British American Tobacco South Africa (Batsa) has started a retrenchment process due to the decreased volumes of cigarettes sold in South Africa. While about 200 jobs are on the line, tobacco farmers in the country are far from safe.
Batsa is South Africa’s largest tobacco manufacturer. It says the decrease of cigarette volumes sold is due to the illicit sale of cigarettes in the country. This is along with the ban of cigarette sales during some of the Covid-19 lockdowns in the past two years.
“The 2020 tobacco sales ban resulted in an explosion of growth from the illicit market. This has continued even after the ban on tobacco sales was lifted,” said Batsa.
“In 2019, BAT South Africa permanently employed around 1 800 highly qualified staff across its South African operations. Since 2020, we have been forced to retrench more than 30% of our workforce.”
The tobacco company reports that since 2020 around 40% cigarette sales have been lost as the illicit market increased. An estimation of about 70% of South Africa’s cigarette market is dominated by the illicit market and BAT SA claims that this is where their biggest challenge lies.
“This illegal trade has severely impacted the sustainability of the legal tobacco industry and is a source of funds for criminal organisations in South Africa.”
Tobacco farmers suffer too
It is not clear if Batsa’s latest retrenchment move will have any impact on tobacco farmers.
However, In a previous article published on Food For Mzansi, the newly appointed chief executive of the South Africa Tobacco Transformation Alliance, Tobela Tapula, pointed out that the countries small-scale tobacco producers have suffered tremendous setbacks. This is primarily because of the growth of the illicit sector during the Covid-19 lockdown, when cigarette sales were banned, he said.
“The industry is declining drastically, primarily because of illicit tobacco trade. We are working very hard with relevant government and law enforcement agencies to ensure that the industry is not dominated by players who do not pay tax,” Tapula said.
According to the Tobacco Institute of South Africa, Mzansi has a total of 155 small-scale and 177 commercial-scale tobacco farmers, and about 10 000 farmworkers. Up to 90% of tobacco produced in the country is used for manufacturing high-quality tobacco products.
Illicit tobacco trade, he added, has led to a drop in demand. Subsequently, legal manufacturers are making fewer cigarettes, which means there is less demand for tobacco that is grown and processed by legal producers.
Tapula also told Food For Mzansi that one of his tasks were to “ensure that we successfully oppose the illicit tobacco trade to grow and sustain the industry. We need to reduce the market share of the illicit sector so that we can increase sales of legally produced cigarettes and restore order to the market.”
Much more needs to be done
Although much effort is seen from the South African Revenue Services (SARS) and law enforcement agencies to reducing the illicit cigarette market, Batsa believes more force is needed to fully make an impact in reducing the growth of illicit cigarette sales.
“SARS has issued important new policies, but now it is time to audit manufacturer policy compliance. To support law enforcement agencies and increase their effectiveness, as well as help consumers differentiate between illicit and legal market offers, a Minimum Retail Price Policy is required,” said Batsa.
The tobacco company says illicit trade robs South Africa of billions of Rands in much-needed tax revenue.
The impact of this is now clearly being seen on legitimate businesses, their operations, and, unfortunately, the livelihoods of those in their value chains. Legitimate businesses cannot operate competitively if the country’s laws are not enforced.”
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