•Manufacturers say the law will result in massive job losses across the alcohol value chain, from glass and carton manufacturers, bars and transporters to distributors.
•Government would also suffer lower revenues because of the decline in alcohol volumes while people resort to illicit brews.
Image: COURTESY
Alcohol manufacturers will need to invest at least Sh7 billion and lose Sh3.4 billion to implement the proposed changes in packaging of alcoholic drinks, the Kenya Association of Manufacturers(KAM) has said.
The law proposes to increase the minimum packaging of alcoholic drinks to 750 millilitres.
The proposed law would leave quality alcohol out of reach of a significant portion of the consumer. Due to inaccessibility of affordable alcoholic beverages, most consumers will resort to illicit brews with dire impact to their lives, increased societal issues and the health,KAM chief executive Phyllis Wakiaga
If if passed, the law proposed by Wundanyi MP Dan Mwakuwona would result in massive job losses across the alcohol value chain, from glass and carton manufacturers, bars and transporters to distributors, the association notes.
In a submission to the National Assembly, KAM chief executive Phyllis Wakiaga says apart from the economic impact, the law’s effects would extend to the health of drinkers who would have to resort to illicit alcohol.
“The proposed law would leave quality alcohol out of reach of a significant portion of the consumer. Due to inaccessibility of affordable alcoholic beverages, most consumers will resort to illicit brews with dire impact to their lives, increased societal issues and the health,”Wakiaga notes.
The Sh3.4 billion loss would be the cost of writing off the returnable bottles, crates, plant and machinery at current book value.
To replace them, the manufacturers would have to make an investment of at least Sh7 billion.
KAM argues that since glass is sourced locally, alcohol makers would have to reduce their orders, forcing some glass makers to close.
Consol, a glass manufacturer, said it could cost up to Sh169 billion to replace the close to 50 million crates of beer and the equivalent 1.25 billion single bottles already in circulation in the country.
“With the current severe economic challenges, it would be unwise for Parliament to burden the alcohol industry with a bill of Sh169 billion. Further, the local glass industry may not even be in a position to produce all this glass within a short period to ensure industry compliance,” said Joe Mureithi, Consol’s Regional Executive for East Africa.
He further said from Consol’s observations in other countries where it has factories, having alcohol in larger packs does not necessarily result in less drinking.
“Indeed, some countries such as South Africa that have beer packs on 750ml and 1 litre are currently discussing new legislation to limit the pack size to no more that 660ml,” he said.
Consol was also critical of the proposed mandatory glass deposit system, which they said would entrench existing dominant players in the market.
“The cost of introducing a returnable glass float and supply chain is prohibitive, and favours large players at the expense of small business, and disincentivises new entrants,” said Mureithi.
Acme Containers, which manufactures crates, said in its submission that changing the crate design to suit 750ml bottles would force it to spend Sh50 million, just to get the current ones replaced, and would need to be accompanied by changes in production lines and packing machines by beer manufacturers.
“We can confirm that the risks associated with changing the bottle size and crate design are significant. If the compatibility of crates across all East African Breweries Limited breweries in East Africa is lost, we would have a scenario where all investments and equipment costs are doubled with no efficiency or savings in the supply chain,” said Raj Shah, the Chief Operating Officer at Acme.
Logistics companies, distributors, cartons and label suppliers would similarly have to make costly adjustments.
“A transporter will also be adversely impacted, with a loss of revenue due to the decline in volumes of finished products within six months of the Bill being passed,” KAM said.
The reduced consumption of alcohol would cause bars to close, adding to the losses already experienced because of the effects of the Covid-19 pandemic.
“Despite easement of Covid-19 Government restrictions, to date, about 20 per cent of the bars have not been able to open their premises and about 50 per cent of the bars have had a reduced turnover.
KAM said the national government would suffer lower revenues because of the decline in alcohol volumes while county governments would lose the revenue they collect through the various licenses they charge.
At the international level, KAM says, increasing the minimum packaging standards to 750ml for Kenya would create a technical barrier to trade across the East African Community and the Africa Continental Free Trade Area markets.
“Plants and machineries are configured to produce standardised alcoholic beverages, under internationally accepted standards, which make it easy to trade across borders," Wakiaga notes.
This trading advantage will be eroded for alcohol exporters, who will lose their ability to produce for Africa since the plant and machinery currently in use for the manufacture of export goods will be rendered obsolete or unproductive, she urgues.
Kenya currently exports alcohol to Uganda, the United Arab Emirates, Tanzania, the Democratic Republic of Congo, Rwanda, South Sudan and the Netherlands, according to a 2019 study by the Institute of Economic Affairs.