Illicit cigarette trade hits record highs

British American Tobacco (BAT) is facing a severe crisis in South Africa as the illicit cigarette trade continues to grow, now accounting for a staggering 70% of the market. In response to this alarming trend, BAT is taking drastic measures to scale down its delivery supply chain, impacting around 500 jobs in the logistics and security sectors. Additionally, BAT South Africa is set to let go of approximately 20 of its own workers, adding to the more than 30% reduction in its workforce since 2020. This dire situation was discussed in a recent interview on CNBC Africa with Johnny Moloto, the Area Head of Corporate and Regulatory Affairs for BAT Sub-Saharan Africa. Moloto highlighted the gravity of the issue and called for urgent government intervention to address the crisis. BAT's measurement of the illicit market size is based on a gap analysis, comparing official declarations of duty-paid cigarettes with the actual consumption rates in the market. The results indicate a significant portion of cigarettes being sold without tax payment, amounting to billions of sticks. Despite raising concerns for over five years, BAT has observed a lack of effective measures and enforcement actions from the authorities. The company attributes the exponential growth of the illicit trade to the historic lockdown measures implemented in 2020, which disrupted the market and provided an opportunity for illicit players to entrench their operations. BAT emphasizes the devastating impact of the illicit trade on multiple fronts, including the economy, public health, and job losses. The company warns that the continuous rise of illicit trade not only undermines legal businesses but also leads to substantial revenue losses for the government. Moloto urges the government to allocate more resources to the South African Revenue Services (SARS) for enhanced enforcement, take decisive actions against illicit players, and prioritize the protection of existing jobs to prevent further economic fallout. Moreover, Moloto criticizes the proposed bill on cigarettes and vaping products, citing concerns about its potential to exacerbate the illicit trade market due to inadequate enforcement and unrealistic regulatory measures. BAT opposes the bill, arguing that it fails to address the root causes of the illicit trade and could inadvertently benefit criminal syndicates. Despite BAT's efforts to engage with the government and stakeholders on these critical issues, Moloto acknowledges the challenges in achieving meaningful dialogue and constructive outcomes. In conclusion, BAT's struggle against the illicit cigarette trade underscores the urgent need for coordinated action from the government, industry players, and regulatory agencies to safeguard the legal tobacco market, protect jobs, and combat criminal activities effectively. The repercussions of inaction could have far-reaching consequences for South Africa's economy and public health, necessitating swift and decisive measures to address this growing crisis.