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. 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.” 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 VATthat 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.” 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.
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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.
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