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CityPress - - Business - IS­ABELLA MAAKE, Graph­ics24 DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

The pub­lic ar­gu­ments around what im­pact the sugar tax will have have tended to as­sume that pro­duc­ers and re­tail­ers would pass on the tax to con­sumers.

The de­sign Trea­sury chose for its sugar tax, how­ever, cre­ates a mas­sive in­cen­tive to re­for­mu­late and to change the pack­age sizes com­pa­nies em­pha­sise. Smaller units sell at a higher price per litre, mak­ing the tax a smaller pro­por­tional bur­den. The tax rate on a 330ml can of Coca-Cola will be about 5% com­pared to 20% for a 2-litre bot­tle.

The small pro­duc­ers are at a dis­ad­van­tage when it comes to these kinds of adap­ta­tions, they told City Press. They do not have the fac­to­ries to pump out smaller pack­ages at will and they don’t have the global re­search and devel­op­ment ca­pa­bil­i­ties that a com­pany like Coca-Cola com­mands for re­for­mu­la­tion.

Coca-Cola in­tro­duced its Coca-Cola Life vari­ant in South Africa last year, which re­places some of the sugar with ste­via ex­tract. This cuts the tax rate on a can to 2% and on a 2-litre bot­tle to 8% (see graphic).

Coca-Cola’s in­ter­nal “B Brand” Spar­letta has also seem­ingly been in­tro­duc­ing sugar-and-sweet­ener mixes in some re­gions, but the com­pany would not an­swer spe­cific ques­tions.

“Peo­ple don’t al­ways un­der­stand the struc­ture of the in­dus­try. There is one very large player and then a lot of small play­ers. We are the largest of the small play­ers,” said Soft­bev’s Naidoo.

His com­pany would be ex­pand­ing its of­fer­ing of smaller unit vol­umes, he said.

There is also a strictly fi­nan­cial prob­lem fac­ing the small play­ers.

Cooldrink stocks can take sev­eral months to move from the man­u­fac­turer to the con­sumer.

When the sugar tax starts at the fac­tory gate, the bot­tler will have to cover that ex­pense and wait a long time for rev­enues to catch up, ar­gued Shep­pard.

“You need hun­dreds of mil­lions of rands of cash for that ad­just­ment.”

“It is go­ing to hurt ev­ery­one, but it will be dev­as­tat­ing for the smaller pro­duc­ers.”

Shep­pard still be­lieves an al­ter­na­tive to the tax is pos­si­ble – and prefer­able.

If re­for­mu­la­tion is go­ing to be the ma­jor mech­a­nism through which the sugar tax achieves its aims, the gov­ern­ment should just leg­is­late re­for­mu­la­tion, he told City Press.

“Just leg­is­late the ex­ist­ing goal for 15% less sugar by 2018 and pe­nalise com­pa­nies that do not reach it,” he said.

How re­for­mu­la­tion can lower the sugar tax but still leave small play­ers at a dis­ad­van­tage

19.8% 21.6% 7.8% Coca-Cola LIFE 2l 49.2% 28.7% B Brand at 11.8g of sugar 2l 31.3% 14.4% Re­for­mu­lated B Brand at 8g of sugar 2l Pa­trice Mot­sepe’s new prop­erty joint ven­ture will com­bine the re­sources of one of the coun­try’s best-known bil­lion­aires with that of prob­a­bly its most pub­lic­ity-shy and reclu­sive ones, Jonathan Beare.

The new ven­ture, African Rain­bow Cap­i­tal (ARC) Real Es­tate, was launched this week and could snap up sev­eral bil­lion rands’ worth of as­sets in a year if enough good deals present them­selves.

KwaZulu-Na­tal-based Beare is sel­dom seen or heard from, but his prop­er­ty­fo­cused com­pany Buf­fet In­vest­ments is thought to be one the largest pri­vate in­vest­ment groups in the coun­try.

ARC Real Es­tate is 52% owned by ARC, with the bal­ance owned by a long­stand­ing prop­erty part­ner­ship be­tween Buf­fet and KLT Hold­ings (Buf­fet-KLT).

The new com­pany’s model is premised on large com­pa­nies be­ing will­ing to trade their prop­er­ties for cash at a dis­count – helped along by the need for black eco­nomic em­pow­er­ment cred­its.

“Let’s say a com­pany owns its own build­ing. If they sell that build­ing to a black-em­pow­ered com­pany, they can get share­holder points for that – for the sale it­self,” said Jo­han van der Merwe, co-CEO of ARC, which Mot­sepe chairs.

“Then they get the pro­cure­ment points for leas­ing from the black-em­pow­ered com­pany, too.”

ARC and the Buf­fet-KLT part­ner­ship have both com­mit­ted R500 mil­lion to the new prop­erty ven­ture to be­gin with.

“So, it is R1 bil­lion in eq­uity. That bil­lion you can lever­age quite heav­ily to any­thing be­tween R3 bil­lion and R4 bil­lion. If there are op­por­tu­ni­ties in the mar­ket, we will com­mit more than R500 mil­lion and so will they [Buf­fet-KLT],” said Van der Merwe.

“We just did a deal of R1.2 bil­lion and we put no cap­i­tal in. We are still wait­ing for them to call on the cap­i­tal we ear­marked.”

This first deal was the ac­qui­si­tion of the Setso Prop­erty Fund, and its 13 re­tail and com­mer­cial prop­er­ties, from Piv­otal Prop­erty Fund and Rede­fine Prop­er­ties in De­cem­ber.

“We can build a sub­stan­tial prop­erty com­pany,” said Van der Merwe.

“We haven’t put a time frame on it. If we only get ARC’s part­ner in the new prop­erty com­pany, Buf­fet-KLT, was rep­re­sented at this week’s launch by KLT CEO Bradley Kark.

“My gut feel­ing is that there will be a lot of trans­ac­tions with large cor­po­ra­tions look­ing for cash and BEE cre­den­tials, but I think a lot of our ven­tures will be of tra­di­tional trans­ac­tions, whether BEE credit en­ters into it or not,” he told City Press.

“BEE is part of it, but what we have is money, BEE and ex­per­tise,” said Kark.

Asked how large the Buf­fet-KLT port­fo­lio is, he would only say that “it runs into bil­lions”.

“We are among the largest pri­vate own­ers of real es­tate in South Africa,” Kark said.

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