Liquor Bill: hearings

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Trade, Industry and Competition

14 May 2003
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

14 May 2003


Mr Tolo [ANC, Mpumalanga]; Dr Davies [ANC]

Documents handed out:

Western Cape Amalgamated Liquor Traders submission
Law Society submission
Anglo American Farmers submission
Free Market Foundation submission
Food and Allied Workers Union submission
Metcash Trading submission
Competition Commission submission
The following documents will be available here shortly.
South African Liquor Stores Association submission
South African Breweries submission

WECALTA, an organisation representing a group of shebeen owners in the Western Cape, rejected the proposed Liquor Bill, terming it oppressive. They argued that it would open new avenues of harassment of shebeen owners by the authorities. WECALTA pleaded with the government to bring about an enabling environment for the business sector instead of passing draconian laws that would spell doom, particularly for the informal sector.

The South African Liquor Stores Association applauded the Bill for the inclusion of a provision on 'public health considerations' which was important to educate the populace on the dangers of alcohol abuse.

South African Breweries warned that the vertical separation created by the three-tier system would impose additional transaction costs on the market participants and thereby undo efficiencies previously realised by the vertical integration. While noting that SAB shares the governments' desire to facilitate the entry and empowerment of new entrants into the industry it doubted that the three-tier system would deliver the intended results. SAB informed the Committee that the promotion of new entrants into the market was a matter for the competition policy in addition to it being a matter of general application that should apply across the spectrum of the entire industry.

Issues around the public interest were also a concern for some organisations such as the Free Market Foundation. Some technical problems with the Bill were raised by Mr L Nathan and the Law Society.

At the conclusion of the hearings the Committee agreed to set up a meeting with the Department to discuss issues arising out of the Bill, which include the "dop" system, policy around easy entry and exit in the industry and the Constitutional Court judgement.

Western Cape Amalgamated Liquor Traders (WECALTA) submission
Mr Sydney Chiloane: President, WECALTA, informed the Committee that although his organisation represents 7,844 shebeens with a membership that employs more than 23,000 people, the industry is routinely harassed in the most disrespectful manner as if they were common criminals. He asked the government not to confuse his members with a few shebeens that might be fronting for illicit trade. He noted that the new Bill spells doom for shebeen owners and would open new avenues of harassment by the authorities. He pleaded with the government to bring about an enabling environment for the business sector instead of passing draconian laws that would spell doom, particularly for the informal sector. The Bill would unnecessarily increase the costs of doing business by adding more layers on the already choking red tape. WECALTA rejected the Bill in total and called on government to engage it more meaningfully in order to bring about a workable legal environment for businesses.

Mr Moropa (ANC) asked whether WECALTA, as an organisation, has a code of conduct for its members.

Mr Chiloane confirmed that his organisation has an elaborate code of conduct to which all members subscribe and he offered to supply copies to Members.

Mr Moropa asked Mr Chiloane to comment on the objectionable situation where most shebeens are set up close to schools and churches.

Mr Chiloane replied that most of the shebeens have been in existence long before schools were set up yet whenever a learning institution is established near a shebeen the latter is ordered to close down without an alternative site being given for such an establishment.

Mr Tolo (ANC) noted that shebeens belong to small and informal businesses who are the ultimate beneficiaries of the Bill since one of the objective of the Bill is to create space for them to realise growth. Were the shebeens to be registered as the law envisages then they would be operating lawfully in which case there would be no room for harassment by those in authority.

Mr Chiloane acknowledged the importance of the empowerment drive the Bill is crusading for but wondered what would happen to the shebeens that are already in existence. He lamented the fact that the Bill talks of the concept of rezoning yet shebeen owners do not understand the dynamics of this proposed structure.

Ms Shope pointed out that WECALTA objects to every aspect of the Bill without motivating why it has taken such a non-compromising position. She suggested that it would have been better for WECALTA to pin point specific sections in the Bill which it is uncomfortable with and clearly state why that was the case. She expressed doubt that WECALTA would voice an objection to the noble goals of empowerment, which the Bill propagates. She regretted that the manner in which WECALTA have structured their presentation does not afford the Committee ample material with which it could help the shebeen owners.

