Indonesia: Prohibition in Paradise?

The rising spectre of neo-prohibitionary rhetoric and legislation is claiming a fresh casualty: Indonesia. Following the introduction of restrictive policies in a widening number of markets ranging from Turkey to Russia and from advertising restrictions to distribution barriers, the paradisiacal archipelago is joining the ranks of emerging markets falling from -the alcoholic drinks industry’s- grace.

Whereas the latest legislation coming to effect in April 2015 will ban the sales of low abv alcoholic beverages from the throngs of convenience shops and small stores across the country, it is the proposals for a blanket ban on all alcohol sales currently put forward by Islamic parties that sound the most ominous.

Archipelago Going Dry

While the changes and ensuing debate are framed around the much vaunted argument of ‘preventing underage drinking and protecting public morals’ , the unintended consequences of such a move and the increasing influence of ultra conservative elements in a historically pluralist nation are very alarming indeed. Even though this latest law will not spell the end of Indonesia’s impressive growth trajectory – especially in beer which will be disproportionally hit- , it will, beyond any doubt, severely undermine it. Here are the facts.

Convenience stores contributed around 13% of off-trade beer sales in the country in 2014, at the same time that their number of outlets has been growing solidly in the past five years. Additionally, overall alcoholic drinks were already weighted down by tax increases taking place in 2014 and the series of rather unfortunate events for the beer industry in particular is expected to culminate in the inevitable moderation of growth for 2015 and beyond.  Initial estimations put beer growth in the mid to lower single digit range, down from over 7% in 2013. But it gets worse.

A new draft bill (Rancangan Undang-Undang) on controlling and monitoring alcoholic drinks is already on the way for finalization and is expected to be issued in the near future. Some points discussed in the bill include plain packaging or gory images prominently printed on the labels in a move reflecting the darkest scenarios faced by the tobacco industry.

Implementing even more radical proposals that would ban’ the sale, production, distribution and consumption of any beverage containing more than 1% alcohol’ anywhere in the country seems rather unlikely at this juncture and should probably be viewed as political posturing . The knock-on effect on the key tourist industry and the resulting collapse in taxation income will, if nothing else, exert the pressure of realpolitik on the resurgent religious fervour.

Nevertheless, the country is undoubtedly steering towards an increasingly more conservative direction and this should now be incorporated in key players’ strategic planning. Heineken, directly controlling more than half of the beer volumes sold in Indonesia, should be polishing and expanding its non-alcoholic stable before it is too late.