BRI­TISH AMER­I­CAN TO­BACCO SOUTH AFRICA

Public Sector Manager - - Feature -

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.

PRO­CURE­MENT PRAC­TICES

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.

EM­PLOY­MENT

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.

SKILLS DE­VEL­OP­MENT

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.

RE­MU­NER­A­TION

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.

TAX CON­TRI­BU­TION

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.

GDP CON­TRI­BU­TION

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.

AGRI­CUL­TURAL SEC­TOR

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.

EMERG­ING FARM­ERS

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.

EM­PLOY­MENT MULTIPLIERS

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.

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