Mr Chiloane replied that he did not point out specific areas of the Bill that his organisation objects to since the Minister has been vested with excessive powers and that means inspectors would be routinely unleashed unto the shebeens.

Ms September concurred with the sentiments expressed by Ms Shope and noted that she would be surprised if WECALTA would object to the prohibition of sale of liqour to minors which is one of the key provisions in the Bill. She noted that it is clear that WECALTA needed more education on the objects of the Bill and called on the Committee to engage the organisation at some point in order to understand one another.

The Chair explained that if the Bill were to be shelved then the organisation's members would be subject to the 1989 Bill in which case they would be exposed to continued harassment. He pointed out that the licensing and control of shebeens falls under the provincial domain and wondered whether the organisation is urging for a lighter or heavier regulation.

Mr Chiloane denied that shebeen owners were a law unto themselves but instead shifted blame on the government which he said has not moved swiftly to identify and deal firmly with troublesome shebeen owners. He explained that most shebeen owners were law abiding business people and that is why they have a code of conduct to regulate their affairs.

Mr Lockey (ANC) said that WECALTA was advocating for a regulation free environment where everyone would be allowed to do whatever suits their whims. He noted that there is irrefutable evidence to the effect that a great deal of violence occurs after people have taken beer at the shebeens. The marked escalation of violent incidents on Fridays and weekends attest to this allegation.

Mr Chiloane clarified that the type of shebeens Members were alluding to were the kind that operated under the apartheid era. He invited Members to check out how the modern shebeens operate.

Mr Lockey underscored the fact that no sensible government would condone such a situation of lawlessness. He wondered why the majority of the shebeeners do not want to pay taxes like everybody else. He emphasised that regulations would ensure that no one conducts their businesses to the detriment of the rest of the populace.

Mr Chiloane explained that there were some people outside his organisation's membership who do not operate within the confines of the law. He distanced his organisation from lawbreakers and criminals upon whom he said the full force of the law should come to bear.

Mr Nefolovhodwe (AZAPO) acknowledged the fact that indeed shebeen owners had a rough time during the apartheid period since they were perceived to be labouring freedom fighters. However, he regretted that WECALTA has not come out clearly on how it wants the Committee to assist its businesses to grow.

Prof Toruk (ANC) welcomed WECALTA's submission and said that it was happy to engage them fully. He pointed out that the Committee was keen to listen to everyone and noted that it was importit is important that members are appraised on all difficulties small businesses are faced with including issues of to do with harassment. However, he clarified that Parliament was serious on legislating morals and no one should take this matter lightly. He emphasised that legislation was necessary to regulate the sell of liquor since this was no ordinary commodity.

Mr Chiloane explained that the code of conduct to which his organisation's membership subscribes prohibits excessive noise from shebeens among other activities that might be offensive to the communities.

The Chair concurred with Members that many small scale operators were now coming into the economy and there was an urgent need to educate them on the legal development so that they can operate within the confines of the law. He clarified that issues to do with regulation falls under the provincial mandate since the national government would only legislate broad principles. However, he called upon the Department to desist from erecting unnecessary red tape around licensing which has the effect of crowding the fragile informal sector out of business. He promised to get back to WECALTA at some point so that the Committee could engage with them further.

South African Liquor Stores Association (SALSA) submission
Ms Basani Maluleke said that the Bill is by and large good law and carries many positive aspects. In particular, she singled out the inclusion of a provision on 'public health considerations' which proviso she noted was important to educate the populace on the dangers of alcohol abuse. However, she voiced strong objection to the proposal to allow grocers to sell wine. She warned that such a move would militate against the expressed aim of the Bill, which seeks to improve the quality of life for all its citizens and in particular the marginalised citizens. Such a move would also constrain the current regulatory framework, which is meant to protect license holders.

