It’s a sombre payday weekend for most people as the doors of liquor retailers remain shuttered despite calls for the end of South Africa’s contentious ban on the sale of alcohol.
At the heart of the dry throats is the government’s reinstated alcohol ban this month that came with no warning after the first one was briefly lifted last month. A spike in trauma cases related to alcohol consumption led to the reinstatement of the ban following fears that hospital beds that could be going to Covid-19 patients ahead of the spike will not be available.
South Africa is expected to reach its peak in Covid-19 cases in September after crossing the 400 000 case mark this week.
The ban has seen distress suffered by big alcohol producers such as Distell, AbInbev all the way through to tavern owners and restaurateurs.
But the impact is also great down the value chain as glass makers keep their furnaces burning in the hopes that the ban can be lifted and they can begin to start clawing back the revenue they are losing.
At Consol Glass, the cost of the ban has been too high and is threatening to bring the 75-year old company to its knees.
Consol lost R3.5bn in sales and production during the first alcohol ban.
Every day, the glass producer has to keep its furnaces running, it costs some R8 million a day.
Turning the furnaces off means they will have to be rebuilt.
Although the company continues to generate revenue by producing glass for essential products such as containers for food, pharmaceuticals and non-alcoholic beverages, this only accounts for 15% of its total sales.
South Africa’s glass packaging industry’s sales are made up 85% legal alcoholic beverages.
“We estimate the reinstated alcohol ban will have the same dire consequences as the first ban, another eight weeks of no sales means another R1.35bn lost to the business and the possibility of the closure of around half our facilities as well as further salary sacrifices and short time for employees,” said Mike Arnold, CEO of Consol Glass.
Arnold said the industry needs to run at rates of 75% or higher to pay staff suppliers in the glass manufacturing supply chain.
The industry contributes R11.8 billion to the country’s GDP and employs more than 26 000 people.
“The closure of the glass industry and failure of suppliers in the value chain would deindustrialise the South African economy by around R20 billion and the country would have to become a net importer of glass packaging and other related products,” Arnold said.
The ban has also placed glass industry suppliers of raw materials such as silica sand, limestone, soda ash, feldspar, iron slag and cullet at risk.
For Isanti Glass, the conclusion of its acquisition of 60% of Nampak’s glass business was meant to be a fresh start.
But instead of celebrating, the company has to deal with the reality that it may have to close down at the end of August.
Isanti finalised its acquisition of Nampak Glass in April through a joint venture with AB Inbev subsidiary, South African Breweries.
Together with Consol and Isanti makes up SA’s largest glass producers.
And like Consol, the company spends R8 million a day to keep its furnaces going, rebuilding its nine furnaces would cost R500 million, said Shakes Matiwaza managing director of Isanti.
“We understand where government is coming from, there is this delicate balance between saving lives and livelihoods. Obviously alcohol has its own negative side in terms of trauma cases that go up when people are out drinking.”
However, he suggested that South Africa rather have a restriction on the consumption of alcohol, saying it will take years to recover from the long term effects of the ban.
Although it has sold its glass business packaging company Nampak, will not get out of the pandemic unscathed.
Erik Smuts, CEO of Nampak said the primary impact of Covid-19 on the company is on its product lines related to packaging.
Smuts said he expects the pandemic to put Nampak’s profitability under pressure.
Nampak’s remaining businesses are in plastics, paper and metal.
“While most of our operations continued to operate, the prohibition of alcoholic beverage sales in South Africa, a general shift towards preserving cash by customers and softer demand for goods considered non-essential have negatively impacted on the utilisation of key operations.
“As a result, average factory utilisation levels were significantly below normal seasonally adjusted levels as of April 2020.”