Illicit trade in the tobacco and vaping industries is hurting the sales of legitimate products from companies like British American Tobacco (BAT), with the crime set to grow in several countries, including South Africa.

BAT’s most recent results for the year ended 31 December 2024 warned of illicit trade in the cigarette and vaping industries.

The tobacco giant called for more regulatory and enforcement initiatives to tackle the problem. The illicit tobacco market has been a problem for years but became more prominent during the Covid-19 pandemic.

BAT estimated that the illicit market will reach just above 14% of total global volume in 2024. South Africa’s illegal market tobacco is one of the worst in the world.

The SA Tobacco Transformation Alliance (SATTA) revealed that, in 2023, South Africans smoked 37 billion cigarettes, but the South African Revenue Service (SARS) only collected tax on 13 billion.

SATTA spokesperson Francois Van der Merwe said the illicit cigarette market has taken over the industry. It now represents 65% to 70% of the total market, the highest percentage in the world.

Van der Merwe explained that this is a casualty of the Zuma era, where former SARS commissioner Tom Moyane destroyed the revenue service. This shot illicit cigarette trade up to 40% of the market.

“Then, the mess that the government made with the sales ban during Covid-19 handed the total tobacco market on a golden plate to the illicit traders, and we’ve never ever recovered after that,” he said.

“The legal, taxpaying industry with a value chain right down to the farmers is a shadow of what it was, and that is an absolute disaster because the country is at a loss.”

BAT said this problem was exacerbated by the increased cost of living in many countries.

Overall, the company expects illicit volumes to approach an unprecedented level of sales by 2027.

Due to difficult trading conditions in South Africa with the growth in illicit trade, BAT recognised an impairment charge of £291 million (R6.8 billion) in 2023.

While the company did not notice conditions worsen in 2024, it highlighted Africa as one of the regions where illicit trade is expected to grow.

“Illicit trade exists in all world regions, but its growth is forecast to worsen in the Middle East and Africa, Australasia and Asia Pacific,” the company said.

As part of its transition to becoming a ‘smokeless’ business, BAT has started producing and investing significantly in its e-cigarette business.

The company’s global vapour brand, Vuse, is the number one brand in the category.  However, BAT reported that its vapour revenue was down 5.1% in 2024, primarily driven by a lack of enforcement of illegal flavoured single-use vapour products in the US.

In addition, the company cited a flavour ban in the province of Québec in Canada, where a lack of enforcement has also led to an increase in the use of illicit products.

“The growth of illicit single-use Vapour products continues to negatively impact the legal market with industry volumes in rechargeable closed systems down around 9%,” the company explained.

BAT estimates that illicit vapour products make up nearly 70% of the US vapour market.

Calls for better regulation

BAT urged regulators to implement appropriate regulations and improve enforcement to arrest the growth of the illicit cigarette and vaping markets.

“We believe more appropriate regulation and enforcement is needed to tackle these issues, and we welcome signs of increasing action,” it said.

However, implementing the appropriate regulation is not as easy as many may believe.

“We have always been clear that we support regulation which is based on robust evidence, tailored to local circumstances, and delivers on the intended policy aims while preventing unintended consequences such as the growth in illicit markets,” BAT said.

“Illicit trade often leads to more restrictions and regulations imposed on the legitimate industry, including sales restrictions, overly burdensome track and trace systems and display packaging bans.”

“This is often based on the erroneous assertion that the legitimate industry makes up the bulk of illicit trade in tobacco products.”

The company said it believes that public health officials, legislators, and regulators should be concerned about the continued influx of illegal flavoured and single-use vapour products into the US market.

“It is unacceptable that these products, marketed in youth-appealing flavours such as bubble gum and cotton candy, continue to be sold,” it said.

“We continue to call for appropriate regulation and enforcement to tackle illicit products in the category.”

source:South Africa has a serious illicit trade problem – Daily Investor