SA has the world’s biggest illegal tobacco trade: Batsa

Lawful players are fighting back – despite the sales ban being lifted. They want legal clarity and tighter law enforcement.
Dried tobacco plants at an auction hall in Harare. Illegal imports from Zimbabwe have taken off in SA, leaving legal players with the task of fighting to regain their lost market share. Image: Gideon Mendel, Corbis via Getty Images

During the five-month ban on the sale of tobacco products, companies belonging to the Fair-Trade Independent Tobacco Association (Fita) felt the wrath of the lockdown as they saw their products offered in illicit trade, says British American Tobacco South Africa (Batsa).

In response, Batsa has called on the government to urgently ratify the World Health Organisation’s (WHO’s) Illicit Trade Protocol to help eradicate the sale of illegal cigarettes.

It says South Africa signed the comprehensive set of international rules seven years ago but has still not formally ratified it.

It believes ratification would see the country, which it says has by far the biggest illegal trade in tobacco in the world, implement the global WHO track and trace guideline.

Batsa says it can confirm that the black market was overtaken by Fita product sales because the University of Cape Town’s Research Unit on the Economics of Excisable Products (Reep), under the directorship of Professor Corné van Walbeek, has been tracking cigarette sales during the lockdown.

It says Van Walbeek and his researchers established from 23 000 respondents, that almost all smokers (93%) were able to purchase cigarettes during the ban.

“However, the brands they have been purchasing have changed dramatically, even though it has been established that some retail outlets improperly sold properly obtained and taxed cigarettes out of their own stores during the lockdown,” Batsa says.

Batsa hit hardest

It says Van Walbeek confirmed that Batsa has taken the biggest knock as a result of the sales ban.

According to the research, Batsa’s market share dropped from 48% prior to lockdown to 8.7% in June.

“The relatively minuscule amount of people who have reported being able to buy Batsa brands almost certainly obtained them out of pre-lockdown shipped retail stock,” Batsa says.

The researchers found that one in three cigarettes (33.7%) bought during the ban was purchased in retail outlets, including formal shops, petrol stations and spaza shops.

“Prior to the ban, Batsa owned six of the top 10 selling brands in South Africa. Now it has none,” Batsa says.

It noticed an explosion in the availability of the RG brand, from the Zimbabwean-owned and controlled Gold Leaf Tobacco Corporation, during the past five months.

“At 11.6% of the market, this one brand saw approximately 10 million cigarettes purchased every day during lockdown, at prices that were up to five times higher than prior to lockdown despite no tax being paid,” Batsa says.

The extent of the damage to the industry is estimated to be R35 million a day.

Batsa says that before the ban, its market share was 32 times larger than that of Fita member Best Tobacco – yet in June Best Tobacco’s market share was already bigger than Batsa’s, according to the Reep report.

Hence it has warned that any aggressive increase in excise on tobacco will only exacerbate the control illegal producers have on the market.

“Tax is only paid by people and companies who obey the law,” says Batsa.

“South Africa now has a tobacco market that is controlled by people who don’t obey the law.”

Batsa head of external affairs Johnny Moloto describes the ban as the greatest gift given to the illicit trade.

“Our company has not shipped a single cigarette to South African retail or wholesale customers since the ban came into effect in March. This is why we, as the previously largest tobacco company in the country, are barely a footnote in the Reep reports now,” he says.

South African Revenue Service (Sars) Commissioner Edward Kieswetter said last week that it would take years to root out the corruption and illegal activities that have taken root in the past five months.

Read: Consumer criminalisation could encourage a culture of tax avoidance

Batsa says it remains committed to cooperating with Sars and other law-enforcement authorities to address the illicit trade and ensure a speedy return to the legal and tax-compliant trade in tobacco products.

Legal battles continue

Despite the ban being lifted, the tobacco industry will continue with its legal battles – partly in fear of the government making a U-turn on its decision, and partly to establish where the law stands on the matter.

Read: Government chokes on Batsa’s urgent court application

Batsa began legal proceedings in May against the government’s decision to extend the ban on tobacco sales during lockdown Level 3. While it has noted the state’s decision to move to lockdown Level 2, it says “legal clarity is needed.”

“For the time being, we can resume our business in South Africa, supporting thousands of jobs in our value chain, while combatting the grip of illegal cigarettes in the marketplace.”

Despite the government verbally confirming that the sale of tobacco products is permitted during Level 2, this had not yet been gazetted by Monday afternoon.

