much uncertainty; and the projection for the economic contraction, and when we’ll be able to start to return to growth are still unknown.
And then for us in the industry at large, that uncertainty of course is exacerbated by the ban, no knowledge of when it will be removed, or what trading will look like when we are able to trade again.
RYK VAN NIEKERK: What is the communication protocol? You are one of the biggest, if not the biggest, alcohol player in the South African economy. Who phones whom? Do you phone government and say, “Listen, what’s going on?” Or does government phone you and tell you what is going on?
ANDREW MURRAY: Oh, it’s a good question. From the beginning, when the Covid-19 pandemic first kind of arrived within South Africa, we reached out and have continued to be very open to engaging with all stakeholders – government of course being the primary stakeholder to engage with – as we want to be part of the solution. We have families, loved ones, communities ourselves. And I think we have capabilities within SAB to be a part of that solution. We’re a big organisation that has many skills and we’re happy to lend that.
Frankly, we were shocked when the second ban was implemented. We were not given an opportunity to discuss or to be informed ahead of the announcement the President made on July 12th.
But we continue to remain open in our outreach and continue to remain very sincere in our desire to be part of the solution and to work towards a productive path forward.
South Africa is one of only four countries in the world that has implemented a full ban on our industry. And we have many learnings across the globe from what other countries are doing, data-driven, on how they’re addressing the same pandemic. The pandemic is the same everywhere, but the implementation of ways to address it has been vastly different. We think there’s rich learnings to be had from that, and we continue to make ourselves available to engage at any point when there’s outreach.
RYK VAN NIEKERK: SAB took the decision to stop investment of R2.5 billion for its current financial year, and put on ice another R2.5 billion of investment next year. At what level within the company was this decision taken? Was it the South African management who took the decision, or the board of AB InBev, the global company?
ANDREW MURRAY: Look, there’s always discussion between the local businesses and the global organisation. We work well together. But the decisions that were taken here in South Africa were taken by the local leadership of our business here. So, which projects were to be cancelled, what the outlook is for the overall health of our industry and our business – those things in the AB InBev model, of course those on the ground are most able to assess.
But again, we work well with our global colleagues to share that information and to communicate the decisions that are made. But those are decisions made here locally in South Africa, based on the facts that are here on the ground.
RYK VAN NIEKERK: In your statement you also said that for the past three months the loss of production would result in a decline of your annual production of around 30%, and to lose a third of your production in one year is significant. But can you put that into context? What does it actually mean financially for the company?
ANDREW MURRAY: It’s a great question. Now it’s 30% and counting; it’s kind of one thing. We don’t know exactly where this will end. From a financial perspective, in the second quarter we had volumes down 60% here in South Africa. And the impact that comes through to the bottom line on a profitability perspective is more pronounced than that, because there’s a lot of fixed cost in the industry with respect to the salaries that are paid to our thousands of employees who work on the lines of our breweries; we continue to pay those salaries without being able to bring revenue in. So it’s an impact of that order of magnitude.
Yes, we are doing everything we can to remove all discretionary spending, to tighten the belts everywhere possible, but we continue to honour the commitments that we’ve made to our employees. We continue to honour our commitments that we’ve made to suppliers who have provided goods and services to us. And that takes a toll as you work your way from the volume figures all the way down to total profits.
RYK VAN NIEKERK: You have a very interesting distribution network, mostly consisting of small and medium-sized enterprises. They are, of course, also affected. As you said earlier, more than a million livelihoods depend on the industry. Are you providing any assistance to those small businesses who play such a critical role in your distribution network?
ANDREW MURRAY: Absolutely. It’s a great question.
As part of our support for businesses that have been impacted, we have instituted a “tavern voucher” programme, where we provide funds to be used as meal vouchers for those important participants in our value chain while they unable to take income from their business by selling our products. There are just over 1 000 small businesses – not even small and medium, but small businesses – that we’ve impacted with that outreach.
And we continue to look for ways to support the broader communities with things like hand sanitiser, PPEs, including those same business owners who are the livelihood of our industry and, frankly, our reason why we exist as a company as well. And we continue to look for opportunities to be part of that solution and support the network that exists.
But, as I say, it’s a million livelihoods wide, and all of us are feeling the pain at this time and we’re unsure of where things will end, without knowing when we’ll be able to trade again and get the industry back to growth.
RYK VAN NIEKERK: Andrew, thank you so much for your time today. That was Andrew Murray from Anheuser Busch InBev.