Michael Fridjhon: Does government neglect hinder or help SA wine?
By Michael Fridjhon, 28 November 2018
The political environment of South Africa makes it very difficult for even the most delusional amongst us to feel optimistic about the economy, and therefore about the future. To go with the endemic corruption and the refusal by even the moderate grouping of the ANC to assume some responsibility for the mess created by their policies and overseen by their elected leadership, there’s a litany of disasters still waiting to unfold.
What will happen when the insolvent state-owned enterprises go to the wall – as they must, once there really is no more money to prop them up? What will we do when Eskom collapses? How will the grant system which depends on the taxes paid by 10% of the population continue to sustain an ageing population, a growing number of unemployed, another “lost generation” (this one the result of the government’s refusal to hold the teaching profession accountable for its failure to produce even moderately literate and numerate matriculants)? How will we be able to persuade investors that it’s worth putting money into an economy where the salary bill of the civil service exceeds the total amount collected from personal income tax (especially where the overly entitled civil servants keep demanding above-inflation wage increases)?
So we clutch at straws, seeing in the brief flickers of light the prospects of a new dawn, in the small triumphs the prospect of advancement, in the baby steps the possibility of forward and upward mobility. Here’s where the wine industry, abandoned by government and therefore compelled survive without handouts, provides more than mere inspiration: it offers a model which may yet direct the national recovery.
Consider the facts: the wine industry exports more product than the domestic market uses – making us one of fewer than ten countries where foreign wine drinkers consume more wine than the home market. It achieves this without any meaningful government support. On the contrary, the wine industry contributes almost R7bn to the fiscus. Most of the costs of administering the systems which guarantee the authenticity of Cape wine are borne by the producers. Even allowing for some padding in the figures released annually by producer organisations, the industry employs or contributes to the employment of 250 000 South Africans.
If this is what can be achieved without help or interference it does suggest that less rather than more “government” may be the only way forward. The only problem is that half of the country’s employees work for (in the nominal sense of the word) the government. If we shrink the civil service, we might have more money (which would help to reduce debt). Unfortunately, our unemployment statistics would sky-rocket: it’s not inconceivable that at least 50% of the adult population of working age would then be unemployed.
The other potential difficulty is that it’s unlikely that government will continue to leave the industry alone. The story is told of Winston Churchill and Labour Party Prime Minister Clement Attlee encountering one another at the urinal at the House of Commons. Attlee was there first. When Churchill arrived, he stood as far away from Attlee as possible. Attlee said, “Feeling standoffish today, are we, Winston?” Churchill replied: “No, frightened. Every time you see something big, you want to nationalise it.”
Already we are witnessing massive interference in liquor legislation, officially in line with employment equity. To put this in context: the liquor industry has always been one of the most transformed segments of the economy, with both the ownership and employment profile completely in line with the national demographic. The problem for government is that most of the traders and their employees are operating without liquor licences, a situation which reflects the inability (or incompetence) of the authorities to regularise a situation which has prevailed from long before 1994. However, just as the ANC has failed to process some 20 000 land claims which do not require an amendment to the constitution to be dealt with, we are now seeing the Department of Trade and Industries attempting an expropriation of equity in established liquor licences to “rectify” the historical injustice of the shebeen trade. It would be much easier, and less damaging to the economy, to license the shebeeners instead: they’re not going to go away anyway, even if the DTI “empowers” some ANC cronies at the expense of white business owners.
This same, increasingly desperate, interference will shift in time from distribution to brand ownership, to control of production facilities and finally to the ownership of viticultural land. The land will be the last to go, because by now even the most ignorant policy maven in the ANC knows that grape-farming is not a profitable business. The risk is that by the time they have gutted all the successful entities on the way, the industry will no longer be able to contribute R7bn every year to the tax-take, and many of its 250 000 employees will be out of work.
- Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is founder of Winewizard.co.za and holds various positions including: Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Old Mutual Trophy Wine Show.