South Africa is the end-of-the-road destination for millions of smuggled cigarettes from neighboring countries, part of a complex pan-African illicit trade network, according to a report in IndependentOnline.
One in three cigarettes available on the open market is illicit, according to research.
Inland border posts were traditionally the point of entry for the contraband, but experts
say the illicit trade is changing and growing, with coastal ports of entry becoming a conduit for the cigarettes and tobacco used to make them.
Tons of illegal cigarettes and tobacco leaves pass undetected through South African ports each year, and it’s costing legitimate tobacco companies such as British American Tobacco multi-billions of rand, IndependentOnline reports.
The profit margins are huge, allegations of espionage abound and a whole lot of import duties and excise taxes are not being paid, according to the report.
With the legitimate trade dominated by global corporations, smaller players say larger players are in cahoots with tax authorities and try to run them out of business.
British American Tobacco — the largest legitimate player, the report said — makes more than 200 cigarette brands smoked by one in eight of the world’s billion adult smokers. Its subsidiaries sold 694 billion cigarettes in 2012.
The illegal cigarette trade is estimated to cost South Africa nearly five billion rand a year, IndependentOnline reports. It’s considered one of the country’s largest organised crime enterprises, employing sophisticated networks to face off with the South African Revenue Service.
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The lucrative legal trade is governed by regulatory bodies that cater to mega-companies and their smaller competitors, the report said.
The Tobacco Institute of Southern Africa (Tisa) is the main regulatory body overseeing the industry in South Africa, with a mandate and reach that extends into Africa.
Tisa represents tobacco growers, leaf merchants and processors, manufacturers, importers and exporters of the products in South Africa. Tisa also prescribes how companies must comply within the industry.
In what appears to be an attempt to give smaller growers and producers a stake, the Fair Trade Independent Tobacco Association (Fita) was created in 2012. Its goal is to encourage small manufacturers in Southern Africa to collaborate on industry, regulatory and legislative matters. Individually they would not have a significant impact, the report said.
Small Southern African manufacturers say they don’t have the same opportunities for
industry representation as larger players.
Fita literature claims the organization represents all member fairly, promotes fair trade and prohibits non-competitive practices such as price fixing.
Its members include Amalgamated Tobacco Manufacturers, Benson Craig, Carnilinx, Fodya, Folha Manufacturers, and United Africa Tobacco Manufacturing.
Stories of industrial espionage abound including syndicates paid to steal a competitor’s stock — a chief complaint from smaller manufacturers, IndependentOnline reports.
Tobacco producers and the fleets that deliver their wares are often targeted because of the
ease with which cigarettes change hands, the report said.
Pietermaritzburg-based Amalgamated Tobacco Manufacturing is a smaller player in the industry that has seen its share of controversy.
The South African Revenue Service investigated the company in 2010 after suspecting it had been importing tobacco from Zimbabwe and distributing the manufactured cigarettes without paying taxes and excise duties.
A company director, Yusuf Kajee, was investigated by SARS for alleged tobacco smuggling. The probe led to the liquidation of Delta Tobacco.
Edward Zuma, son of President Jacob Zuma, was a director of the company who resigned in 2011. Along with a third director, Paul de Robillard, Kajee and Zuma are also directors of low-cost airline Fastjet Holdings.
Police in August seized a “huge consignment of illicit” cigarettes in Johannesburg. The brands were registered to Amalgamated Tobacco Manufacturing.
In December, cigarette manufacturer Carnilinx was investigated for allegedly spying on the
government’s tax investigators. Carnilinx was also accused of illegally intercepting the
police’s crime intelligence operations.