The illegal cigarette economy in South Africa has grown rapidly to between 50% and 75%, while the illegal alcohol sector has also grown
Image: Courtney Africa / Independent Newspapers
Tawanda Karombo
South Africa remains a hotspot for trade in illicit and counterfeit goods despite policy reforms and easing inflation which pushes consumers to seek cheaper products.
Tobacco, alcoholic beverages and branded apparel and clothing are among the top counterfeited and illicitly traded goods locally. Illicit trade is costing the South African economy as much as R100 billion annually, with recent indications suggesting that the illicit economy has grown to around 20% of South Africa's GDP.
Lettitia Davids, operations manager for Drinks Federation South Africa, said on Wednesday that “law enforcement is under-resourced” with operations at the prosecution level failing to translate to court convictions against those peddling illicitly traded and counterfeited goods.
“We have seen counterfeiting in the alcoholic drinks sector picking up. Re-filling of bottles meant for recycling with illicit products has picked up and our members have been lodging complaints that recycle bottles are not coming back as they are being re-filled with counterfeit products,” said Davids at an anti-counterfeiting and illicit trade conference in Cape Town.
Apart from this, goods declared for export from South Africa are also flooding back to the local market without paying excise duties. These goods end up being illicitly traded in South Africa at lower prices.
Stefano Betti, the Transnational Alliance to Combat Illicit Trade’s deputy director general, said South Africa’s growing informal sector was also fueling trade in illicit and counterfeited goods while corruption was also providing a thriving ground.
“An informal economy provides good grounds for illicit trade to thrive. No sector is immune to illicit trade in South Africa; the illegal cigarette economy in South Africa has grown rapidly to between 50% and 75%, while the illegal alcohol sector has also grown,” he told delegates at the conference.
Tobacco companies such as Philip Morris International South Africa and British American Tobacco South Africa (Batsa) have been fighting illicit trade on the local market.
Batsa said earlier this year that it was shutting down its only manufacturing plant in SA due to the impact of the illicit cigarette sector, putting over 200 jobs on the line.
Betti revealed that goods declared as in transit from Durban were being offloaded for illicit trade in South Africa. Nonetheless, South Africa has made positive advances to curb illicit trade in the past few months.
The establishment of the Border Management Authority, increased recruitment by the National Prosecuting Authority and the lifting of SA’s greylisting by FATF have been positives in the fight against illicit trade and related illicit financial flows.
Furthermore, inflation has been on a downward trend. Betti said inflationary pressures and smuggling were among the driving factors for the growth in the illicit economy in SA.
“With higher inflation, purchasing power decreases and pushes consumers to the illicit market even when they know that substances they are purchasing are not original,” said Betti.
“With the porous borders, goods from low tax jurisdictions are able to move to higher tax jurisdiction where they will sell for lower.”
South Africa lost R16.5bn in excise taxes in 2024, with SAPS officials also revealing that police confiscated counterfeited goods worth R1bn this week. Worryingly, “some of the money from illit trade and counterfeited goods is funding organised crime” in the country.
Youngs Mapenzi, a customs official from Namibia said e-commerce was also providing a fertile ground for growth in the trade of counterfeit goods.
He added that a lot of counterfeited and illicit products were being shipped to land-locked countries such as Zimbabwe, Zambia and Botswana from key ports and corridors such as Walvis Bay.
BUSINESS REPORT