BRITISH AMERICAN TOBACCO SOUTH AFRICA
BRITISH AMERICAN TOBACCO (BAT) SOUTH AFRICA is the largest manufacturer and distributor of tobacco products in the country and the second-largest company listed on the JSE by market capitalisation.
We have a history in the country spanning more than 100 years and our portfolio includes the top six cigarette brands: Peter Stuyvesant, Dunhill, Rothmans, Benson & Hedges, Pall Mall and Kent.
Through our nation-wide operations, BAT South Africa provides employment and income to thousands of households across South Africa and makes a vital contribution to government tax revenues.
Our factory in Heidelberg, Gauteng, is the eighthlargest BAT factory in the world and the biggest employer in the Lesedi municipality. With a production capacity of 27 billion sticks per annum, it produces cigarettes and cut-rag tobacco for both the local market and export.
With a share of over 75% of the legal cigarette market, a workforce of 1 727 employees and tax contributions of around R14.24-billion paid by the company in 2017, BAT South Africa makes a substantial contribution to the South African economy.
Our initial injection of economic activity represents only a fraction of the overall economic contribution of the company.
In the process of manufacturing, packaging, exporting and distributing cigarettes and cut-rag tobacco,
BAT stimulates economic activity throughout the tobacco value chain, encompassing a wide range of producers and suppliers, such as tobacco farmers (upstream linkages), as well as retailers, distributors and the hospitality industry (downstream linkages). These upstream and downstream activities generate additional income and tax revenue which, in turn, is spent in the economy, thereby inducing further economic benefits.
When all the economic multiplier effects are taken into consideration, BAT South Africa and its supply chain sustained production (or intermediate output) to the value of R23.03-billion, supported more than 79 000 jobs across the country and generated just under R3.81-billion in labour income during 2017. Additionally, BAT South Africa’s operations sustain an economy-wide capital stock valued at R13.96-billion.
The company has been recognised as and accredited among the Top Employers in South Africa for the last 10 years – testimony to the exceptional working environment that we maintain for our employees.
BAT South Africa’s own initial contribution to South Africa’s intermediate output – or production – amounted to R10.11-billion, with its first-round or direct suppliers adding an additional R3.74-billion. Altogether, BAT South Africa’s total production stimulus, including all the economic multiplier effects, to the national economy came to R23.03-billion in 2017.
The sectors that derive the benefit from the company’s capital investment and operational expenditure include the wholesale and retail trade, manufacturing (excluding BAT South Africa manufacturing), business services, finance and insurance, transport and storage and agriculture sectors.
BAT South Africa’s operations have exceptionally high spinoff effects on job creation, with an employment multiplier of 45.77, according to a study by economic and financial data consultancy Quantec. This means for each person employed directly by BAT South Africa, an additional 45 jobs are supported by the company’s upstream and downstream operations in the rest of the economy, of which approximately 80% are filled by individuals from previously disadvantaged population groups.
When including all economic multiplier effects, BAT South Africa supports an estimated 79 045 full-time equivalent formal and informal jobs in South Africa – or 0.5% of total employment in the country.
The majority of these jobs are in the business services sector (22 083) with the retail and wholesale sector (18 899) also making a vital contribution. Over 70% of the formal sector jobs generated by the company’s value chain are skilled and semi-skilled positions, with the informal sector accounting for about 26.4% of the total employment impact.
Between 2011 and 2013, BAT’s workforce increased by 25.5% (or 551 additional employees), but declined by 19.4% between 2013 and 2015 – a loss of 528 jobs. A further 460 jobs were shed between 2015 and 2017. This was mainly due to growing commercial pressures resulting from the growth in the size of the illegal tobacco market. To put this in perspective, according to Statistics South Africa, employment in the broader manufacturing sector increased by 1.66% between 2015 and 2017.
POPULATION GROUP PROFILE
Three out of four employees working at BAT South Africa are from previously disadvantaged population groups, testimony to the company’s commitment to transformation. At the skilled and semi-skilled levels, workers from previously disadvantaged backgrounds account for more than 77% of the company’s employees.
BAT South Africa is particularly proud of its commitment to skills development in South Africa. During 2017, the company invested R127.85-million in the training and development of its staff, equating to 12.7% of its payroll. This translated into 3 827 training interventions. BAT South Africa has invested close to R560-million in the training and development of its employees over the last seven years.
BAT South Africa’s staff remuneration amounted to R1.10-billion in 2017. Its economy-wide supply chain operations contributed R3.81-billion to labour income across the country.
During 2017, the National Treasury received R14.24-billion in tax revenue from BAT South Africa, its employees and consumers of cigarettes produced by the company (i.e. VAT and excise duties), accounting for 1.11% of the South African government’s total tax revenue for the year.
The majority (67.9%) of the taxes derived from the production and sale of BAT South Africa products come from a cigarette-specific excise tax, which generated R9.66-billion. This represented 23.9% of all excise tax collected in South Africa during 2017.
When the tax revenue generated from the indirect and induced impacts of BAT South Africa’s operations throughout the country are also taken into account, this increases the government’s take to R18.67-billion. This represents 1.46% of the total revenue received by the National Treasury in 2017.
