Interview: Tanzania's Sh1 trillion illicit alcohol crisis calls for shared responsibility, collective action

The pervasive issue of illicit alcohol trade in Tanzania is not only costing the government over Sh1trillion annually in lost revenue but also posing severe public health risks and undermining legitimate businesses. A recent interview with Tanzania Breweries Limited (TBL) Managing Director, Michelle Kilpin ,sheds light on the alarming statistics and the urgent need for a concerted effort from all stakeholders to tackle this growing problem.

Illicit alcohol trade has multilayered effects, impacting the economy, investment, and posing grave health risks. What is your assessment of the current situation of illicit alcohol in Tanzania?

A recent study by Euromonitor established that 61 percent of all alcohol consumed in Tanzania is illicit. This has multilayered impacts: we see tax revenue leakage to the tune of Sh1 trillion annually, and illicit alcohol is often of poor quality and unregulated, creating significant public health risks and a burden on our healthcare system. For the industry, it creates an unfair playing field, as illicit dealers avoid taxes, making it difficult for compliant businesses to compete while delivering safe, quality products.

Illicit alcohol consumption has grown by 6 percent since 2017, from 55 percent to 61 percent, outpacing the legal market. What does that mean for the industry and consumers?

This poses a real risk for consumers regarding the safety and quality of what they are consuming. It's also a risk for society from a public health perspective. The fact that it has grown since the previous study eight years ago is extremely concerning. This situation clearly demands a multi-stakeholder approach to address it very seriously.

The industry often argues that high excise taxes are fueling illicit trade. Are current alcohol taxes in Tanzania too high?

The fight against illicit alcohol isn’t solely about taxation. However, we have observed that sharp and rapid increases in excise levels lead to a significant price disparity between formal, compliant alcohol and illicit alternatives. If this price gap becomes too wide, illicit alcohol becomes more attractive to consumers. Therefore, it's crucial to ensure that excise increases and taxation on compliant companies are predictable and inflation-related, preventing price shocks that inadvertently make illicit alcohol more accessible and affordable.

Beyond taxes, a stable and predictable regulatory environment, coupled with strong enforcement, is essential. From an industry perspective, we also have a responsibility to raise awareness and educate retailers and consumers about the illicit alcohol.

As Tanzania prepares for national budget discussions in parliament, what discussions are you having with the government around the importance of taxation and how to curb illicit alcohol trade through legal instruments?

We understand and respect the government's need to tax our industry to fund development projects. However, excessive excise increases can lead to a price disparity, with the burden passed to consumers. While higher prices for compliant alcohol might be seen as a deterrent to excessive consumption, our experience shows that consumers don't necessarily stop consuming; they often switch to cheaper, unregulated alternatives like homemade or smuggled alcohol. This is the balance we seek to achieve in our discussions with the government.

How effective are these taxes on imported products in promoting local production?

One key area we focus on is excise incentives for products made locally with local crops. This has been a significant driver for companies like TBL to utilize local crops such as sorghum, maize, and barley in our products, allowing us to price them more attractively. Higher consumption of local products enables greater investment in local production, serves more consumers, and ultimately contributes more tax revenue to the government. These are the positive impacts of Tanzania's tax regime in incentivizing investors to use local crops.

What is the biggest factor leading to high cost of production – is it taxes or access to raw materials?

Looking at our core beer products, the current global situation introduces significant uncertainty regarding commodity prices, including fuel and fertilizers. As a business, we must find ways to manage these headwinds.

What threat does the war in the Middle East pose to the beverage industry in Tanzania?

The most immediate impact will likely be on our costs. We anticipate a jump in fuel prices, which will directly affect distribution. However, the duration and severity of this situation remain uncertain.

Perhaps there needs to be discussions with the government on how to mitigate the impact.

The biggest cushion would be if inflation remains under control. For many Fast-Moving Consumer Goods (FMCG) businesses, disposable income is crucial. If consumers are spending more on other necessities, they will have less disposable income for discretionary purchases like a cold beer at the end of the day.

Tanzania loses over Sh1 trillion every year in uncollected revenue, mainly from untaxed artisanal brews. How much more tax revenue is the government potentially going to lose every year because of illicit alcohol?

It's difficult to quantify the exact additional loss. However, I believe we should approach this from a different perspective: instead of focusing on how much more we might lose, we should concentrate on how we can rapidly reduce that existing Sh1 trillion loss and collectively clamp down on this problem as an industry, government, and society.

There have been cases where illicit alcohol caused serious illness and deaths. Beyond regulation, what else needs to be implemented as an effective solution?

Sadly, this occurs across the region. Documented cases show consumers suffering severe consequences, including death, blindness, and liver damage, from unsafe, unregulated alcohol. To address this, a multi-stakeholder approach is vital. We need appropriate regulations, policies, and robust enforcement against smugglers and counterfeiters, alongside driving consumer awareness about the risks and impacts of illicit alcohol.

What risks does illicit trade pose to investment and job creation in the formal sector?

When we consider investments, especially capital-intensive ones, we seek a quick and sustainable return on investment. The presence of illicit alcohol trade is a significant concern and a substantial risk from an investment perspective.

If you had the opportunity to advise policymakers directly, what three actions would most effectively reduce illicit alcohol in Tanzania?

Firstly, enforcement. We need strong enforcement of laws coupled with appropriate penalties for perpetrators. Secondly, we must ensure stable and predictable taxation from an excise perspective, linked to inflation.

Thirdly, as an industry, we need to collectively raise the level of awareness among consumers and retailers about the risks and impacts of illicit alcohol.

What is the biggest obstacle to finding a solution to illicit alcohol?

There are many challenges, including counterfeiters operating with impunity, potentially porous borders, and persistent consumer demand for cheaper alcohol. All these factors contribute to the proliferation of illicit alcohol.

Ultimately, what is at stake for Tanzania if illicit alcohol continues to grow unchecked?

In a worst-case scenario, we could see a total degradation of society, formal businesses closing down, and tragic loss of life.

Sustainability is at the heart of everything in today’s world. Could you elaborate on TBL's broader sustainability initiatives?

Sustainability is fundamental to TBL. We focus on critical areas like water stewardship and circular packaging. Over 90 percent of everything we sell is in a returnable bottle, which we reuse along with the crates.

Furthermore, our recent partnership with Petprotz is a significant step towards collecting and recycling non-returnable glass from the market, bringing it back into the circular economy. These initiatives underscore our commitment to environmental responsibility and resource efficiency across our operations.