British American Tobacco will begin negotiations with the South African government instead of taking legal action to overturn a national ban on cigarette sales now in its sixth week.
South Africa blocked the trade of tobacco products in late March as part of a lockdown to contain the spread of the coronavirus, and was set to lift the restriction last week before a last-minute u-turn.
BAT said at the time the government should reverse the decision or face the risk of legal action.
President Cyril Ramaphosa’s administration needs to make a “renewed and stronger effort” to “permanently close down the illegal supply lines of tobacco that have been established over the past number of weeks,” BAT, which makes Peter Stuyvesant, Dunhill and Lucky Strike cigarettes, said in a statement.
“Reopening the legal, taxed and regulated tobacco market must be part of the solution.”
BAT shares rose as much as 1.7% in Johannesburg, where it has a secondary listing, on Wednesday, after four sessions of losses.
The stock has gained 16% this year, giving the company a market value of R1.6 trillion ($87 billion).
South Africa’s decision to ban the sale of tobacco and alcohol products has resulted in a “thriving illicit economy” and effects of the lockdown and a slowing economy could see a shortfall of R285 billion in tax revenue for the year, Edward Kieswetter, the commissioner of the South African Revenue Service, told lawmakers on Tuesday.
Both moratoriums could be lifted as part of a phased easing of lockdown restrictions, with controlled sales penciled in for so-called Level 3, the next stage of the economy’s re-opening.
“We urge government to consider an approach that will address their concerns, while also ensuring legitimate businesses can contribute to this country’s economy and future growth,” said a BAT spokesperson.
Before the Covid-19 crisis and the lockdown, South Africa started to make progress in tackling the rampant illicit trade in cigarettes, which was costing South Africa more than R10 billion a year, according to BAT.