Ms Basani submitted that in terms of Schedule 5 Part A, liquor licensing is an exclusive provincial legislation competence but noted that this provision is subordinate to Section 44(2) of the Constitution. National government is empowered to legislate on matters listed under Schedule 5 where this is reasonably necessary for, or incidental to, the effective exercise of a Schedule 4 power. She suggested that it would be important for the national government to legislate the days and hours during which alcohol can be sold in order to forestall a possible inter-provincial competition. The need for uniformity on such an important policy decision makes economic sense to the industry. She pointed out that her organisation applauds the noble objectives of BEE and its concomitant ethos of social responsibility and to that extent, she submitted, her organisation fully supports the Bill.

Mr Tolo (ANC) sought the opinion of SALSA on the supermarkets to be allowed to stock beer in addition to wine.

Mr Mhlongo: National Chair, SALSA, replied that there would be no problem if the supermarkets were allowed to retail and sell beer as long as this venture is undertaken on separate premises clearly demarcated from the main store for other merchandise.

Prof Turok concurred with SALSA that supermarkets would require separate premises if they were to be allowed to retail and sell beer. Allowing supermarkets to add beer to the list of their liquor sales would be tantamount to empowering the already empowered.

The Chair noted with appreciation that SALSA's views were the same as his own position on the Bill. However, he expressed frustration at the fact that the implementation of the measures proposed in the Bill would effectively create a proliferation of liquor sale outlets, which event is the very mischief the Bill proposes to cure. He wondered whether SALSA could volunteer some ideas as to what appropriate mechanism that could be build into the Bill in order to deal with the apparent contradiction.

Mr Mhlongo said he appreciated the dilemma in which the Chair found himself and advised that the best way to go about the problem is to identify and filter out the beneficiaries of the legislation and focus regulation on that group.

Prof Turok asked SALSA to comment on the allegation made by shebeen owners that they do not want more regulation.

Mr Mhlongo pointed out that it was high time shebeens were brought into the mainstream economy. He expressed the view that the informal sector in the liquor industry was robust and that it would be foolhardy to wish such a vibrant sector away. He called for the establishment of a National Liquor Licensing body, which would engage shebeen owners in a more positive way and move them into the mainstream economy.

Prof Turok concurred with Mr Mhlongo and pointed out that indeed unlicensed shebeens need to be licensed whilst new entrants are guided into the economy under the new law.

Briefing by Vincent Maphai - Director SAB
Mr Vincent Maphai: Director, South African Breweries (SAB) informed the Committee that SAB supports the government's broad objective of promoting the BEE effort but voiced strong objection to the proposal to use the liquor Bill as a vehicle to achieve that goal.. The important agenda of promoting BEE objectives should not be specific to a particular industry alone but this should be spread out to cover all players in the economy. SAB shared the government's desire to facilitate the entry and empowerment of new entrants into the industry but doubted that the three-tier system would deliver the intended results. He contended that the promotion of new entrants was a matters for competition policy in addition to it being a matter of general application that should apply across the spectrum of the entire industry.

Mr Tony Van Kralingen: Managing Director, SAB, said that the real need was to license shebeens. In 2002 far more new licenses were granted to categories other than taverns. Licensing would create a significant cadre of new entrants into the liquor industry by previously disadvantaged South Africans. This measure would eventuate into a huge increase in formal employment and would also bestow on the state the ability to police and regulate the previously unregulated sector. SAB was ready and willing to undertake the procuring and licensing and even finance the process in addition to playing its part in building the necessary capacity for licensing authorities. He warned that the vertical separation of the three-tier system would impose additional transaction costs on the market participants and thereby undo efficiencies previously realised by the vertical integration.

Mr Rasmeni commended SAB for the excellent programmes it has implemented in the area of BEE promotion in addition to the support it has given to the economy in general. However, he pointed out that there was room for improvement and called on industry to do more in order to arrest the soaring levels of unemployment. He asked SAB to clearly state why it was so vehemently opposed to the incorporation of the BEE in the Bill. The objectives of the BEE were so urgent that it was necessary to incorporate this item in all legislation, whenever practical. He noted that the claim by SAB that the introduction of BEE would escalate costs and wondered whether SAB had paused to consider the benefits that would flow from the expansion of business opportunities.

