South Africa’s alcohol ban during the COVID-19 pandemic

This investigation aims to explore how the alcohol ban during the COVID-19 lockdown in South Africa impacted the social wellbeing of individuals. When COVID-19 cases started to rise in South Africa in 2020, a lockdown was enforced which included a travel ban, social distancing, and a ban of alcohol nationwide. The reasoning behind this ban was to reduce the numbers of alcohol related accidents in attempts to preserve the capacity of the health system and cope with COVID-19 patient loads. (Ngqangashe et al. 2) The reason why South Africa has been selected is because banning alcohol was a peculiar response to COVID-19, and I aim to determine how effective this response was and because the alcohol industry is a major industry in South Africa and is the seventh biggest wine producer in the world. (“South Africa Liquor Industry Report 2021”) In addition, South Africa ranks as fifth highest alcohol consumption rate in the world. (“South Africa has some of the heaviest drinkers in the world”) Therefore, there is significant demand for alcohol in South Africa, especially during a period where everyone was at home. Therefore, this unusual response to the COVID-19 pandemic heavily impacted thousands of people. The people impacted vary from producers to wholesalers to consumers. Hence, this research will be focused on a large variety of people during this specific time period. However, the investigation will be mainly focused on the producers, consumers, and society. There are many factors that influence the demand for alcohol such as price, lifestyle and income. The expected outcome for the alcohol ban was to enhance the wellbeing of individuals, however, as will be investigated, the actual outcome of the ban was that the wellbeing remained unchanged or potentially even worsened.

This research is linked to the economic theory of market failure, specifically externalities, inelasticity, and inequality. Social wellbeing is a measure of life satisfaction. Factors that contribute to the social wellbeing of individuals includes measures of GDP per capita, financial, and social stability, employment and how safe one feels among many other aspects. For this investigation, I will measure wellbeing in terms of income, health and the ability to feel stable.

This research question will be explored through a combination of primary and secondary research. Primary research was conducted through an online interview in June 2022 with a liquor store owner in Johannesburg, South Africa. The liquor store owner was questioned about the changes in revenue, accessibility to alcohol and government contribution during the confinement. Since the research is focused on wellbeing of all individuals, this interview aims to find out the purchasing patterns and the production of alcohol. Secondary research was conducted through online research for internet articles about alcohol bans in a variety of countries and the impacts that it had on the government and on individuals. The secondary research will aid in exploring the impacts of the ban and is not opinion based, as is the primary research. From this information, wellbeing can be analysed based on company revenue, worker’s salaries, percentage of income spent on alcohol and hospitalization figures.

Only one retailer was interviewed which may limit the certainty and range of responses and effects of the alcohol ban. In addition, the retailer may be biased in his answers in order to present a better reputation and appearance for their shop whereas, how the shop was truly run during the pandemic would affect the accuracy of the impacts.

Unlike many other countries, during the COVID-19 lockdown South Africa took the approach of implementing intermittent restrictions of alcohol sales nationwide. The alcohol ban took place from March 26 2020 until May 31 2020, and then it was reintroduced from mid-July to mid-August 2020. The reasoning behind this ban was to reduce the numbers of alcohol related accidents in attempts to preserve the capacity of the health system and cope with COVID-19 patient loads. (Ngqangashe et al. 2) The government also shut down the alcohol production industry as alcohol was not classified as a necessity good. The government believed that the consumption of alcohol was an agent for the disease to spread because in many cases, drinking alcohol is a group leisure activity and people often tend to share their drinks, and this did not obey the social distancing regulations. In theory the method of restricting alcohol supply would be effective in reducing the overconsumption of alcohol and the numbers of people admitted to hospitals due to alcohol related incidents.

Shop owners also suffered from the alcohol ban. There were different stages of the lockdown that the government would regulate and announce when the stages changed. The stages were numbered from alert level 1 to alert level 5, and there were varying restrictions at each level. At alert levels 5 and 4, selling alcohol was prohibited. However, at alert levels 2, and 3 it was permitted but at limited times. The alert level changed 13 times (“Covid-19 / Coronavirus”) over the span of 2 years, from 2020 to 2022, see figure 1.

Due to the alert levels changing so often, it created uncertainty for shop owners, producers, and consumers. Shop owners were uncertain of whether to keep their staff or to retrench them because they did not know how long the alcohol ban would be in effect. They were also uncertain of whether to risk joining the illegal market so they make some profit or if they should be safe and wait for the ban to be lifted again. This created remarkable amount of stress for the shop owners and the workers, furthermore, negatively impacting the livelihood of earning an income for workers.

