The longstanding, relentless and immense challenges for South Africa’s legal tobacco value chain have now become too much to bear. As a result, approximately 230 direct jobs are on the chopping block following British American Tobacco South Africa’s (BATSA’s) decision to exit its local manufacturing operations.

By Lloyd Phillips, senior journalist at African Farming and Landbouweekblad

In a shock announcement on Thursday, 15 January, BATSA said it will be closing its tobacco-products manufacturing facility in Heidelberg in Gauteng by the end of 2026. This facility, which has been in operation since 1975, is now operating at an economically unsustainable 35% of its total production capacity.

Johnny Moloto, head of corporate and regulatory affairs for British American Tobacco (BAT) in sub-Saharan Africa, says this decision is a direct consequence of various longstanding threats and challenges that the country’s government and other state authorities have failed to effectively address or act against.

They include the explosion of South Africa’s illicit trade in tobacco products since the government’s ban of almost five months on the sale of tobacco products during the hard lockdowns in response to the Covid-19 pandemic in 2020. Since then, and despite the legal tobacco value chain’s consistent pleas, the government has largely failed to act decisively against the illicit trade.

South Africa Consumes An Estimated 35 Billion To 37 Billion Cigarettes Annually. Fewer Than 13 Billion Of These Are Supplied By The Legitimate Tobacco Trade, And The Illicit Trade Supplies The Balance, Totalling Up To Approximately 24 Billion Cigarettes. Photo For Illustrative Purposes: Alamy/Dpa Picture Alliance — South Africa consumes an estimated 35 billion to 37 billion cigarettes annually. Fewer than 13 billion of these are supplied by the legitimate tobacco trade, and the illicit trade supplies the balance, totalling up to approximately 24 billion cigarettes. Photo for illustrative purposes: Alamy/DPA Picture Alliance

Moloto adds that sections of government have exacerbated the situation by instead proposing what has previously been described as “draconian” legislation intended to clamp down even harder on the legal tobacco value chain, which, unlike the illicit trade, annually contributes between R11 billion and R13 billion in taxes and excise duties to the national fiscus. Government has also consistently implemented above-inflation increases on the excise on legal tobacco products “that have widened the price gap between legal and illegal products”.

Also read: Medium-term budget: Illicit trade in cigarettes robs SA of billions in tax revenue

Illicit Trade Supplies 75% of Tobacco Consumption

Moloto and other sources in South Africa’s legal tobacco value chain confirm that because of all these factors, the illicit trade now supplies a staggering 75% of the country’s entire consumption of tobacco products. The consequential loss to the fiscus amounts to more than R25 billion annually.

“Illicit trade doesn’t just hurt companies, it also destroys jobs and communities. All indications are that illicit is becoming a significant issue in multiple industries, including alcohol, pharmaceuticals, cosmetics, food, clothing and even toys.

“If this can happen to our facility, which has been operating for 50 years, it can happen to anyone. We hope this is a reminder [to government] that enforcement isn’t just about collecting taxes, it’s also about protecting the people who work in legitimate businesses.”

British American Tobacco’s Commitment To Continue Buying Most Of South Africa’s Production Of Flue-Cured Tobacco Could Be Undermined If The Country’s Government Continues Failing In Its Duty To Deal A Crippling Blow To The Massive Illicit Tobacco Trade. Photo: Alamy/Stefan Ember — British American Tobacco’s commitment to continue buying most of South Africa’s production of flue-cured tobacco could be undermined if the country’s government continues failing in its duty to deal a crippling blow to the massive illicit tobacco trade. Photo: Alamy/Stefan Ember

Francois van der Merwe is a director of Limpopo Tobacco Processors and spokesperson for the South Africa Tobacco Transformation Alliance.

He says of BATSA’s decision: “It’s an extremely sad day in the over 100-year history of South Africa’s tobacco industry. This is what happens when government doesn’t create an environment in which legitimate business can do its thing, including employing people, paying taxes and building our country to be a better place for all.

“The closure of BATSA’s factory was completely preventable. I’ve always strongly maintained that if government inaction allows an industry like tobacco to sink, other industries could follow suit. This is a classic example of government failing South Africans and South African businesses.”

Unlike with the 230 or so people who stand to lose their jobs at BATSA’s facility at Heidelberg, South Africa’s tobacco growers and their employees will very fortunately not be affected by the facility’s closure.

Government has Blood on its Hands

Van der Merwe explains that even once BATSA has closed this facility, the international operations of BAT have committed to continue buying most of South Africa’s annual production of approximately six million kilograms of flue-cured tobacco. This tobacco leaf meets BAT’s specific requirements for its products. The leaf will be exported and then processed in one of BAT’s manufacturing facilities overseas, and the final products will be shipped back to the South African market.

“Our legal tobacco industry is immensely grateful to BAT for its commitment and support. What we’re concerned about, though, is that if government still fails to fully tackle South Africa’s illicit tobacco trade, the market share for BAT’s products will continue to erode potentially to the point where BAT must reduce its demand for South African tobacco leaf.

“If such a situation is allowed to take place, the blood already on the hands of the South African government will extend to the tobacco farming sector as well. Hopefully this is a wake-up call to government to see what happens when they fail South Africans.”

Moloto says: “Should there be a substantial and sustained reverse trend in the local illicit trade environment, BAT will reinvest in local production in South Africa.”