Pirate puffs put wind up legitimate cigarette makers

BRITISH American Tobacco (BAT) blames uncertain regulation and a sharp rise in illicit cigarettes for falling legal cigarette sales in SA.

BAT is by far the top dog when it comes to cigarette and tobacco sales in SA, holding an estimated 86% market share of legal cigarette sales in the country. The company is also the largest listed company on the JSE, with a market capitalisation of R1.05-trillion — far exceeding other major companies such as SABMiller (R830-billion), and BHP Billiton (R643-billion).

Although cigarette sales are falling globally, BAT continues to thrive, increasing its profit and market share. This has made it a desirable “sin stock” for individual investors — not only has the share price climbed 107% in the past three years, analysts still rate it a buy.

South Africa remains BAT’s third-largest-selling market through brands like Peter Stuyvesant, Dunhill and Kent. This illustrates its expanding influence in the local market since BAT bought control of the Rembrandt tobacco interests from Johann Rupert’s family in 1999. BAT shares were then unbundled to Remgro’s shareholders in 2008.

However, BAT director

We are deeply concerned about our sales in SA

Kingsley Weaton warns that illegal cigarettes are ravaging their business in SA.

“We are deeply concerned about our sales in South Africa, which are being pressured on the backdrop of illicit trade,” he said.

He says that while there is a large amount of regulation in place it isn’t properly implemented or enforced.

The illicit cigarette trade in SA has doubled since 2008 and is costing the country about R5-billion a year in lost revenue, says BAT.

Leslie Rance, BAT’s head of corporate regulatory affairs for southern Africa, says the new legal changes to cigarette packaging, restrictions on advertising and curbs on smoking in public spaces are alarming.

“Consumers need to be able to navigate through the different options and need prices . . . to be well communicated,” said Rance.

BAT sold R31-billion worth of cigarettes in SA in the past year and the tobacco industry contributed R12-billion in taxes.

The company planned to invest a further R1-billion in SA in the coming five years, but Weaton says “BAT can only sustain this type of investment in a predictable regulatory environment”.

“We are not against regulation, but it has to be well thought-out and evidencebased,” said Rance.

However, the Department of Health believes regulations put in place over the past two decades have been well thought-out and are starting to show results.

The country has seen a 50% drop in adult smoking in the past 20 years.

Department spokesman Joe Maila said that for every rand gained from the tobacco industry through taxes, it was actually costing the country’s economy R4 in expenditure in tobacco, loss of productivity and healthcare spending.

Maila said he was aware that tobacco companies had invested heavily in point-ofsale displays, spending millions of rands on promotions in spaza shops, garage shops, supermarkets, hotels and clubs.

“They do so because tobacco product displays serve as advertisements for the promotion and use of tobacco products and increase sales, particularly among the youth.”

The department has draft laws on the table to make SA 100% smoke free at all indoor public buildings, and to prohibit it in certain outdoor public areas.