According to the Tobacco Institute of Southern Africa (TISA), the size of the global illegal tobacco trade ranges between 330-660 billion cigarettes a year. These are cigarettes that are smuggled, counterfeited or where tax is evaded. This equates to around 6-12% of global consumption, which deprives governments of between US $20-40 billion a year in taxes.
Closer to home, the illegal trade in cigarettes represents the single biggest threat to the legal tobacco industry and is costing Southern African government hundreds of millions of dollars in lost revenue. More than $2-billion in tax revenue has been lost because of the illegal trade in cigarettes since 2010 in South Africa (roughly $461 million per year). The issue is not confined to South Africa - in countries like Namibia, Swaziland and Zambia, the estimated illicit tobacco incidences are well above the global average of 12%.
While the shadowy nature of this trade makes the scale of it hard to estimate, British American Tobacco (BAT) is developing research methods to help its own group companies and governments understand it better. These include coming up with campaigns to raise awareness of the issue, market surveys and consumer research, as well as analysing packs collected from consumers to estimate the difference between duty-paid shipments and actual consumption.
"If all of the different organisations involved in the illegal tobacco trade around the world were combined into one conglomerate, they would become the third largest international tobacco company by revenue," says Leslie Rance, head of Corporate and Regulatory Affairs at BAT Southern Africa Area.
"We have seen first-hand how effective collaboration can be in combatting the illegal tobacco trade. South Africa saw a marked decrease in the incidence of illegal cigarettes from 31% to 23% in 2014. This is due to the collaborative efforts of various law enforcement agencies including, police, customs and revenue authority, treasury and defence departments in the South African government."
However, independent industry research shows that more than 60% of the illegal cigarettes being sold in South Africa are manufactured locally. This represents a significant shift in the illegal supply chain once dominated by illegal imports and outright smuggling into South Africa.
"We encourage government to take decisive action on the domestic manifestation of the problem within South Africa and in addition, raise collaborative initiatives with neighbouring countries to address the illegal inflows of product, and specifically the variance in import and export declarations.
"The impact of illegal tobacco may not be felt as immediately and directly as other crimes, but the consequences are very real. Further co-operation and collaboration is needed to fight it but a greater understanding of the illegal tobacco trade and the criminals behind it could be strengthened."
The problem runs much deeper than just losses to fiscal income. The illegal trade in tobacco is part of a much larger illicit economy that includes goods such as alcohol, textiles, DVDs as well as environmental crimes such as rhino poaching and abalone smuggling. Globally the criminals involved in these activities have been shown to be also involved in other serious crimes, such as the funding of terrorism and money laundering.
BAT is encouraging governments within the region as well as other interested parties to cooperate in efforts to address this shift. A transnational, multi-faceted issue, it requires a collaborative approach to tackle it, from governments and law enforcement agencies to retailers and customers who must arm themselves with the facts.
"We will continue to work through the industry body, TISA and with all interested parties' including Government's to eradicate the illegal trade in tobacco in the Region. We also support the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products, which has been ratified by only two countries in Southern Africa - Botswana and South Africa. We encourage all governments in the region to demonstrate their commitment at tackling the issue by ratifying the Protocol and instituting its measures to address the issue. This treaty will be more effective if it is consistently applied and enforced by joined up governments," concludes Rance.