Mr Maphai insisted that it was unfair to target one industry in so far as the implementation of the BEE is concerned and urged that all commercial interest must be subject to common BEE legislation with no exception. He pointed out that this particular law is already in the making and the current one is superfluous.

The Chair said that stabilisation of shebeens is a matter of priority and that there is no question about this. However, he clarified that it is on record that the provincial authorities in whose jurisdiction shebeens fall must undertake the main work in this area. He pointed out that there is pretty little left for the national government in that regard.

The Chair asked what SAB means by urging the normalisation of the retail sector in view of the fact that most of it happens outside the regulatory framework.

Mr Van Kralingen observed that the problem with shebeens is that they lack a proper structure otherwise this sector has a huge potential to thrive on healthy economic fundamentals.

The Chair queried the data presented by SAB to show that other countries consume more alcohol than South Africa and wondered whether SAB was suggesting that the country does not suffer the malady of alcohol abuse.

Mr Van Kralingen acknowledged the existence of alcohol abuse in the country but pointed out that the vast majority of the citizenry are normal and intelligent people. Abuse mainly stems from societal problems and related issues.

The Chair begged to differ with the argument by SAB to the effect that the three-tier system is rigid. Quite to the contrary the regime is fairly flexible given the fact that the Minister has wide discretionary powers to intervene where need be.

Mr Maphai reiterated that the three-tier system unfairly restricts the important business of the BEE to one sector of the industry and that it would be necessary to engage the industry on this score.

The Chair pointed out that competition law dealt with the conduct of companies and not regulation and so the proper legislation for regulating the industry is the Liquor Bill.

Mr Maphai contended that conduct and regulation are one and the same thing and where industry is concerned these properly fall under the competition law.

Mr Moropa insisted that the legislation is good law in so far as it proposes to create room for new entrants. He noted that the government has a social responsibility to ensure equity in the distribution of national resources.

Mr Maphai clarified that SAB was not opposed to the principle of equity but that the manner in which this noble objective is sought to be actualised is objectionable on the very same principles. He lamented the fact that SAB had not been afforded ample opportunity by the DTI to engage and exhaust all the concerns it has raised around the Bill.

Mr Rasmeni concurred with Mr Moropa and pointed out that it would be suicidal to delay the economic emancipation of the formally disadvantaged groups. He pointed out that other sectors like the mining industry was way far a ahead in actualising the BEE objectives.

Mr Maphai reiterated that SAB is in no way opposed to the actualisation of the BEE goals. SAB fully supported the government's objectives in this regard. However, a framework already exists for the achievement of this objective and it was unnecessary and unfeasible to vehicle these objectives through the liquor Bill.

Afternoon session
Mr L Nathan submission
Mr Nathan pointed out a possible typographical error in Schedule 5 of the Bill which could have huge repercussions. He felt that there was an incorrect reference to Item 7 and Schedule 3. If this was correct, it would cause the death of small liquor traders. As stated in the Bill, it would cause the large shops to sell all types of liquor which would then cause small traders to lose out. In South Africa there was approximately 30 000 small traders who employed 300 000 people. If the aim of the Bill was to bring in previously disadvantaged individuals, this reference should be changed.

Law Society submission
Mr P Smit, representing the Law Society, referred to a number of technicalities in the Bill that were problematic. These are covered in the written submission attached. He added that public interest was very important when granting a liquor license and that there was a lack of criteria in the Bill regarding this. He felt that there needed to be a separate section for sports grounds. The current wording would prevent liquor being taken into a sports ground.

Dr Davies, the Co-Chairperson, asked whether the reference to employment in the submission referred to the "dop system".

Mr Smit said that it went beyond the "dop system" as some workers bought liquor and the cost was then deducted from their wages by employers. This was unacceptable.