Many retailers and restaurants decided to take the risk and join the illegal market when the second ban on alcohol sales was imposed. The vineyards just outside Cape Town transformed into bootleggers and restaurants across the country turned into speakeasies, serving rose out of teacups and Pinot Noir from coffee mugs. (Wexler 1) A winemaker at a small, family-owned Stellenbosch winery said that “We had to do it to keep paying salaries”. (Wexler 1) Retailers, restaurants and wineries found that this was the only way for their companies to survive the alcohol ban since furlough- a temporary release of a worker from their job- from the government was not significant (Martin) and exporting their goods was nearly impossible. An owner of a liquor store in South Africa claims that he “got interest free loans from a private organization. We got some tax relief from the government, but the relief was not significant. We were still negative after that”. (Martin) Even with interest free loans from a private organization, they were still negative, this suggests that companies who did not earn an interest free loan were more significantly impacted.

A consequence of the alcohol ban on the retailers and producers is that they still have not returned to their initial amounts of exports before the ban was imposed. Customers from around the globe are reluctant to purchase from South African alcohol retailers since they are not reliable. This could mean that the future of the wine industry in South Africa might be jeopardised because they are so unreliable and this might lead to consequences in the future such as lower GDP as exports are a component of GDP, and exports of alcohol- a large portion of South Africa’s exports- would be reduced. Wellbeing in terms of the ability to earn income may be damaged in the long-run because exports may be hindered in the long-run.

The wine production industry is large in South Africa, employing 290,000 people and the liquor industry overall accounts for approximately 1 million jobs. (Wexler 1) However, when the pandemic began thousands of jobs were lost in the alcohol industry as well as thousands of Rand lost in revenue and in tax revenue since no tax was being collected for the consumption or production of alcohol as well as from direct taxes. This meant that income could not be redistributed from the collection of taxes and hence increasing the already large amount of inequality in the country. It is estimated that the industry lost 21,000 jobs and 7 billion South African Rand in revenue. (Wexler 1) The wellbeing of the individuals who lost their jobs significantly decreased because of the loss of income, negative phycological and physical consequences that are associated with unemployment such as increased stress levels and increased uncertainty about the future. The alcohol industry was heavily impacted by the lockdown since it includes both the agricultural and manufacturing sectors.

Furthermore, the wine industry suffered since wine cannot be stored in the barrels for a long period of time, some wine can only be stored in the barrels for up to a few days. (Martin) This meant that thousands of South African Rands were spent on wine that would have to be thrown away once the workers were allowed to access the barrels again. This caused the companies to lose even more revenue and profit than they already lost due to the lockdown in the first place.

Alcohol production is in the primary and secondary sector suggesting that the workers do not earn very high salaries. This became an issue when thousands of workers lost their jobs because that meant that many of them did not have the financial support that was needed to maintain their lives, meaning that their social well-being was deteriorating. The South African government did not provide significant furlough or unemployment benefits to the companies and the workers, meaning that many workers were left with nothing as aforementioned. They might not be able to get these jobs back because of the reduced demand for the South African wine due to the loss of export competitiveness caused by the unreliability that some countries saw. This could eventually lead to a higher crime rate in a country that already has a high rate of crime and could also lead to higher poverty numbers since the workers who were retrenched had to continue paying rent, taxes and purchasing the basic necessities such as food. The crime rate in South Africa did decrease during the pandemic, statistics indicate that murders reduced by 72%, rape by 87.2%, assault dropped by 85.2% and attempted murder was down by 65.9% (“5 Myths”). This may suggest that the ban was successful. This decrease in crime rate was effective in improving the security of the country and thus improving their social wellbeing. However, these reductions in the crime rate are not necessarily linked to the ban of alcohol because the lockdown could have resulted in less crime with or without the alcohol ban.

Furthermore, this led to an increase in the extreme inequality because the income distribution worsened. It is assumed that majority of the people who work in the tertiary sector could continue working through online resources whereas the alcohol production industry was completely shut down for months at a time. This meant that the rich were less affected by the rising alcohol prices than the poor since the alcohol prices took a larger percentage of the income of the poor.

South Africa is ranked as the most unequal country in the world according to the Gini index. (“South Africa Most Unequal Country in the World: Report”) The Gini index is a measure of income distribution across a population. This can be shown using a Lorenz curve. The Lorenz curve shows the distribution of income and wealth in a country compared to perfect equality. The graph shows that South Africa is exceptionally far away from perfect equality due to the unbalanced distribution of income.

The increase in inequality in South Africa has caused the Lorenz curve to shift to the right. This occurs because the further away the curve is to the 45^o perfect equality line, the more inequality there is in the country. This shift in the curve would also cause the Gini coefficient to increase because the equation of the Gini coefficient is

Gini coef ficient = \(\frac{Area A}{AreaA+AreaB}\)

Where A is area between the perfect equality line and the country’s line and B is the area between the country’s line and the x-axis. Looking at the Gini coefficient, it has increased which indicated inequality has increased. This is proven because the Gini coefficient of South Africa in 2018 was 0.577 (“South Africa-GINI Index”) and in 2020 the Gini coefficient reached up to 0.63. (“20 countries”) Regardless, it cannot be assumed that the Gini coefficient increased because of the ban. However, it is certain that the loss in incomes of workers on wine farms and alcohol manufacturing workers were part of the reason of inequality increasing.

