The numbers show that the illicit cigarette economy exploded from one-third to three-quarters of the cigarette market since 2019.
If the closure of BAT does not convince people that the illicit economy kills jobs, nothing will. It is destroying legitimate manufacturing jobs and costs R30 billion annually in lost tax revenue while funding organised criminal networks.
Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly newsletter that last week’s announcement from British American Tobacco (BAT) that it will shut its only cigarette factory in South Africa this year demonstrates how policy failures and enforcement gaps are destroying legitimate manufacturing.
She points out that the factory has been operating at 35% capacity and can no longer sustain operations. “About 230 direct jobs will be lost, but the ripple effects could affect 35 000 jobs across the value chain, from the 100 tobacco farmers in Limpopo, North West and Mpumalanga who produced more than seven million kilograms of tobacco last year, through to distributors and retailers.”
ALSO READ: Illicit cigarette trade extinguishes British American Tobacco in SA
How did we reach this point in the illicit economy?
Mavuso says in 2019, illicit cigarettes represented roughly one-third of the market. “Today, BAT estimates that proportion has more than doubled to 75%. The acceleration came from policy missteps during Covid-19, when legal cigarette and alcohol sales were banned (it was later declared unconstitutional) while enforcement capacity was diverted elsewhere, allowing illegal networks to establish distribution chains that never closed after lockdown.”
“Subsequent steep increases in excise duties on legal products created even wider price gaps that illicit operators exploited. Illegal boxes now sell for less than the R26.22 in combined excise and VAT that should be collected, circumventing health warnings and age restrictions while costing the fiscus roughly R30 billion annually in lost tax revenue.”
However, Mavuso says, this is not only about cigarettes. “The same dynamics are destroying legitimate businesses across multiple sectors. Illicit alcohol sales have grown 55% by volume since 2017, with one in five drinks now from illegal sources, according to the Drinks Federation of South Africa.”
“Counterfeit pharmaceuticals, fake branded clothing, electronics, cosmetics and even food products are flooding the market. The Consumer Goods Council of South Africa estimates the total illicit economy now represents approximately 10% of gross domestic product (GDP), a staggering figure that, while difficult to measure precisely, indicates the massive scale of the problem.”
ALSO READ: BAT closure in SA ‘damning proof’ of failure to curb illicit cigarette trade
Illicit economy feeds into other organised criminal networks
She points out that these illegal operations feed organised criminal networks involved in illegal mining, construction mafia activity and other serious crimes, while the profits fund everything from cash-in-transit heists to more sophisticated criminal enterprises.
Beyond the immediate tax losses and job destruction, the illicit economy undermines the rule of law and erodes public trust in institutions when criminals operate openly with apparent impunity, Mavuso says.
The tobacco industry has proposed concrete solutions, such as minimum retail pricing that would make it harder for retailers to sell cigarettes below the tax threshold. Unique product marking systems, essentially tamper-proof verification stickers on legal products, would allow easy identification of authentic goods and help enforcement agencies target illegal imports and local production.
“Technology exists to enable consumers to verify product authenticity through smartphone apps and crowdsourcing enforcement. Yet these proposals have sat with government departments for years without implementation,” Mavuso says.
ALSO READ: MTBPS: Godongwana says billions lost to illicit trade could have stopped tax hikes
BLSA joins the fight against the illicit economy
BLSA now joined the Illicit Economy Task Force established by the Consumer Goods Council to drive coordinated action to help tackle the problem. The task force will develop specific proposals for product authentication systems across multiple sectors, create public awareness campaigns about the economic and safety risks of illicit goods and work directly with Sars, the police and the NPA to identify enforcement bottlenecks and propose solutions.
“We are bringing together affected industries, from tobacco and alcohol to pharmaceuticals and textiles, to share intelligence on supply chains and criminal networks. This coordinated approach allows us to present government with actionable, cross-sector solutions rather than individual company complaints.”
However, Mavuso says, business action alone cannot solve this problem. “Government must act with urgency across multiple fronts. Sars must dedicate resources for its illicit trade task team, including specialised investigators and technology for supply chain monitoring.
“The police require trained specialists who understand how to build cases against sophisticated criminal networks, not just street-level vendors. The NPA must prioritise prosecutions that target the organising networks.
“This cannot just be about seizing individual shipments. The Department of Trade, Industry and Competition must tighten import controls, strengthen intellectual property enforcement and work with industry to implement product authentication systems.”
ALSO READ: SA’s cigarette trade ‘captured by cartel’
The infrastructure to fight illicit economy exists but government not using it
Mavuso also emphasises that the infrastructure for effective action exists; while Sars has recovered its institutional capacity, the NPA is being strengthened, and the Madlanga Commission is examining police effectiveness.
“What we need now is political will to prioritise this issue and coordinate action across agencies. The BAT closure should be the catalyst, not the beginning of a pattern. Alcohol producers, textile manufacturers and pharmaceutical companies are all vulnerable to a similar collapse if illicit competitors continue to operate unchecked.”
Mavuso warns that the threat to manufacturing does not come only from illicit trade. “South Africa’s automotive sector, in many respects an economic crown jewel employing tens of thousands directly and supporting extensive supply chains, faces what industry leaders describe as an existential crisis from the surge of low-cost Chinese vehicle imports.
“This is a different challenge requiring different policy responses, potentially including tariff adjustments, local content requirements, or revised trade agreements, but it reflects the same underlying problem: government has been slow to respond to clear and present threats to domestic manufacturing.
ALSO READ: SA loses R30 billion in revenue due to illicit trade in cigarettes and liquor
BLSA tried to talk to government about illicit economy many times but got no response
“Business tried to talk to government about this issue repeatedly, but we have yet to see the level of urgency the situation demands. Protecting domestic manufacturing capacity must be recognised as a strategic economic priority.
“Other countries successfully tackled illicit trade through partnerships between industry and law enforcement, combining technology, enforcement and public awareness. South Africa can do the same, but the window for action is closing. Every month of delay means more factories operating below viable capacity, more jobs at risk and more entrenchment of criminal networks.”
Mavuso says business stands ready to partner with government in this fight. “The task force BLSA joined demonstrates our commitment to bringing resources, expertise and coordination to the effort. What we need from government is a matching commitment – resources for enforcement agencies, implementation of proposed authentication systems and sustained focus from political leadership.
“Breaking the back of the illicit economy will require resources and professionalism, but the benefits are substantial: preserved manufacturing jobs, recovered tax revenue, strengthened rule of law and reduced funding for organised crime.
“The BAT factory closure is a warning. Let us ensure it is also the turning point.”
ALSO READ: Sars loses R119 billion in tax revenue due to illicit cigarette sales since 2002