Mr Rhoda (NNP) referred to mobile shebeens and companies who deliver once liquor is ordered by telephone. He asked how this would fit into the Bill where "premises" were referred to.

Mr Smit said that this would depend on the DTI. He emphasised that the DTI would have to regulate mobile shebeens.

Metcash Trading Limited submission
Mr Blom, representing Metcash, explained that Metcash had been built over the years with black traders. It was important that Metcash knew how to position itself and they therefore needed to know whether there was a three-tier system or not. The cost of the three-tier system would override the practical implications of the system. The three-tier system needed to be fair. There should not be any crossing down in the tiers. Metcash had 43 retail licenses. It was therefore important that the Minister not be allowed to decide who would be allowed to sell liquor as in Clause 24 (5) and (6) in the Bill. There should be exceptions however for micro-manufacturers. It was Metcash's feeling that the Bill handcuffed retailers. Producers and distributors were allowed to sell horizontally while retailers could only sell to the public.

The Bill should allow for upward trading as well. Clause 7, regarding schools, was also a problem since schools that trained hoteliers would not be able to get a license for the restaurant on their premises. Mr Pretorius, from Metcash, added that if there a separation of the tiers, some of their stores would have to close. It was also difficult to police what people did with liquor once it was purchased - whether it was resold or consumed.

The Chair said that the results of the hearing would determine whether the three-tier system would exist or not.

Dr Davies asked whether another structure was feasible and whether Mr Blom and Mr Pretorius were contradicting each other. Mr Blom said that there was no conflict. It was important that parliament not give the legislative function to the Minister.

Mr Rasmeni (ANC) asked whether the three-tier system would not cause distribution only to be done by the big companies. Mr Blom said that in the three-tier system horizontal and vertical trading could still take place.

Competition Commission submission
Mr G Parr, Chief Economist at the Commission read his submission. In addition he noted that the Commission's one concern was the separation of the industry into three tiers. Vertical integration is beneficial and is practiced in other industries. The liquor industry should therefore not be any different. Referring to remarks made in other submissions, that the Commission regulates structure, he said that it does this in some way through its work, for example by intervening in mergers.

Mr Rasmeni (ANC) asked whether the Commission was telling the legislature not to become involved in structure.

Mr Parr said that the Commission was not the only body involved in regulating structure. He explained that they do investigate complaints in the industry as far as mergers were concerned. They were busy adjudicating on a planned merger between Stellenbosch Farmers Winery and Distiller in which they had suggested divestiture of some assets.

Dr Davies said that vertical integration in the liquor industry was different since it was a unique industry. He asked whether the Commission would be able to regulate this particular industry. He pointed out that the present structure of the industry stemmed from apartheid.

Mr Rasmeni noted their submission that jobs could be lost if the three-tier system went ahead and asked if this was based on research done by the Commission. With the three-tier system it would be possible to have new entrants which would mean more jobs created.

Mr Parr said that the Commission had not done any research. South African Breweries had, however, pointed out that it would lose jobs should the system be enforced. It would also cause a decrease in efficiency.

Ms Ramodibe (ANC) wanted clarity around the socio-economic problems mentioned in the submission.

Mr Parr said that it was not clear how the three-tier system would lower the amount of alcohol consumed and thus lessen the socio-economic problems associated with it. It was the Commission's view that consumption could be controlled by increasing the price of the product.

Anglo American Farmers and Cape Estate Wine Producers submission
Mr N Muller represented the above organisations, which comprised small wine estates. Wine estates would be regarded as micro-manufacturers, according to the Bill. These estates were not major players in the economy, but through tourism added to the profile of the industry in the Western Cape and South Africa. According to the Bill the Minister had the right to grant them permission to sell directly to the public. He argued that there seemed to be conflict between Clause 25 (1)(a) and Clause 27 (1)(a). In Clause 25 it stated that a micro-manufacturer may sell to any person yet Clause 27 prohibited a liquor seller from buying from a micro-manufacturer. It seemed as if large producer were being favoured. They requested that this anomaly be rectified.

