South African Coke bottler may backtrack on merger pledge if government goes ahead with sugar-tax plan

Coca-Cola Beverages Africa (CCBA), the South African group bottler of Coca-Cola products, said on Thursday it may not fulfill its commitment to invest R800 million rand ($54m) in enterprise development if the government goes ahead with its plans for a 20% tax on sugar-sweetened beverages (SSB).

CCBA , which was created out of a merger of SABMiller’s soft drinks business, the Coca-Cola company’s South African operations and Coca-Cola SABCO warned that the proposed tax would make it difficult for the group to meet its merger obligations as it would cause financial strain in an industry where fixed costs were already high.

“As part of the CCBA merger, we made a commitment to invest R800m ($54m) to develop SMMEs in the industry. We also committed to keep our employment numbers the same. This tax could undermine that commitment, “ Phil Gutsche, the group’s chairman said.

Under South African Competition Law, CCBA could argue that changing market conditions made it difficult to meet its merger agreements.

“Generally, once the Competition Tribunal has approved a merger with conditions, the parties are expected to comply with the conditions imposed unless they apply to the tribunal or Competition Commission for an order that allows the alteration of the conditions,” said commission spokesperson, Itumeleng Lesofe.

South Africa’s National Treasury last month unveiled the full details of a tax plan on sugar-sweetened beverages, which it hopes to use in tackling childhood obesity, diabetes and other health related diseases that is costing the health system billions of rand yearly. The proposal was first announced in February by the Finance Minister Pravin Gordhan as part of its budget. The treasury recommended a levy of 2.29 cents per gram of sugar. It is expected the tax will come into effect in April 2017.

South Africa’s beverage industry have come out strongly opposed to the plan, saying it is discriminatory and would have a huge “economic impact” on the industry, according to Vukani Magubane, Public Affairs Director for Coca-Cola Southern and Eastern Africa on Thursday.

“Commitments around jobs and the like will have to be relooked at in the context of a tax that will have a huge catastrophic effect,” Magubane said.

Speaking for the industry on Tuesday, CCBA chairman, Phil Gutsche, said the plan would cost the industry 60,000 jobs. The industry employs roughly 240,000 people.

However, the South African Treasury has labeled the claims of job losses by the industry as unfounded speculations and “Scaremongering”, urging them instead to engage in constructive conversation on the issue.

“All stakeholders have until August 22 to comment on the draft policy paper and provide the Treasury with evidence-based comments and inputs, rather than speculation on the impact of sugar tax on jobs,” said Phumza Macanda, the Treasury’s chief director of communications.

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