Legal booze and cigs, illegal booze and cigs – they’re all yours

As many South Africans took their first puff of a legally bought cigarette on Tuesday morning, others will stick to cheaper, illicit brands.

This is according to market research by Euromonitor, which predicts that the illicit cigarette and alcohol trade will still exist, despite the lifting of the ban on sales.

“The news of the ban being lifted on the sale of alcohol and tobacco is a welcome relief for the respective industries and consumers alike. Unfortunately, the illicit trade activities in alcohol and tobacco have thrived over the lockdown, with illicit traders establishing their supply networks. These networks will still be present for some time to come as the industry catches up on production and consumer sales.

“The government has lost R5bn in excise and taxes due to illicit trade activities. For cigarettes, many new, low-priced brands entered the market over the lockdown, grabbing market share from the established, bigger cigarette players. Illicit players will try to continue to sell these lower-priced cigarettes despite the ban,” said Euromonitor international consultant Quinton Walker.

The government would have to increase its enforcement and inspection activities across the tobacco industry, he said.

According to Euromonitor International senior research manager Thomas Verryn, South Africa was one of the few countries, like India, to take the drastic step of shutting down the entire alcohol industry.

“The unexpected extended total ban on alcohol sales will wreak havoc on an industry worth R293bn in 2019.”

He said Euromonitor expected the industry to decline by more than 30% in 2020.

Responding to the study, the Fair-trade Independent Tobacco Association, which has been involved in often-tumultuous court battles against government and co-operative governance and traditional (Cogta) minister Nkosazana Dlamini-Zuma, said it was always its position that the knock-on effect of the ban on the sale of cigarettes would create a “bigger problem”, even after South Africans could legally buy cigarettes.

“SA, which already had an issue with the illicit trade of cigarettes, will now have a bigger problem. During the lockdown the criminal syndicates that are behind the illicit cigarette trade had an opportunity to improve their networks. During the lockdown our borders should have been shut, yet we have studies that show that South Africans were still able to acquire cigarettes,” said the association’s chairperson, Sinenhlanhla Mnguni.

It was going to become “even more challenging” for legitimate traders to compete with criminal syndicates, he said.

“That, of course, is going to be to the detriment of the fiscus, because government will not be collecting as much in taxes as far as the cigarette industry [is concerned]. One has to also take into account that more people have now entered the illicit cigarette market. This has been identified as a lucrative avenue for one to make money in, with really little risk when that risk is weighed up against the rewards.

“As an industry, [we] will engage with government and law enforcement to get some assistance to stop the illicit cigarette trade, as it’s going to cause a loss for all stakeholders,” said Mnguni.