SA’s economy is not growing quickly enough. In the 2024 budget speech, finance minster Enoch Godongwana said the economy only grew 0.6% in 2023. Earlier in 2024, the International Monetary Fund (IMF) downgraded its economic forecast for SA to only 1% in 2024, far lower than the 3.8% forecast for Sub-Saharan Africa. Godongwana expects average growth of 1.6% per year between 2024 and 2026, but this is meagre when compared to our peers.
Though the IMF lays the blame on SA’s energy and logistics crises, any South African can add to these reasons: a weak exchange rate, rising fuel costs, inflation, ballooning public debt and an onerous tax burden.
As Godongwana admits, strong economic growth is needed to protect jobs and address poverty. It is therefore concerning that the government nevertheless pursues measures that threaten existing jobs. One such measure is the Health Promotion Levy (HPL).
Although the HPL is ostensibly meant to address the very real health crisis of obesity in the country, the reality is that this is simply a tax on sugar in beverages. There is no credible research that the HPL has had any effect on the obesity crisis since being introduced in 2018.
While Godongwana did not mention any adjustments to, or extension of, the HPL in the 2024 budget, the continued existence of this tax and the prospect of the planned 2025 increase remain a dark cloud over the industry.
In the first year after introducing the tax, the HPL cost the industry more than R2bn and destroyed 16,000 jobs. Since then the industry has had to contend with the continued burden of this tax, along with the after-effects of several other external shocks.
Most recently, these include the disruption of supply chains during and after Covid-19, which has led to increased input costs; and the milling crisis in SA, where two of the six sugar millers the industry relies on have gone into business rescue.
To make matters worse, as SA’s sugar industry is already struggling to get the product onto the market, the sugar tax has meant that producers of beverages have had to seek to mitigate the effect of the tax on their own production costs. This, in turn, has meant that many of these producers source artificial sweeteners when they reformulate their beverages.
This pivot away from SA sugar places a disproportionate burden on small-scale sugar producers, exacerbating economic inequalities and stifling local economies. Unlike large corporations with diversified product lines and reserves to draw on, small-scale producers operate within narrower margins of profitability. This makes them particularly vulnerable to financial shock waves and the downstream effects of taxes such as the sugar tax.
Smaller, rural producers in economically disadvantaged areas bear the brunt of this burden as they struggle to compete with lower sugar prices from imported goods in a market where the sugar tax is suppressing the demand for their product. This leaves SA’s 21,000 small-scale cane growers with no choice but to absorb increasing input costs together with a depressed cane price due to lower local market sales, leading to spiralling unprofitability.
It should be obvious that the loss of more growers in this industry would be disastrous for their local economies and SA's economy as a whole. The sugar industry sustains the livelihoods of more than 1-million people and contributes more than R25bn in revenue to the economy each year.
The importance of ensuring the long-term viability of small-scale growers, often black or women owned, as well as the ability for young farmers to enter the market, cannot be overstated. Over the last five years the sugar industry disbursed more than R1bn in transformation funding to achieve exactly this goal. This intervention was industry funded: more than half of the contributions were made by commercial growers, most of whom are SA Canegrowers members.
Yet this work to maintain a healthy and competitive industry will be undermined if our taxation does not carefully consider the current SA context. With an already fragile economy and multiple external threats at the door of this industry, a more pragmatic approach to taxation is required. Fostering inclusive economic growth and protecting jobs should be a priority for SA.
The stated aim of the HPL is to decrease obesity and diabetes through a tax on sugary drinks, but to date there has been no clear research to show that drinks are the sole or even main culprit for obesity, nor that the introduction of this tax has resulted in any meaningful reduction in the consumption of these beverages. More tellingly, there is no clear research showing the outcome of a reduction in obesity or diabetes.
The ineffectual approach of this tax is further illustrated by the fact that the income raised by the HPL is not ring-fenced for public health awareness campaigns or interventions. The health of every South African is vitally important, but obesity and diabetes are not diseases caused by a single category of product. Addressing these diseases should be a priority, but so should the livelihoods of developing farmers.
The HPL’s goals will not be achieved if it leads to job losses and a shrinking economy. Let us safeguard employment and lift people out of poverty, as well as design and implement meaningful health interventions. We cannot afford to turn health and livelihoods into a zero-sum game.
• Russell is chair of the SA Canegrowers Association.
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