BAT warns criminal networks are threatening South Africa’s economy

Cape Town – South Africa’s illicit economy, estimated at R700 billion, is threatening legitimate businesses, manufacturing jobs and government tax revenue, with British American Tobacco (BAT) warning that criminal syndicates are operating with impunity.

According to Business Day, the tobacco giant says weak law enforcement and the growing trade in illegal cigarettes are undermining legitimate industries, despite government efforts to tackle organised crime.

BAT plans to close its Heidelberg manufacturing plant in Gauteng by the end of 2026, ending more than 50 years of local cigarette production. The company estimates that illicit cigarettes account for 75% of South Africa’s cigarette market, leaving its factory operating at just 35% of capacity.

“BAT’s decision earlier this year to close our South Africa factory, a direct result of illicit trade taking over the market, is an early warning for the rest of the economy of what the future looks like unless we get serious about dealing with illicit operators,” said Johnny Moloto, BAT’s head of corporate and regulatory affairs for sub-Saharan Africa.

Financial implications

Moloto warned that the problem extends beyond lost tax revenue to include job losses, weakened law enforcement and criminal networks threatening economic growth.

The financial implications are significant. BAT estimates that illicit cigarette sales cost the government approximately R30 billion annually in lost excise revenue.

Meanwhile, Moneyweb reported on an Ipsos study commissioned by BAT that found cigarettes selling for as little as R7 a pack, well below the minimum collectable tax threshold of R27.12 per pack.

The study found that illicit cigarettes had grown from 27% of the market in 2022 to nearly 75% in 2026, highlighting the challenge facing authorities in enforcing tobacco tax laws.

Stronger enforcement

Beyond tobacco, research commissioned by the Consumer Goods Council of South Africa and reported by Business Times estimates that illicit trade across 12 economic sectors displaces R193 billion in formal production and affects up to 87,500 direct jobs.

President Cyril Ramaphosa has announced the National Illicit Economy Disruption Programme, known as Operation Ukubusa, to strengthen efforts against organised crime and illegal trade.

However, BAT says stronger enforcement is needed to reverse the trend and protect local manufacturing. The company has indicated that it could reconsider local production if illicit trade declines substantially and sustainably.

The planned factory closure underscores the potential consequences for employment, investment and government revenue if illegal markets continue to undermine legitimate businesses.