BAT feels the pain of illicit cigarette trade – slashes jobs

British American Tobacco South Africa (BATSA) has scaled down its delivery supply chain due to record high illicit cigarette trade, which cost over 500 South African jobs.

BATSA announced today that it has scaled down its direct retail product distribution and delivery operations in the country.

This is due to significant volume declines as a result of heightened illicit cigarette trade and could affect 20 jobs in the company and 500 third-party jobs.

“Until now, BATSA has had substantial contracts in place with third-party logistics and security companies to safely deliver its products directly to retail stores,” the company said. 

“However, these contracts have now been discontinued, with an estimated 500 jobs in the security and logistics part of the company’s value chain being impacted.”

BATSA explained that this move significantly reduces its need for logistics and security services from its external suppliers, impacting the broader value chain attached to the business. 

Further, the changes have impacted approximately 20 permanent BATSA employees.

In 2019, BATSA permanently employed around 1,800 highly qualified staff across its operations. 

However, since 2020, the company has been forced to decrease its workforce by more than 30% and has lost around 40% of its cigarette sales in the same period as the illicit market continues to grow.

“The decision to stop direct deliveries to lower-volume retailers is an unfortunate consequence of the increasing illicit trade in tobacco products, which has continued since the Covid-19 tobacco ban,” said Johnny Moloto, area head of corporate and regulatory affairs for BAT Sub-Saharan Africa.

“Our internal estimates now show that illicit trade now accounts for more than 70% of all cigarettes consumed in the country – leaving the legal market with less than a 30% market share.” 

He explained that, for a long time, BATSA has been reluctant to scale down its distribution operations in view of the potential impact on its highly integrated supply chain. 

“However, the business must take urgent action to enhance efficiencies in our business as we try to mitigate the impact of illicit trade and an uncertain regulatory environment,” he said.

“It is unfortunate that the government hasn’t done more to tackle South Africa’s illicit tobacco trade.” 

“As such, we call on the Minister of Finance to ensure the South African Revenue Services and the National Prosecuting Authority are properly equipped to deal with the menace.”

Lost tax

A new study by the University of Cape Town (UCT) revealed that the government lost R119 billion in excise and VAT revenue between 2002 and 2022 because of the illicit cigarette market.

Nicole Vellios and Corne van Walbeek from the research unit on the economics of excisable products at UCT’s School of Economics conducted the study.

This research was funded by the Bill & Melinda Gates Foundation through the African Capacity Building Foundation.

The researchers found that the government has been losing significant revenue by not receiving excise and VAT from all cigarettes consumed in South Africa.

“This trend is likely to continue if the government does not secure the supply chain from the point of production to the point of sale,” they said.

There has been a huge increase in the illicit cigarette trade in South Africa over the last few years, fuelled by the cigarette ban during the Covid-19 pandemic.

Illicit cigarettes comprised only 5% of the market in 2009. However, following the cigarette ban, it peaked at 60% in 2021 and maintained that level in recent years.

This resulted in the government losing R15 billion in excise revenue and R3 billion in VAT revenue in 2022.

The study found that, from 2002 to 2022, the government lost R119 billion in excise and VAT revenue. Most of the lost revenue occurred from 2010 to 2022.