Tobacco wars: ANC hobnobs with illegal cigarette kingpins
We’re sitting on a social crisis powder
keg Page 29
Do the ANC leaders who happily posed for photos with the leadership of the Fair Trade Independent Tobacco Association (Fita) know they are effectively embracing an organised tax-dodging network? If they don’t, they should.
There’s a striking difference between the government’s current attitude towards legal and illegal cigarette manufacturers – one that raises serious questions about the government’s commitment to acting against those who pose real threats to consumers, the legal tobacco value chain and the national fiscus. Contrasts are clear in two events in the past month. Event number one was a fundraiser for the ANC alongside its policy conference in late July. Pictures posted on social media by Fita show the association’s representatives posing proudly with ANC leaders such as Panyaza Lesufi (the party’s Gauteng chairperson and the province’s MEC for Education with responsibility for schoolgoing children); treasurer-general Paul Mashatile, responsible for party fundraising; and President Cyril Ramaphosa himself.
Granted, this was not a government event – but it was convened by the governing party, through the Progressive Business Forum, which presumably has a very strong mandate from the governing party.
What signal does this photo opportunity send to the people of South Africa?
Without being melodramatic, it shows a deeply concerning proximity to government of an organisation whose members are effectively champions of South Africa’s illicit tobacco trade.
Fita’s members include, at times in its history, Carnilinx, Folha Manufacturers, Home of Cut Rag and East London-based Protabac (recently closed by the South African Revenue Service (SARS) for a lengthy period for non-compliance with regulations on the use of production counters).
Some of these manufacturers’ names might not be familiar to many South Africans. But for those of us involved in the legal tobacco trade – in other words, those who pay excise and tax to the government – know their products make up more than 70% of cigarettes sold in South Africa today.
How do we know? It’s all in the price point
According to existing tariff codes and regulations, manufacturers must pay R19.82 in excise for every pack of 20 cigarettes sold, and requisite VAT – making the total due to SARS from each pack of 20 at least R22.79. That’s just excise and tax costs and excludes the manufacturer’s margin and all costs related to production, leaf, material, supply chain, retail and wholesale margins.
Anything sold below a price point of R27 can, therefore, be regarded as an illicit product. And that’s precisely the space in which Fita members operate.
Recent research by Ipsos (Cigarette Retail & Wholesale Price Research Wave 5: 28 March 2022) shows Fita members at the heart of the illicit sector: “Shasha (owned by or licensed to Carnilinx), Sahawi (owned by or licensed to GLTC), VIP International (owned by or licensed to Carnilinx) and Savannah (owned by or licensed to GLTC) have a high incidence of purchases at R22.79 and below, with Shasha at 54.2%, Sahawi at 34.5%, VIP International at 45.5% and Savannah at 60.8% of brands manufactured in South Africa.”
The Ipsos research – published in April – surveys 151,000 retail outlets. It is the most comprehensive and authoritative record of who is selling what and where — and it shows the illicit market continues to grow and grow and grow.
That growth was significant before the Covid-19 lockdown ban on the sale of cigarettes. But it entered a boom period when consumers were forced to go underground and rely on backdoor – illicit – cigarettes. And though the lockdown ban is long over, the stranglehold of the illicit sector has remained in place – to such an extent that our members describe it as “a national emergency”.
So, do ANC leaders in the photos know that they are effectively embracing an organised tax-dodging network? They should, particularly as the government seems so concerned about tobacco products it wants to amend legislation governing their sale.
Event number two: the recent release of the findings from the
South African Medical Research
Council’s global adult tobacco survey, at a panel discussion that included representatives from the Department of Health.
Recommendations for change put forward by the Department of Health to address changing smoking patterns appear to have been developed in complete isolation of market and economic realities. The proposals are likely to reinforce the size of the economic playground the illicit sector has built.
Among other things, they call for plain packaging on cigarettes and a point-of-sale advertising ban.
You don’t have to be a marketing graduate to realise the impact this will have on grey products being sold at retail outlets. Globally, plain packaging has been found to make little difference to levels of smoking. In many cases, it has facilitated illicit trade and increased cigarette use among minors, and there is a growing school of opinion that it just does not work.
So why, at a time when we need all hands on deck to combat the illicit sector, is government focused on those who operate legally? Why put in place stricter regulations on a sector that – unlike the illicit criminals – contributes more than R13-billion a year to the national fiscus and follows all laws to the letter?
A smoke-free society will remain a pipe dream if attempts to bring it about simply result in more and more people smoking illicit products.
Government is fighting the wrong battle, with the wrong people. Instead of tightening the net on those who farm, process, make and sell legal products, it should tighten the net on those outside the law.
As the South Africa Tobacco Transformation Alliance (Satta), we have been heartened in recent months by a clear step-up by law enforcement authorities against some Fita members, with significant raids and notable confiscations. We appreciate that.
But it is a war out there – ask any Satta member, who sees the market shrink, month after month.
In particular, ask emerging black tobacco farmers, who have ticked every box in producing legally compliant products. Struggling with small pockets of land, with no assistance from the state – despite its insistence on rural reform and black economic development – they are going out of business, one by one.
More than 100 black tobacco farmers have left the industry and Satta has been forced to find new ways for the remaining handful to earn a living. Some are considering alternative crops; others are hoping to ride the wave of the emerging cannabis industry. Wherever we can, we work with provincial governments to secure the future of the industry, and of black tobacco farmers in particular. We’ve had good responses from Mpumalanga and Eastern Cape, where there is a concern about the sector that contradicts what we see at national level.
These provinces are keen to have their economic development agencies find ways to ensure a future for those being dislodged by the rampant growth of the illicit products sector.
This may be because provincial governments are closer to “the people” than national government and recognise economic suffering when they see it – and are therefore keener to stimulate legitimate economic activity that benefits black rural farmers.
It is a race against time. The legal tobacco market is shrinking, caught between a rapidly growing illicit sector and rapidly shrinking retail space.
The road ahead is challenging for South Africa’s 120-year-old legal tobacco industry. The contradictions in government’s posture are there for all to see.
Who knows where it will end – and what will be said about the role of government?