And as Fita chair Sinenhlanhla Mnguni says: “There still exists the possibility that we may shift up levels, under which levels the sale of cigarettes and tobacco-related products are currently banned in terms of the regulations as they currently stand.

“Further, the matter raises novel issues of law and fact, and we are of the view that it is in the public interest that the provisions of the Disaster Management Act be tested in the higher courts.”

Fita was recently granted leave to appeal its court application in the Supreme Court of Appeals.

Recovering lost market share

Mnguni says it is difficult to determine how the different manufacturers will recover from the ban and the fact that the illicit trade has taken over their markets.

He says the industry warned government that it would be faced with challenges after lifting the ban.

“We warned them that it would be difficult for manufacturers to compete, because what would have happened is that the criminal syndicates who pride themselves in illicit trade will have entrenched themselves firmly on the market.”

He says the coming few weeks will be educational for the industry.

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It is clear on which side the ANC government is batting on this issue.

And they have a history of doing this. Consider the Gold Mining Industry. Once the bedrock of the S A Economy it is now a shambles. There are more Zama zama’s than there are illegal miners. Dubai imports tonnes of gold each year, and I bet a good portion comes from S A , in illegal ( ANC sanctioned ) trade.

A rule of law is something that is not appreciated or honestly promoted in SA!
From land grabs being condoned by most South Africans reasons given, the poor are entitled to own land. From illegal electricity connections and water, from a striving illegal mining from gold to chrome, don’t know why it is so easy for illegal miners of SA citizenship and non citizenship. I thought most African countries have great minerals,so why are we having so many illegal immigrants being part of Zama Zamas?
Vandalism of everything on site is escalating if I was Eskom myself I was going to give up. Where is SA intelligence, policing and legal system! Now we are having an escalation of stealing of oil from the pipelines. We have a highest rate of mall robberies! What kind of lawless country is this !

EFF is promoting free flow of people from all over without proper vetting. Everyone will experience great gains except for SA. We can’t even get proper control of crime because most people are not traceable. They are illegally in SA without any documents, fingerprints and all. It is so easy to come in and out of SA .

Another creative way to continue the looting

I was involved with a Company that manufactures a well known brand of shoe polish

They saw their market share in Kenya dwindle from 80% to below 40% with counterfeit shoe polish from the East

How unbearable it must be to compete with a counterfeit brand that looks exactly like yours?

So this is not unique to SA. Whats even more unbearable is that the officials are involved..And they’re voted into power by the uninformed, oblivious to the workings of their comrades..

Dirty money accomplishes more than a compliant business

Thats the epitome of the ANC
They’re like the three Musketeers..All for one and One for all and to hell with the poor, the economy and upliftment

So much for the legacy of one Nelson Mandela

This continent is hell bent on destroying the little it has left. Illicit sales fuel the black market, fund illegal activities, drives away global investors, sending much needed SA cash offshore, creating massive health risks/costs and that’s not to mention the obvious tax implication. The only logical reason is that politicians benefit and that this is a way to get their cash out of SA. This continent is doomed. Goodnight Africa.

Illegal things persist with corrupt politicians and police being complicit.

Wonder how Fita researched this.. Come on, have they been to Nigeria ? Illegal imports of cigarettes have been flooding South Africa since Gordhans times at SARS .

The ANC is a Mafia operation ..very much as it was in New York in the construction industry in the 80’s . Only when Magashule and his gang is removed can we make progress .

If and when Ace is removed there are at least another 100 waiting in the queue. We are in a country of no hope I fear. Will never change in my lifetime. I’d bet my worldly possessions on that.

Kind of conflicted on this one. On the one hand, starving the regime of tax is not a bad thing at all. But on the other, who wants to see odious individuals within the regime making illicit profits?

The regime is actually better off without those sin taxes. The criminal constituencies pay directly into Lootfreely House’s coffers. No need to pilfer from the tax accounts and run the risk of being caught. Do you really think the recent government “envoys” to Zim. were really because of a concern with the political situation? The dictator brotherhood is well in charge of those illegal cash flows.

The world’s biggest because of the worlds most idiotic government.

i won’t be even surprised if the anc got a direct kickback from this illegal trade to fill up their own party coffers

That is what happened. They ANC was in control of the illegal trade.

Entrepreneurs are the most obedient group on earth. They feel compelled to act according to the orders of the consumers. Consumers vote with their money, and they reward the obedient entrepreneurs who serve them best. Government policy acts as an incentive so some, and as a punishment to others. When the market is very competitive, like the tobacco market is, then a high tax on cigarettes incentivises the illegal trade and punishes the legal trade. By their very nature, entrepreneurs avoid economic punishment and follow economic incentives.

