Too little too late to save 51-year-old factory and 230 jobs in South Africa
British American Tobacco warned South Africa’s government for years that it would be forced to end production there if illegal cigarette sales weren’t stamped out, according to the chief executive officer.
Last month, the maker of Dunhill and Pall Mall cigarettes followed through on its threat and announced plans to shut its sole factory in South Africa by the year-end.
Instead, BAT will rely on imports for South Africa, where the tobacco-maker can trace its roots back more than a century.
“They cannot say they didn’t know,” said CEO Tadeu Marroco in a phone call with Bloomberg News on Thursday.
“Every time we did a downsize, we went back to the government and said, ‘look we are doing all we can’,” he said, adding that the problem was never effectively addressed.
The facility, located in the province of Gauteng, has been operating since 1975 and is BAT’s eighth-largest worldwide. It employs about 230 staff, whose future will be determined through a consultation process.
The illicit cigarette trade in South Africa has been on the rise for more than a decade.
During the so-called state capture era under the nine-year presidency of Jacob Zuma that ended in 2018, South Africa’s enforcement institutions were systematically weakened.
The revenue service and prosecutorial bodies lost leadership, skills and independence, eroding oversight in high-tax sectors such as tobacco. As enforcement capacity fell, illicit manufacturers expanded, under-declaring production and avoiding excise duties, accelerating the growth of a parallel cigarette market.
The destabilisation of the South African Revenue Service was pivotal, too. Once a strong tax authority, it lost specialist units and experienced investigators, creating space for organised networks to scale.
Untaxed cigarettes rapidly gained share, undercutting compliant producers such as BAT and costing the state billions in foregone revenue.
South Africa bleeding money
Covid made the situation worse. Marroco said the company had alerted President Cyril Ramaphosa’s government that a decision to ban the sale of alcohol, tobacco and vaping products for several months in 2020 would boost the country’s already substantial illegal cigarette market.
At the time, BAT South Africa tried to overturn the ban, which was aimed at containing the pandemic.
Today, illicit trade still makes up about 75% of South Africa’s traditional cigarette market, and the government has not been able to bring the figure down to “meaningful levels” since Covid, Marroco said.
The government will tackle illegal tobacco trade as part of a broader crackdown on the illicit economy, Ramaphosa said in his state-of-the-nation speech in Cape Town on Thursday evening.
Counterfeit goods are a growing threat that undermines South African jobs and industries, he said, pledging extra support through a new national program specifically designed to disrupt these dealings.
BAT confirmed that its formal consultation process started today, 15 January, with affected employees and union representatives as per Section 189A of the Labour Relations Act.
The company expects to conclude the process by the end of March 2026, with the complete closure of the manufacturing facility planned for the end of 2026
The South African Revenue Service (SARS) has warned that international criminal mafias and syndicates are now partnering with South African networks to enter the local illicit market.
SARS’s data showed that tax collection from smoking has stagnated despite rising tobacco consumption in South Africa over the last five years.
This has created a R40 billion gap in tax collection post-Covid-19, excluding displaced consumption that has been absorbed by illicit trade.
SARS said that the Covid-19 market pushed crime cartels, syndicates and gangs into becoming involved in the illicit cigarette trade, it said.
Research shows that the illegal tobacco industry in South Africa accounts for between 60% and 75% of the entire sector, with estimated tax losses of between R51 billion and R84 billion.
Additional reporting with Bloomberg
Loading ...