South African Breweries cancels US$143.7m investment slated for 2020 upgrades

SOUTH AFRICASouth African Breweries (SAB), subsidiary of AB InBev has pulled the plug on billions of Rands in planned operational investments in South Africa.

This follows dwindling operations in the country’s alcohol industry as the government made the decision to ban alcohol sales as part of its strategy to contain the spread of Covid-19.

The company said in a statement that it was withdrawing R2.5bn (US$143.7m) of planned infrastructure upgrades for the current financial year, while a planned investment of a similar amount R2.5bn (US$143.7m) for the next year has been placed under review.

“The cancellation of this planned expenditure is a direct consequence of having lost 12 full trading weeks, which effectively equates to some 30% of SAB’s annual production,” said the firm’s vice-president of finance Andrew Murray.

Murray said the cancelled investments include upgrades to operating facilities and systems, as well as the installation of new equipment at selected plants.    

This decision will also have an impact on the external supply chain companies that had been selected for these upgrades.

Alcohol sales in South Africa were prohibited as part of the country’s initial lockdown that started in late March. The ban was later relaxed, but was reintroduced in mid-July following a rise in trauma cases.

SAB said 120 000 people in South Africa’s alcohol industry risk losing their jobs due to the ban. It added that the initial ban had cost the state about R12 billion (US$689.8m) in lost taxes. 

The state meanwhile, has said the ban is necessary to keep SA’s hospitals free from trauma victims as Covid-19 cases rise.

Last week, SAB and other alcohol industry leaders requested the government to review the South African Medical Research Council (SAMRC) report that influenced its decision to ban alcohol sales.

The industry said, “The incomplete nature of the data used in the modelling makes it difficult to accurately determine the extent of the link between trauma admissions and alcohol abuse.”

It disputed the SAMRC’s finding, saying that the reason for each trauma is not captured by the hospitalisation data provided in the report and there is no information on whether the trauma cases resulted from alcohol use, or from any other cause.

“The model, therefore, may be able to predict the total number of potential trauma cases prevented; however, it remains uncertain as to the extent of the relationship between alcohol consumption and the number of trauma admissions in SA hospitals,” it said.

Sibani Mngadi, representing the South African alcohol industry, urged the government to review the report on that point.

“We would encourage the government to take note of this independent review of the SAMRC report and of the limitations in the data reported, and engage with our industry to find an urgent solution to lifting the suspension on alcohol sales,” said Mngadi.

“This will enable our industry to return to some form of operational normality.”

The ban has also forced the South African arm of Heineken to drop plans to build a R6 billion (US$344.9m) brewery in KwaZulu-Natal.

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