Lockdown measures removed the competition for the illicit trade and enabled the escalation in the profit margin for smugglers. The tobacco-ban is the most efficient subsidy to the illicit industry anybody can come up with. The amount of taxes that were lost during the ban is equal to the size of the direct subsidy to the “informal” industry. The government took the money that was supposed to fund the social grant and used it to subsidise wealthy tobacco smugglers. The same situation is valid for the wine industry, construction industry, mining industry and farming industry. BEE is a law the punishes legal and efficient operators and rewards overpriced and corrupt tenders.

How can such a nation survive when they punish virtue and reward vice, when they support and subsidise those who refuse to pay taxes, and punish those who do?

Citizens should judge politicians according to their actions, and not according to their words or stated intentions unless the citizen is also a criminal.

Brilliant summary of the situation we find ourselves in!

Politician….master twister of the truth.

The last sentence highlights the problem. Either the majority of the citizens are criminals, or so feeble-minded that they cannot understand how illicit trade and inflated tender prices are robbing them. Either way, these citizens deserve to be poor and hungry.

Incitatus, you pointed to the essence of all my comments. Even while there is no accountability in a socialist or collectivist system, the bigger system, the default system so to speak, under which all political-economic systems operate, namely the forces of nature, do ruthlessly enforce accountability.

A collectivist system offers a temporary respite from the forces of nature. The system of property rights enforces accountability, so nature does not have to use famine and disease to enforce accountability. When a society moves away from market principles, toward a collectivist system, they set the Malthusian Trap, which is nature’s mechanism to enforce accountability through famine and disease. Collectivism always operates under this relentless mechanism. The Malthusian Trap is the “judge of last resort”. Millions of citizens who support collectivism will receive the death-sentence from this fair, independent, and highly competent judge.

Ask Edward Zuma?????

Exactly, he’s the front for an ANC tobacco factory. The ANC made so much money, they don’t care about any lawsuits or anything anyone throws at them. Their goals have been achieved and exceeded.

I don’t think the illegal cigarette trade will keep the customers that bought from them during the ban. Even if they are very cheap. The quality of these illegal cigarettes are not good. The cheap cigarettes one could buy before the ban is also not very good.

When a professional person makes a poor decision resulting in loss of life they are held personally accountable.

Is it not high time that government officials start being held personally accountable for their poor decision making?

Some of the illegal cigarettes that was b4 and after the ban are not all bad. I know I am a smoker who became a criminal once DR NDZ stepped in. A price war is now needed to claw back market share, then reduce your massive profits and become more efficient. With the economy were it is I think many new customers will continue to buy illegal cigarettes for a long time.

Thanks to the Stupid decisions that were made in March.

WJS

JZ looted for years now it is NDZ’s turn.

“SA the world’s biggest illegal tobacco trader?”

Mmmm…I hope Hollywood notices SA, and start including us in future Crime Drama TV-series (and movies), the same they depict the illegal drug trade from Colombia & Mexico.

Then at least SA will be “on the global map” for something, at least.

An insightful read from Daily Maverick:

https://www.dailymaverick.co.za/article/2020-07-30-dirty-tobacco-how-the-cigarette-ban-backfired/

“South Africa now has a tobacco market that is controlled by people who don’t obey the law.” Substitute “taxi industry” for “tobacco market” and we expose another nail in the coffin of the economy.

But the illegal trade has probably kept the Zimbabwe economy afloat in the meantime.

‘’Whatever happens in Government could have happened differently, and it usually would have been better of it had’’

Charles Frankel (1917 – 1979)

‘In South Africa, the largest share of the illicit cigarette market is occupied by those manufactured locally, with other brands smuggled from neighboring countries like Mozambique and Zimbabwe making up the rest. The Directorate for Priority Crime Investigation (Hawks) told Parliament that between April 2017 and March 2018, about 80% of illegal tobacco products found in the country were produced domestically.’’

All those lovely sin taxes – 5 months’ worth up in smoke

Is there top level government collusion and corruption in illegal ciggy trade? Absolutely. Will I keep smoking the crappy Zim imports? Absolutely not. The legal guys will get their market share back… eventually.

Yep all that potential legitimate tax revenue gone up in smoke! And who will have to make this right? The poor exhaunted taxpayer!
What a bunch of pillukers! Couldn’t organize a piss up in a brewery – mostly because they’ve marginilised that option too!

End of comments.

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