Due to the large inequality gap in South Africa, it creates potential for poverty, especially relative poverty. The inequality in South Africa is still largely caused by issues of race. These issues create trouble for people of colour to access proper education which might further affect them in life by not having a high-paying job and hence making them feel unsafe.

An illegal market is economic activity that takes place outside of the government’s supervision since the transactions are not recorded. Illegal markets do not obey the government laws and regulations. Corruption in South Africa is a major issue that has been present since the colonisation of the country in the 1600s. (Friedman) The country is so corrupt that policemen would take alcohol away from people selling the alcohol illegally and then the policeman would resell the alcohol to new customers to make a profit. (Martin) Since purchasing from the illegal market was the only method of gaining access to alcohol, the vendors were able to raise their prices since there was a surplus of demand.

This graph shows the legal and illegal market for alcohol. Through the ban, the supply of alcohol is eradicated and hence the legal market no longer exists. The supply curve in the illegal market is inelastic because producers are not permitted to increase their volumes of alcohol because it is illegal and therefore, they do not have the same production capacity. Therefore, the demand for alcohol shifts left, the demand should eradicate but because alcohol is an addictive product, it does not. However, demand for alcohol does become more price inelastic because the people who are willing to purchase the alcohol are the ones who are desperate for it and thus the consumers are not responsive to the change in price. As seen from figure 3, the price of alcohol increases when it moves to the illegal market as well as the quantity decreasing. Since the supply of the alcohol was so limited there was potential for an illegal market to arise.

The illegal market affected people’s well-being because the prices were remarkably higher, meaning that it took a larger percentage of people’s already limited income. It was expected that the higher prices would have a regressive effect on low-income households since it would take a majority of their income to purchase a small amount of alcohol. It also affected people’s well-being because those who did purchase alcohol illegally from the underground market were in fear of being caught with illegally purchased and consumed alcohol since it was not only illegal to purchase it, but also to consume it. The consequences of purchasing the alcohol illegally were risks of fines and even jail time.

Some of the negative externalities of the consumption of alcohol include alcohol-related accidents and violence. The graph presented represents where the socially optimum level to consume alcohol is (Q* and P*) compared to where alcohol is being consumed (Q₁ and P₁). Therefore, this creates a negative externality of consumption since the marginal social cost exceeds the marginal private cost. Previously, the distance from Q* to Q₁, was the overconsumption of alcohol which resulted in 34,000 hospital beds being used. (Mitchley) However, once the ban was imposed those 34,000 beds were freed up which is represented by the shift of D₁ to D₂ and hence the negative externality of consumption is internalized.

For the South African alcohol industry, it was predicted that 13 billion South African rand in wholesale revenue, 3.5 billion South African rand in excise tax revenue and 9 billion South African rand from wine exports would be lost. (Ngarava et al.) In total, it was estimated that South Africa’s alcohol industry lost 36.3 billion South African rand in retail sales revenue.

Figure 5 represents the loss in government revenue and producer revenue after the alcohol ban was imposed. Without the alcohol market existing anymore, the ZAR 3.5 billion was no longer able to be collected. Without this extra tax revenue, the government is no longer collecting money that could be spent on contributions to social projects, for example the health sector.

Figure 6 represents the total potential revenue from excise duties that was lost by the alcohol industry in South Africa. The excise duties that were collected for 9 months in 2019 is remarkably exceeding that collected in the whole of 2020. The difference in the excise duties of beer is the largest suggesting that beer is the most produced beverage.

In South Africa, the decrease of aggregate demand was a major problem because they are exporters of alcohol. South Africa exports about 38% of the wine they produce to other countries. (“Macro-Economic Impact” 26) However, during the COVID-19 pandemic, there were intermittent regulations of exporting and transporting liquor. It was difficult to export the goods because there were times where companies were allowed to export their products, but they were not allowed to transport liquor, so they were not able to get their products to the port in order to export them. (Martin) Confidence was so low that people were not willing to invest, instead they were saving their money, which decreases AD. Therefore, there were very limited injections into the economy which prohibited economic growth. By prohibiting economic growth, profitability and innovation is also being put on hold for the country’s economy. This affects all individuals since it may prevent medical and technological breakthroughs from occurring. Although AD would have naturally decreased because of the pandemic where consumption, exports, investments etc. decreased, the situation was made worse by the ban and decreased AD more than expected.

Many companies went bankrupt during this period because they could not sustain the amount of loss they were facing. While usually when a company is facing losses, they tend to sell their business to a competitor or selling assets, this was not a big opportunity during the lockdown since confidence was so low, no one wanted to start up a new business or purchase new products. This could suggest that people may have had difficulties selling their businesses if they no longer wanted to keep it running.

An unintended consequence of the beer production being slowed down was that the marmite production also slowed down. Marmite is a popular savoury spread that is largely produced in South Africa. It is made from the by-products of brewing beer. Marmite production slowing down caused an additional loss of revenue in the South African economy since the alcohol ban severely impacted the industries that were not in the alcohol industry.