Tightening tobacco regulations without tackling the problem of illicit tobacco trade will only serve to decimate the industry, wiping off billions in potential taxes, rendering thousands unemployed and without an income.
The publication of Jacque Pauw’s book, The President’s Keepers: Those Keeping Zuma in Power and out of Prison” has jolted the public’s imagination towards the criminal enterprise of illicit tobacco trading and how this intersects with our politics. Predictably, there has been much hype about the corroding influence of this trade on our body politic and the resultant ‘capture’ of our leadership.
Our outrage at the deep rot in our body politic should however not blind us to a real concern; that is, cheap tobacco is a big problem for our communities, especially the youth and the poor. Because of illicit trade, the progress that South Africa has achieved in reducing tobacco consumption since 1993 is fast being undone through the availability of cheap tobacco. The provisions of the Tobacco Products Control Act 83, 1993 are becoming academic at a time when the South African government intends to introduce new regulations aimed at aligning South Africa’s regulatory regime with the latest guidance from the World Health Organisation.
South Africa has the highest illicit tobacco incidence in the Southern African region and is listed amongst the top five illicit markets globally. In 2013, an estimated 31% of all cigarettes consumed in the country were illicit. Over 60% of these cigarettes are manufactured in South Africa and not declared for taxes, with the balance being smuggled into the country by an ever-growing network of criminals and syndicates.
In terms of impact on the fiscus, more than R24 billion in tax revenue has been lost since 2010 or roughly R4 billion per year. The legal tobacco sector contributes R17 billion in taxes to government annually. This is in the form of excise and value added tax. In 2014, the same sector added R23 billion (0.77%) to the country’s gross domestic product and generated R22.4billion in government income (2.3% of total tax revenue).
As such, not only does illicit tobacco deprive the fiscus of much needed revenue at a time when the country is facing a large gaping fiscal shortfall, it has also made tobacco highly accessible to high school students. Because of the non-duty paid nature of these cigarettes, it is still possible to procure a pack of 20 for less than R12.00 and loose cigarettes for R0.50, making South Africa one of the cheapest countries for tobacco consumption in the world.
It is opportune that the revelations about illicit trade come out in the lead up to the ANC December Conference. At its conference in Mangaung, the party called on government to strengthen the tobacco regulatory regime. Since then, the Minister of Health has been working to come up with the best formula for achieving this goal.
In 2013, the Department of Health adopted what it called the Strategy for the Prevention of Non-Communicable Diseases 2013-2017 and set a target of reducing tobacco consumption by 20% in 2020. It would be interesting to hear how far/close this target is, given the rapidly growing problem of illicit trade in the country. Though available evidence is not conclusive, illicit trade is now estimated to constitute 34% of the total tobacco market in South Africa. This amounts to 11 billion loose cigarettes.
The governing party may wish to compel policy makers to do more to curb the problem of illicit trade before this completely overwhelms the country. From only focusing on illicit mining and financial flows, the party may want to call for a stronger response to illicit tobacco and strengthen the hand of law enforcement to deal with the vested interests of those benefiting from illicit trading.
The Department of Health needs play a more pronounced role in fighting the problem of illicit trade. This it can achieve by adopting a common-sense approach to regulation. Any further strengthening of the Tobacco Products Control Act 83, 1993 will be a wasted effort if it does not place illicit trade front and centre.
Any new regulations must take particular care not to create opportunities for counterfeiting and illicit trade. If anything, the Department must take steps to translate the WHO’s Framework Convention on Tobacco Control’ Protocol to Eliminate Illicit Trade in Tobacco Products into domestic law and work with law enforcement and the tobacco industry to implement its provisions such as Track and Trace.
Failure to act against illicit trade will have dire consequences for the tobacco industry and impoverish many who rely on tobacco growing as the leaf used in illicit tobacco in South Africa is sourced from outside South Africa. Over time, it will undermine the commercial rationale for tobacco companies to maintain manufacturing facilities in South Africa leaving small towns such as Heidelberg in the doldrums at a time of economic hardship for many who rely on such jobs to put food on the table for their families.
Bongani Mabusela is convenor of the ANC Youth League Regional Task Team in the Nelson Mandela Bay Region. He writes in his personal capacity