BAT South Africa (Batsa) has scaled back its delivery supply chain due to the explosion in illicit cigarette sales, which it says now accounts for about 70% of the market.

About 20 jobs at Batsa and more than 500 third-party jobs in the logistics and security supply chain are expected to be affected.

In 2019, BatSA permanently employed around 1 800 highly qualified staff across its operations. Since 2020, the company has been forced to decrease its workforce by more than 30% and has lost around 40% of its cigarette sales in the same period, as the illicit market continues to grow.

Read: Illicit cigarettes account for nearly 60% of the SA market

SA’s cigarette market was smashed by the five-month ban on tobacco sales during Covid in 2020 as black marketeers took over and smokers switched to whatever brand they could find. Once the ban was lifted, smokers continued with cheaper brands on which no excise tax is paid to SA Revenue Services (Sars).

“Until now, Batsa has had substantial contracts in place with third-party logistics and security companies to safely deliver its products directly to retail stores. However, these contracts have been discontinued, with an estimated 500 jobs in the security and logistics part of the company’s value chain being impacted,” says Batsa.

“The decision to stop direct deliveries to lower-volume retailers is an unfortunate consequence of the increasing illicit trade in tobacco products, which has continued since the Covid-19 tobacco ban. Our internal estimates now show that illicit trade now accounts for more than 70% of all cigarettes consumed in the country – leaving the legal market with less than a 30% market share,” said Johnny Moloto, area head of corporate and regulatory affairs for BAT Sub-Saharan Africa.

“For a long time, Batsa has been reluctant to scale down our distribution operations in view of the potential impact on our highly integrated supply chain. However, the business must take urgent action to enhance efficiencies as we try to mitigate the impact of illicit trade and an uncertain regulatory environment.

“It is unfortunate that the government hasn’t done more to tackle South Africa’s illicit tobacco trade. As such, we call on the Minister of Finance to ensure the South African Revenue Services (Sars) and the National Prosecuting Authority (NPA) are properly equipped to deal with the menace,” he said.

Draft tobacco control bill will add to the pain

Moloto says the draft Tobacco Products and Electronic Delivery Systems Control Bill will make matters worse, as it appears tailor-made to benefit the illicit sector. The bill will further curtail South Africa’s legal tobacco industry, which is already under 30% of the total market, while failing to address illicit trade in any capacity, thereby further aiding criminal activity.

“Ironically, the bill is not likely to result in a reduction in smoking incidence because the market has been flooded with illicit products that are sold for as little as R10 for a pack of 20 – while the Minimum Collectible Tax alone is R24.87 – with no regard whatsoever for health regulations.

“Further, we estimate that the government will continue to lose an estimated R24 billion in tax revenues to the illegal cigarette trade every year – revenue that is otherwise critical for the development of the country,” warns Moloto.