Tobacco Black Market Has Broader Societal Ramifications
The future of South Africa’s tobacco market will hinge on the willingness of authorities to engage in dialogue about the fundamental principles of regulation.
Written By: Mukundi Budeli
The exit of British American Tobacco (BAT) from the South African market is a striking reflection of how stringent COVID-19 measures have dramatically altered the landscape of the legal tobacco industry. In March 2020, the South African government imposed a ban on the sale of tobacco products as part of health policies aimed at curbing the spread of the virus. The rationale behind this decision was to reduce smoking-related health complications that could exacerbate COVID-19 outcomes. However, rather than achieving its intended goals, the ban merely shifted the market underground, enabling criminal enterprises to flourish in its place.
As the legal tobacco sales plummeted, the illicit market capitalised on the situation, swelling from approximately one-third to an estimated 60% to 75% of the cigarette market. The South African Revenue Service (SARS) indicated that losses in excise and value-added tax revenue could total between R119 billion over the past two decades, with roughly R40 billion lost since the pandemic began. This staggering financial impact not only hurts the fiscal viability of the government but also diminishes the resources available for public health initiatives and welfare programs. The financial drain from tax revenues creates a vicious cycle that further complicates the government’s ability to respond to health crises and support its citizens.
The proliferation of an unregulated tobacco market raises significant health concerns. Illicit cigarettes typically do not adhere to safety and quality standards, exposing consumers to a variety of harmful substances without any regulatory oversight. Such products often contain unlabeled additives and far higher levels of toxic substances than those in legal offerings. Consequently, the unregulated nature of these products arguably poses risks not just to individual health but also to broader society.. The very consumers whom the government sought to protect have potentially been placed in harm’s way by these unintended consequences.
Beyond health implications, the development of this black market has broader societal ramifications. The proceeds from the unregulated tobacco trade frequently fuel organised crime, leading to increased violence and criminal activity within communities. This cycle perpetuates a dangerous environment where public safety is compromised, and individuals, especially vulnerable populations, are caught in the crossfire. The transformation of the tobacco landscape has also generated a culture of desperation among lawful businesses. With legal manufacturers facing mounting pressure, the entire industry is at risk of restructuring in ways that favour unlawful entities, further destabilising economic conditions.
The closure of BAT’s manufacturing plant in Heidelberg by the end of 2026, which will affect approximately 230 workers, is a stark reminder of the real human costs associated with these policy blunders. Such closures are expected to ripple through the agricultural and retail sectors as well, potentially impacting up to 35,000 jobs across the tobacco value chain. As trade dynamics shift, communities are likely to feel the multiple effects of reduced employment opportunities, compounding existing economic challenges.
The emergence of the black market serves as an alarming testament to the need for reevaluation of regulatory approaches. Policymakers must grapple with the intricate balance between public health imperatives and the preservation of individual liberties. The draconian laws enacted during the pandemic reveal the potential risks of overreach; when regulators overstep, they create an environment ripe for illegal activity and economic turmoil.
The future of South Africa’s tobacco market will hinge on the willingness of authorities to engage in dialogue about the fundamental principles of regulation. Recognising the essential link between responsible governance and personal freedom is crucial. As societies emerge from crises, the focus should not solely rest on enforcement but rather on an approach that promotes accountability, fairness, and the well-being of citizens, as it stands, the state is not equipped with this and created this current crisis.
The challenges posed by the underground tobacco trade expose deep-rooted issues within the interplay of regulation, crime, and health. The legacy of restrictive measures serves as an instructive lesson, compelling advocates and policymakers alike to reconsider the pathways to balanced and effective governance that respects individual freedoms.
Mukundi Budeli is a law graduate from the University of Witwatersrand and an Associate of the Free Market Foundation.