Illicit cigarettes emerge as a growing threat to South Africa’s economy, warns Godongwana

Finance Minister Enoch Godongwana has raised fresh alarm over the growing trade in illicit cigarettes, warning that the underground market is inflicting serious damage on South Africa’s economy at a time when the country is striving to attract investment and shore up fiscal stability.

This comes after British American Tobacco South Africa's (BATSA) announced last week Thursday that it will shut its factory in Heidelberg, Gauteng, after years of plummeting sales caused by the illicit cigarette market, which now accounts for an estimated three out of every four cigarettes sold in the country.

The cease factory shut by one of the country's largest tax contributors puts at least 230 jobs at risk, and threatens the livelihoods of employees' families and their wider communities.

"We accept that illicit trade is making a negative impact on the South African economy. By the way, it's one of the issues in the budget comments that Minister [of Trade, Industry, and Competition] Parks Tau raised sharply," Godongwana said at the SA Night Reception during the WEF Annual Meeting in Davos.

"And we've agreed to develop a program over the next two weeks. We're making an announcement that a government-wide intervention to deal with illicit trade because it's undermining our economy." 

Illicit cigarettes have long plagued South Africa’s tobacco market, undercutting legitimate manufacturers and retailers while depriving the state of billions of rand in excise and tax revenue.

With excise and VAT adding R26.22 in tax to every legal pack of cigarettes, legal manufacturers and distributors are left with razor-thin margins.

Retail prices in the formal sector approach R75 per pack, far above what many consumers can pay, driving even more demand to the illicit market. This siphons volumes away from compliant supply chains, hurting manufacturers, wholesalers, and the transport firms that service them.

Godongwana conceded that this illegal trade is having a “negative impact” on the broader economy, compounding fiscal pressures at a time when government is trying to maintain discipline and sustainability.

For Godongwana, the illicit cigarette trade is not just a law-enforcement problem but a systemic economic threat.

By flooding the market with untaxed products, criminal syndicates distort pricing, weaken compliance and erode the credibility of regulatory institutions. The resulting loss of revenue limits government’s ability to fund public services and complicates efforts to restore fiscal certainty.

These domestic challenges come against a difficult global backdrop.

Godongwana has already warned that a potential trade war triggered by geopolitical tensions could act as a headwind for South Africa’s open economy. If global growth slows and trade flows are disrupted, the fiscal space to absorb revenue losses from illicit activity will shrink even further.

The finance minister will be tabling the 2026/27 fiscal year National Budget on 25 February.

As South Africa welcomes high-level visitors and continues to sell itself as an investment destination, the message from the National Treasury is increasingly two-fold: the country is open for business, but it is also preparing to confront the illicit cigarette trade that is quietly draining its economy.

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