Free Market Foundation submission
Mr T Nolutshungu: Director, Free Market Foundation, read the submission. In addition he said that in the apartheid era blacks had been kept out of the liquor industry and that the time had come for this to change. The Foundation felt that provincial authorities should be given more powers to regulate the industry. The Bill dealt mainly with licensing, which was a provincial responsibility and the Foundation therefore felt that the Bill should be withdrawn in its entirety. Health and social issues should not be in the Bill. Many other issues such as noise and so forth, should not be in the Bill but can be dealt with according to common law.

Dr Davies pointed out that not all regulatory laws were racist and colonial. He also felt that the definition of "concoctions" was clear enough in the Bill.

Mr Nolutshungu said that "concoctions" was a health issue and should not be dealt with in the Bill.

Ms September (ANC) said that the negative effect of alcohol use could not be ignored. This had to be taken into account when considering this Bill. Despite this it was also important that black people be given access to the industry. She asked whether the Foundation was suggesting that the Committee take a "hands off" approach. She asked what the disadvantage of the three-tier system was.

Mr Nolutshungu emphasised that much of what was in the Bill was a provincial competence. Many things could also be justified on the basis of public interest.

Ms Ramodibe asked whom the Foundation was representing. She pointed out that under the current system shebeens were still being harassed. Noise from shebeens was different from those from cars, for instance, and should therefore should be dealt with in a different way. Regulations was needed although one wanted businesses to operate freely.

Mr Nolutshungu said that the Foundation was a public policy institute that commented on bills. On the topic of noise, he said that many other bodies caused noise even churches. Rules and regulations were needed but must not be a barrier for businesses to enter the industry. These rules and regulations should happen at a community level.

Ms Ntuli said that schools were places of learning. Common law had failed to deal with problems of shebeens near schools. It was therefore necessary that the Bill dealt with this. The owners of shebeens should be held responsible for things which happened on their premises as stipulated in the Bill.

Mr Nolutshungu said that the abuse of alcohol was the exception rather than the rule.

Food and Allied Workers Union (FAWU) submission
Mr K Masemola: Deputy Secretary General of FAWU, read the submission. He emphasised that the Bill does not address Black Economic Empowerment (BEE) enough. They also felt that the three-tier system would cause problems and that vertical integration was not necessarily anti-competitive. Any anti-competitive action could be dealt with by the relevant authority.

Dr Davies asked whether FAWU objected to the three-tier system or to its application. He also asked the Union to comment on the "dop system", as it was quite broad in the Bill.

Mr Masemola said that their main problem was the fact that vertical integration was being prohibited specifically between manufacturers and distributors. Vertical integration was not anti-competitive. For some players in the food and beverage industry, distribution was a core function of their business and if the Bill was applied, it would cause problems for them. They supported competition. He added that the "dop system" was difficult to comment on. In some instances, the giving of alcohol was part of an agreement between employees and employers.

Prof Turok (ANC) said that restructuring had to be done and wanted to know what proposals the Union had so that jobs would not be lost in the restructuring process.

Mr Masemola said that the Union proposed guaranteed divestiture so that jobs could be kept.

Ms September referred to the Union's suggestion that a conference be held to deal with BEE. She said that this does not move people. The intentions of the Bill regarding BEE were more powerful. She asked whether FAWU knew how the South African Commercial, Catering and Allied Workers Union (SACCAWU) felt about the Bill.

Mr Masemola said that they wanted regulations for BEE. Prohibiting vertical integration, however, does not address BEE. He said that FAWU had not had contact with SACCAWU, but conditions in the retail industry were bad, in general.

In closing, Dr Davies suggested that there be follow up with the DTI. He proposed that the following issues be dealt within the follow up meeting:
- The sorghum beer industry.
- The public interest section of the Bill.
- The "dop system".
- Default provincial legislation.
- Policy around easy entry and exit in the industry.
- Technical issues raised by some submissions.
- The Constitutional Court judgment and the role of the state law advisor.

The meeting was adjourned.



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