TAX CONTRIBUTION IN PERSPECTIVE
BAT South Africa’s national tax contribution of R14.24-billion was enough to pay for:
GOVERNMENT REVENUE IMPACT
The tax revenue arising from the direct, indirect and induced impacts of BAT South Africa’s operations
(i.e. all the multiplier effects) increased the National Treasury’s take to R18.67-billion, or 1.46% of the National Treasury’s total tax revenue in 2017.
Indirect taxes paid by consumers remain the most important revenue source, at R14.25-billion (or 76.4% of BAT South Africa’s economy-wide tax contribution), followed by corporate taxes at R2.25-billion (12.0%).
The initial tax contribution by a firm as a proportion of its economy-wide impact is typically small. BAT South Africa’s initial tax contribution constitutes 76.3% of its economy-wide impact. This is indicative of the significant tax burden borne by the company.
BAT South Africa’s economy-wide contribution to South Africa’s value added (GDP) at factor costs amounted to R10.29-billion in 2017, or 0.25% of the country’s GDP.
The company’s GDP multiplier is estimated by Quantec at 1.02, indicating that for every one rand of sales revenue generated by the company (i.e. turnover at company level, excluding taxes), R1.02 of value is added to the country’s GDP.
LABOUR AND GDP TO CAPITAL RATIOS
The company’s labour/capital ratio (measuring the number of jobs created for every R1-million of capital investment) is 5.7, meaning that for every R10-million of capital investment, BAT South Africa creates 57 formal or informal jobs – well above the national average of 20 jobs.
Furthermore, BAT South Africa’s GDP/capital ratio shows that for every R10-million worth of capital expenditure, the company and its direct, indirect and induced activities stimulates R7.4-million in GDP for South Africa. This is also higher than the national average (of R5.1-million) and together indicates that the company is generally more efficient in utilising a unit of investment compared to most other industries.
WHOLESALE AND RETAIL TRADE
BAT South Africa is not directly involved in selling its products to consumers, but instead relies on over 178 000 retailers and wholesalers across the country to do so. The implication of this is a significant impact on employment in the retail and wholesale sector.
This includes informal retailers such as spaza shops, which constitute the largest portion of stores at 43.4% of all outlets; independent convenience stores; and taverns and formal channels such as grocery and wine outlets.
A large portion of BAT South Africa’s first-round employment impact is in this labour-intensive sector, accounting for 8 414 jobs – or 27.4% of first-round employment. Many of these businesses are small, independent and black-owned, and derive a significant portion of their revenue from the sale of tobacco products.
The number of jobs in the wholesale and retail trade sector generated by the company’s operations has declined markedly since the early 2010s. This reduction has been driven partly by growing economic pressure on the retail and wholesale environment, but mostly by increased commercial pressure on BAT South Africa caused by higher illicit trade, which has reduced the volume of cigarettes it sells. This has forced the company to reduce its labour force by almost 20%, which has consequently had an adverse knockon effect on the number of jobs supported in the wholesale and retail trade sector.
The multiplier effects add another 10 486 jobs to employment in the retail and wholesale sector, thereby increasing the company’s impact to 18 899 jobs
economy-wide. Compared with a total employment impact of around 25 700 jobs in 2015, it is clear that the growing economic pressures faced by BAT South Africa, and the tobacco value chain in general, also have a significant effect on the company’s overall contribution to the sector.
The indirect and induced impacts supported another 46 584 jobs, taking the total number of jobs supported by BAT South Africa’s operations to 79 045 full-time equivalent jobs. This represents 0.50% of all employment in South Africa. Formal employment constituted 73.6% (58 190 full-time equivalent jobs) of the economy-wide impact in 2017.
BAT South Africa buys over 90% of all tobacco leaf grown in South Africa. The bulk of this leaf is sourced from Mpumalanga, Limpopo and North West provinces.
The impact on the agriculture sector (of which tobacco farming is the largest component when considering the first-round suppliers) amounts to 5 003 full-time equivalent tobacco farming jobs, which constitutes 16.3% of the total first-round impact.
Because sectors such as agriculture rely greatly on the employment of seasonal (part-time) workers, the distinction between full-time equivalent jobs and part-time job opportunities becomes important. The actual, real-world number of jobs, which includes permanent and part-time, is therefore likely to be much greater than the stated full-time equivalent impact on employment, since for example, two workers working half a day each will equate to one full-time equivalent employment opportunity.
Additionally, a number of tobacco farmers are not exclusively involved in tobacco farming. These mixedcrop farms also grow maize, beans and other crops.
BAT South Africa has, since 2011, invested than R70million into its Emerging Farmers Initiative, which has supported the development of 155 small-scale black emerging farmers in Mpumalanga, North West, Limpopo and the Eastern Cape. Farmers in the programme are assisted with plant production, tobacco production, poultry and care for livestock, while non-tobacco crops are included in rotational cropping plans for additional income and food security.
Since 2011, we’ve facilitated the planting of over 800 hectares of tobacco and over 1 000 hectares of vegetable crops.
Research shows this programme is changing lives, making it possible for people in rural areas to send their children to university, build their own houses and to invest in equipment that increases their productivity.
Considering only formal employment, BAT South Africa’s economy-wide employment multiplier was estimated at 33.69. This means, for each person directly employed by the company, almost 33 additional upstream and downstream formal sector jobs were sustained in the national economy.
When taking the informal sector into account, the total employment multiplier increased to 45.77. That is, after accounting for each person employed directly by the company, 45 additional formal and informal jobs were sustained in the national economy.