Ramaphosa too late to save 51-year-old factory in South Africa

President Cyril Ramaphosa’s pledge to tackle the illicit cigarette trade is a day late and a dollar short, with British American Tobacco (BAT) already announcing that it will close its Heidelberg factory at the end of the year. 

Speaking at the 2026 State of the Nation Address (SONA), Ramaphosa announced various initiatives to clamp down on crime in South Africa. 

This included the deployment of the army to parts of Gauteng and the Western Cape to tackle criminal gangs in those provinces. 

In relation to the illicit cigarette trade, which has cost South Africa tens of billions of rands in excise tax, Ramaphosa promised it would be included as part of a broader crackdown on the illicit economy. 

Counterfeit goods are a growing threat that undermines South African jobs and industries, Bloomberg reported the president as saying.

Ramaphosa pledged extra support through a new national program specifically designed to disrupt these dealings.

A more extreme part of Ramaphosa’s plan is the use of “advanced technological measures” to crack down on the illicit economy. 

“We are establishing a National Illicit Economy Disruption Programme that brings together key state agencies and other stakeholders, including the private sector,” he said.

“Through the effectiveness of data analytics and AI, we will be targeting high-risk sectors like tobacco, fuel, alcohol, and other counterfeit products.”

However, these efforts are too little and too late to save BAT’s Heidelberg plant, which the company will be closing down at the end of 2026 after operating it at 35% capacity. 

The Heidelberg factory is the eighth largest in BAT’s global network and accounts for a significant share of the total production of cigarettes in South Africa and the wider region.

At its peak, the factory employed over 1,000 people directly and sustained over 35,000 jobs in South Africa across the broader tobacco value chain. 

The 35-hectare site is BAT’s eighth-largest in the world and produced around 26 billion cigarettes a year at its peak. It also produced around 1,400 tonnes of cut-rag tobacco annually.

Factory shutdown

The BAT plant in Heidelberg is set to be mothballed due to the surge in illicit tobacco trade in South Africa, with illegal cigarette sales now making up 75% of the market. 

BAT has explained that the facility will not be sold or broken down, and that it will reopen the factory should the market share of illicit cigarettes in South Africa shrink significantly. 

The plant’s closure is despite repeated calls from industry and business leaders about the disastrous impact of illicit trade in South Africa. 

BAT’s calls for action from the government, among others, appear to have fallen on deaf ears, as little has been done to meaningfully address the rise of the illicit industry in South Africa.

“They cannot say they didn’t know,” said CEO Tadeu Marroco in a phone call with Bloomberg News on 12 February. 

“Every time we did a downsize, we went back to the government and said, ‘Look, we are doing all we can, ’” he said, adding that the problem was never effectively addressed.

Today, illicit trade still makes up most of the traditional cigarette market, and the government has not been able to bring the figure down to “meaningful levels” since Covid, Marroco said.

BAT explained that, in 2014, local manufacturers declared about 22 billion cigarettes to SARS and generated R12.6 billion in excise tax revenue. 

A decade later, this had fallen to just 8.3 billion cigarettes, and excise tax collected by SARS declined to R8.3 billion despite the rate levied on tobacco products rising.

BAT said the rise in illicit trade is the reason it is closing its Heidelberg plant, noting that the industry has never recovered from the ban placed on legal cigarette sales in 2020. 

While this ban was eventually declared unconstitutional, it did major damage to the legitimate industry and undermined SARS’ efforts to clamp down on illegal trade. 

BAT laid much of the blame squarely on the government for its disastrous policies and for its inability to police the sector through law enforcement agencies. 

Apart from the tobacco sales ban in 2020, the company also pointed to the sharp rise in excise tax levied on cigarettes in South Africa. 

These increases make legitimate products increasingly expensive, pushing customers towards illicit alternatives that are significantly cheaper as they do not levy the required taxes.