Zambian Breweries will resume local production of its popular Castle Lite lager next year as a direct response to the government’s reduction in excise tax on clear beer.
The company has announced an initial US$2 million investment in new packaging equipment to resume production, and is expecting to generate additional jobs in brewing, packaging and distribution of the brand.
The move comes in response to the government’s decision in the 2016 Budget to reduce excise duty on clear beer from 60 percent to 40 percent with effect from January 1 in order to spur local manufacturing, promote investment and curb smuggling.
Zambian Breweries had previously stopped manufacture of Castle Lite in Zambia as volumes fell below the critical 100,000 hectolitre level.
High excise tax provided an incentive for smuggling that resulted in Illegal imports of Castle Lite accounting for twice that of legally imported product. The smuggling cost the company an estimated K24 million in lost profit in the last financial year.
“The decision to restore excise tax to its previous level has given the industry renewed confidence in market conditions. We now believe illegal smuggling will stop, volumes will grow and we have a solid basis on which to invest in local manufacturing,” said Zambian Breweries managing director Annabelle Degroot.
The excise tax which was increased from 40 percent to 60 percent on January 1, 2014, coupled with sharp depreciation in the kwacha saw the company’s profit after tax fall from K175,478 million to K131,837 million in the last financial year. The high excise tax rate also saw a significant increase in smuggling of clear beer, particularly Castle Lite, forcing Zambian Breweries to halt local manufacturing of Castle Lite.
The reduced excise tax rate will drive Zambian Breweries’ investment in manufacturing in the country and have a knock-on effect in terms of additional employment, and increased purchase of barley from local farmers for the company’s new US$32 million malting plant being built at the Lusaka-South Multi-Facility Economic Zone (MFEZ).
“Local sourcing is a core part of our strategy and the move by the government to reduce duty on clear beer will serve to reinforce this strategy. In order to meet the demands of manufacturing Castle Lite in the country, we will increase the amount of barley we purchase from local farmers,” said Ms Degroot.