BAT Closure Exposes The Cost Of Inaction On Illicit Trade 

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The illicit economy is killing jobs.

Last week’s announcement from British American Tobacco that it will shut its only cigarette factory in South Africa this year demonstrates how policy failures and enforcement gaps are destroying legitimate manufacturing.

The factory has been operating at 35% capacity and can no longer sustain operations.

Some 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.

How did we reach this point? 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 (which was later declared unconstitutional) while enforcement capacity was diverted elsewhere, allowing illegal networks to establish distribution chains that never closed.

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.

This isn’t just 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 GDP, a staggering figure that, whilst difficult to measure precisely, indicates the massive scale of the problem.

These illegal operations feed organised criminal networks involved in illegal mining, construction mafia activity, and other serious crimes.

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.

Industry has proposed concrete solutions.

Minimum retail pricing 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 crowdsourcing enforcement.

Yet these proposals have sat with government departments for years without implementation.

BLSA has joined the Illicit Economy Task Force established by the Consumer Goods Council to drive coordinated action.

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’re 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.

But business action alone cannot solve this. Government must act with urgency across multiple fronts.

SARS needs dedicated 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 needs to tighten import controls, strengthen intellectual property enforcement, and work with industry to implement product authentication systems.

The infrastructure for effective action exists, SARS has recovered institutional capacity, the NPA is being strengthened, and the Madlanga Commission is examining police effectiveness.

What’s needed 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.

The threat to manufacturing doesn’t 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.

Business has sought engagement on 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 have 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.

Business stands ready to partner with government on this fight.

The task force BLSA has 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’s ensure it’s also the turning point.

*This column was first published in the Business Leadership South Africa (BLSA) weekly newsletter.

*The author Busisiwe “Busi” Mavuso is the CEO of BLSA. The views Busi Mavuso expresses in this column are not necessarily those of The Bulrushes

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