The impact of the formalisation of the informal sector liquor industry

Thesis (M.B.A.)--North-West University, Potchefstroom Campus, 2009.The history of alcohol in South Africa forms a fundamental part of the history of apartheid and isolation. Conflict has long surrounded the production, distribution and use of alcohol and this continues even today, although in traditional African society the use of alcoholic beverages was well regulated. Drinking served a communal and ceremonial purpose. After colonisation, the British in vain prohibited the use of alcohol by Africans in an attempt to prevent what they saw as the social decay and disorder encouraged by its use. Laws were passed to make it illegal for black Africans to produce and obtain liquor. Only in 1962 was it made legal for black people to purchase alcohol from white liquor outlets. In the townships municipal beer halls were established by local authorities to help finance township development and control. Many people turned to illegal liquor-related activities, both brewing traditional African beer and setting up illegal outlets (called shebeens) where liquor was sold for on-site or off-site consumption purposes. Most shebeens are part of or attached to residential premises. For some, setting up a shebeen was a move of rebelliousness against the policies of the apartheid government that restricted business opportunities to a particular segment of society. For others it was a way of making an adequate living and a means of providing recreational facilities in townships. The establishment of shebeens was also a natural response to a situation in which there were 15 times as many legal liquor outlets per unit of population in former white suburbs than in suburbs in which persons of other races resided. The shebeen problem is an inheritance of our apartheid past and cannot be allowed to linger on indefinitely. Formalisation of this activity will lead to better services and increased competitiveness in the industry and will marginalise unlicensed traders who have no intention of complying with the law. It is therefore clear that the current deadlock can only be addressed through the transformation of unlicensed businesses into formal businesses. The Government recognises the diverse nature of the liquor industry in the provinces and values the importance of its diverse aspects as a contributor to the economy of South Africa. The first objective of the Liquor Act is to make it possible for bona fide unlicensed traders in the historically disadvantaged communities to legitimise their businesses without encountering unnecessary barriers to entry but, also, to create an environment that will encourage them to do so. It is however a reality that the existing situation the unlicensed trader finds him or herself in provides little incentive to enter into the legal trade and such a person is not aware of possible economic factors impacting on this business after formalisation. In the West Rand an extremely small percentage of outlets in the historically disadvantaged townships are licensed. There are however factors that influence the shebeens' move from unlicensed to licensed businesses. The government has certain objectives and the new environment can be painted to describe new areas of impact on shebeens, such as legislative compliance, complexity of the application and approval process and restrictions, and a shortage of resources to assist the process. A lack of resources limits the ability of the law enforcement agencies to act in a consistent manner against unlicensed sellers of liquor. Operations by law enforcement agencies are irregular and depend to a large extent on the analysis of the crime threat that a particular unlicensed establishment presents to the area and their priorities regarding the allocation of resources. The unlicensed sale of liquor continues largely unabated and with little fear of consequences. The unlicensed trader, unlike his or her licensed counterpart, does not form part of the tax network. The unlicensed trader falls outside the regulatory network as far as land use requirements, trading hours and restrictions are concerned. The limited availability of resources prevents the allocation of financial incentives that in any event cannot compete with the aforesaid sustained trading advantages that the unlicensed trade provides. Providing an enabling environment for the emerging traders is an issue partly determined by the municipal planning authorities. A dilemma that is facing planning and licensing authorities encompasses the divergent interests of the currently unlicensed shebeens in residential areas and the interests of the surrounding residents. The involvement of communities determines the location of licensed liquor outlets. Factors affecting their impact include direct dealing with suppliers, people management (labour law), commercial competencies and business compliances such as tax, value added tax, stock management and community complaints. This research will look at the business environment and all aspects impacting the process and playing field in becoming formalised.Master