Covid-19 gave criminal syndicates control of the tobacco market – let’s take back control

As South Africa prepares to hear Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement this week, it is becoming increasingly clear that the country needs a new post-Covid-19 approach to the tobacco industry and the expanding illicit tobacco sector.

If drastic action is not taken soon, more than 150 black tobacco farmers who are struggling to make a living in rural South Africa will soon go out of business. I’m in the tobacco industry myself and interact regularly with farmers and other processors. And it is no understatement to say that our lives have been devastated by the economic consequences of the national lockdown, during which the legal sale of cigarettes and other tobacco products was banned for almost five months. 

We are not the only ones in the tobacco sector who have suffered. 

All the members of the sector’s value chain organisation, the South Africa Tobacco Transformation Alliance – which includes the Black Tobacco Farmers' Association, BAT South Africa, the Limpopo Tobacco Processors and Tobacco Producers Development – suffered tremendous losses because of their compliance with the law. 

The same impact was felt by our extended value chain partners, small traders and spaza shop owners, the majority of whom are black.

But perhaps the biggest loser of all as a result of the Covid-19 pandemic was the national fiscus. Because of the lockdown, excise revenues for the current fiscal year will fall by an estimated 32%, while R13.7-billion in excise revenue will be lost to the illicit market.  

There can be absolutely no doubt who the biggest winners were: the shady characters who deal in illicit cigarettes. They were already making money hand over fist before Covid-19, but the lockdown was manna from heaven for them. 

According to an independent study by the research unit on the economics of excisable products at the University of Cape Town, the illicit trade – known as the duty-not-paid trade – grew by an unprecedented 104% during lockdown. 

In addition, a lot of illicit products currently sit in the market. And, since the ban, these people have been selling cigarettes at pre-sales ban prices that clearly would not have included excise duties. 

What is more concerning is that the ban allowed the development of strong and sophisticated transborder criminal networks of illicit players. The market has been almost completely taken over by criminal syndicates.

There are two obvious problems as we slowly emerge from the devastation caused by the pandemic:

•   Government needs to maximise its recovery of excise on legally sold products; and


•   Government needs to find new ways to break the backs of those behind illegally sold products.