Impact of the COVID-19 pandemic on the South African tobacco and alcohol industries: Experiences from British American Tobacco and Distell Group Limited

Saul Ngarava; Abbyssinia Mushunje; Petronella Chaminuka; Leocadia Zhou

doi:10.1016/j.pce.2022.103186

Impact of the COVID-19 pandemic on the South African tobacco and alcohol industries: Experiences from British American Tobacco and Distell Group Limited

Phys Chem Earth (2002). 2022 Oct:127:103186. doi: 10.1016/j.pce.2022.103186. Epub 2022 Jun 16.

Authors

Saul Ngarava¹, Abbyssinia Mushunje², Petronella Chaminuka³, Leocadia Zhou¹

Affiliations

¹ Risk and Vulnerability Science Centre, University of Fort Hare, South Africa.
² Department of Agricultural Economics and Extension, Faculty of Science and Agriculture, University of Fort Hare, South Africa.
³ Economic Analysis Unit, Agricultural Research Council (ARC), South Africa.

Abstract

South Africa declared a State of National Disaster due to the COVID-19 pandemic, instituting a nationwide lockdown on 26 March 2020. Sale of goods and services classified as non-essential, such as tobacco and liquor, were prohibited, leading to widespread concerns about viability, job losses and investment in these industries. The study highlighted the impact of the COVID-19 lockdown on the South African alcohol and tobacco industries, taking the Johannesburg Stock Exchange-listed British American Tobacco (BTI) and Distell Group Limited (DGH) as cases. The Chow Test was utilised to determine the presence of a structural break on the BTI and DGH share prices on both the pronouncement and enactment days of the COVID-19 lockdown. Furthermore, Threshold Generalised Autoregressive Conditional Heteroskedasticity (TGARCH) (1,1) was also used to test for the effects of the COVID-19 lockdown. The sample data used was daily closing share prices from 9 May 2019 to 9 May 2020, from Google Finance. The results show a structural break on the share prices on the enactment of the 26 March 2020, COVID-19 lockdown. Furthermore, the lockdown had a negative effect on the share prices of BTI and DGH. The study concludes that the COVID-19 lockdown will have long-lasting impacts on the ability of the industries to attract financing for recovery and expansion, and existing shareholders will experience reduced earnings, if any. Policy makers should promote investment by increasing interest rates, promoting local demand and supply, and provide business support to mitigate job losses.

Keywords: Alcohol; British American Tobacco; COVID-19; Distell group holding; Share price.