South Africa’s illicit cigarette trade is booming

South Africa’s illicit cigarette trade constitutes more than half of the country’s current market – and the crisis poses a severe threat to both public health and government tax revenue.

This is according to a new research study by the University of Cape Town’s (UCT) Research Unit on the Economics of Excisable Products (REEP) and published in Tobacco Control – an international peer-reviewed journal covering the nature and consequence of tobacco use worldwide. Titled: “South Africa’s illicit cigarette crisis: Evidence from the 2021 Global Adult Tobacco Survey", the study revealed that approximately 60% of cigarettes sold in South Africa in 2021 were illegal.

These findings, supported by other research conducted by REEP, demonstrate an enormous rise in the illicit cigarette trade over time. And this applies to before government instituted the cigarette sales ban at the onset of the COVID-19 pandemic in 2020. Prior to the pandemic, the illicit market already comprised 30% of the total cigarette market. Subsequent to this, research shows that the ban took the illicit share to about 60% of the total market, with no significant decrease in the share ever since.

A substantial structural shift

Mxolisi Zondi, the lead author of the study and a researcher at REEP, said the research identifies a substantial structural shift in the South African cigarette market.

“In the early years of the 21st century, British American Tobacco (BAT) was the dominant player, with more than 90% of the market share. However, their market share has decreased to only about 33% in 2021,” Zondi said. “In contrast, Polaris Manufacturing – formerly known as Gold Leaf Tobacco Corporation – has emerged as a major player, with an estimated market share rivalling that of BAT.”

“In the early years of the 20th century, British American Tobacco (BAT) was the dominant player.”

What makes this study unique is that it identifies specific brands and producers linked to the illicit trade. Further, it indicates that for most brands produced by local producers, more than 80% of cigarettes were sold at prices where it was highly unlikely that full tax had been paid. Zondi said these illicit products were primarily distributed through informal retail channels, especially spaza shops.

The profile of illicit cigarette users

The study also highlights important social patterns. The research found that the use of illicit cigarettes was highest among low-income earners – people with generally lower levels of education and who were heavy smokers. This, Zondi said, suggests that cheaper, untaxed cigarettes are disproportionately consumed by more vulnerable groups.

To combat the surge in the illicit cigarette trade, researchers recommend that government takes urgent and decisive steps to secure the national tobacco supply chain. And Zondi said the research study provides government with specific insights into where to target such efforts.