The century long presence in SA of British American Tobacco (BAT) hangs by a thread with illicit cigarettes having taken root in the market since the outbreak of Covid-19 in the country in 2020 that lead to the ban on the sale of tobacco products.
The tobacco supermajor, which has lost more than a third of its sales in the country in the past five years, was noncommittal to Business Day when asked if it would consider exiting SA should authorities not clamp down on illicit cigarettes, which have caused a plunge in its market share.
Johnny Moloto, area head of corporate & regulatory affairs for BAT Sub-Saharan Africa, avoided a direct answer to the question posed to the multinational giant.
“BAT Plc is currently in a closed period and therefore cannot provide responses regarding any material nonpublic information including financial results, business developments, strategic decisions, or other sensitive data at this time,” he said.
“However, we can say that BAT SA has experienced a 40% volume decline since 2020, due to the explosion of availability of illicit cigarettes in the market. This volume loss has resulted in significant job losses at BAT SA; the company has reduced its overall workforce by more than 30% since 2020 as a result.”
The UK-headquartered group’s presence in SA goes back to 1904 with the establishment of the United Tobacco Company.
In 1999, the group merged with Rothmans International, in which the Rupert family had a stake, giving birth to BAT SA.
The Rupert family, led by its patriarch and SA’s richest person, Johann Rupert, earlier this year ended its 80 years with the tobacco industry, selling its more than 43-million shares for £1.221bn in cash.
The Rupert dynasty’s association with the tobacco industry dates back to the 1940s when Anton Rupert founded the Voorbrand Tobacco Company, later known as Rembrandt.
By the mid-20th century, Rembrandt had cemented its place as a top player in the industry, listing on the JSE in 1956 and branching out into banking, mining and financial services.
BAT, which has a primary listing in London, is still one of the biggest companies listed on the JSE, where it has a secondary listing — worth just more than R2-trillion.
The group this week called on SA authorities to place customs officials at cigarette factories as part of measures to clamp down on the proliferation of illegal cigarettes, which it says is costing the fiscus R100m a day in lost revenue, which amounts to R28bn a year.
A study by Ipsos, commissioned and paid for by BAT, says the availability of illegal cigarettes in SA has become endemic, with nearly eight in 10 SA retailers selling illicit cigarettes — triple the number reported three years ago.
The study, which surveyed more than 4,000 outlets countrywide, found about 69% of retailers were selling cigarettes at less than R20 per pack, and nearly 80% were selling below the R26.22 minimum collectible tax (MCT).
BAT’s 2023 results were negatively affected by an impairment of goodwill regarding SA of £291m (R7bn) due to the continued “negative effect of illicit trade”.
The group also called for the “urgent” introduction of a minimum retail price (MRP) of R37 per pack, saying it should be illegal to sell a box of 20 cigarettes below the threshold, which it says is “economically viable”.
The SA Revenue Service (Sars) said it noted the outcome of the Ipsos Survey report on the illicit cigarettes.
“Sars accepts that the level of illicit cigarettes is unacceptably high in our country, with the accompanying loss of excise taxes and undermining of legitimate competition. Sars is employing many strategies to combat and confront the scourge of illicit cigarettes,” the agency said.
“The Ipsos survey and similar information that highlight the devastating effect of this scourge of illicit cigarettes are and will continue to be used to deal with this challenge.”
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