The government needs to act with more urgency against illicit trade, which costs the country 10% of GDP and affects everything from tobacco to wildlife, says the CEO of Business Unity South Africa (Busa), Khulekani Mathe.
The scale of the problem was revealed in a report Busa launched with the Transnational Alliance to Combat Illicit Trade (Tracit).
“We partnered with Tracit to give visibility to the report to try and focus the minds of everybody in South Africa, including the government, on the devastating impact of illicit trade on our economy,” Mathe says.
“It is robbing us of resources that should be used to fund development, address poverty and reduce inequality.”
The report shows illicit trade is thriving in most sectors of the economy including alcohol, tobacco, foodstuffs, agrichemicals, pharmaceuticals, mining and wildlife trafficking.
But the answer is not just to target illicit trade, says Mathe.
“The first order of business for government is to bring crime under control. Until that happens illicit trade will continue to grow.”
He says that although the rampant increase in illicit trade has fuelled perceptions that the business-government partnership against crime and corruption has not been terribly effective, this is not true.
He points out that the aim of the partnership was to help the government tackle the problems highlighted by the Zondo commission that led to South Africa being greylisted by the Financial Action Task Force (FATF), which combats international financial crime.
“There has been some progress which will increase and become more visible in time, because obviously systems need to be built to be in a position to prosecute white collar crime, which tends to be fairly sophisticated.”
He says “indications” are that South Africa will be removed from the greylist this year, based on the work that has been done to address the recommendations of the FATF.
“Most of those have been addressed, and this is why there is now a widespread understanding that we will be removed from the greylist.”
The really important question, he says, is why South Africa made itself likely to be greylisted in the first place.
We reached a low point when our best defence against Trump’s accusations was admitting in front of the whole world that crime in our country is out of control
“To a large extent this pointed to a situation where our laws looked good on paper but there was not a sufficient demonstration of their effectiveness. This has been a wake-up call to everybody to say it is not good enough to have laws on the statute books if they’re not implemented. We have to demonstrate that not only do we have these laws but that we implement them and act on all crime and corruption, in particular what was highlighted by the FATF.”
According to the report there is some doubt about whether South Africa will have demonstrated a sustained ability to investigate and successfully prosecute money laundering and terrorist financing as required by the FATF in time to meet its deadline, now four months away.
But Mathe says “the government has presented information to the FATF and ... there is now a widespread belief that if [it] is satisfied that there is enough evidence that we are acting against these crimes, we will be removed from the greylist”.
But illicit trade in South Africa has “certainly worsened and is worsening”.
He says it exploded during Covid when the government, ignoring concerted and well researched advice from Busa, banned cigarettes. By the time the ban was lifted illicit trade in tobacco and other industries was more entrenched than ever.
The fact that illicit trade is costing 10% of GDP annually says all one needs to know about its rampant growth since then, he says.
Is South Africa losing the fight against illicit trade?
“What I would say is that the purpose of our partnering with Tracit is to raise awareness of the government and everybody of the devastating consequences for the economy and for society of not tackling illicit trade.”
He hopes the report will inspire greater urgency from the government to crack down not only on illicit trade but on all crime and corruption.
“We reached a low point when our best defence against President Trump’s accusations against us in the Oval Office was admitting in front of the whole world that crime in our country is out of control. If the shame and embarrassment ... doesn’t lead to a greater sense of urgency by our government, then I don’t know what will,” Mathe says.
“We have to put pressure on the government to do more. We just can’t continue to live in a country that has this level of crime and this level of illicit trade that is costing our economy so much.
“We as business do put pressure on the government. There is no sector of the economy that can sit back when it faces such challenges. Every sector impacted by illicit trade is putting pressure on the government. But also collaborating with the government.”
The private sector is making resources available to the government to combat illicit trade “to the extent we can”.
Is that enough?
“In all elements of our partnership with government we have guarded very jealously the need to keep focus. There’s always a temptation to do more and expand our partnership to a whole range of issues. Unfortunately, that has the effect of making any intervention ineffective.”
Business wants to make sure it succeeds in the initial target areas it identified at the start of its partnership with the government, and only after that move on to other areas, he says.
“Illicit trade was not the focus of this partnership except via the mechanisms of making sure there is demonstrable evidence to show that we’re acting on the recommendations of the FATF. Once we’ve ticked that box we will move to other areas.”
But the private sector needs to see a greater sense of urgency in tackling illicit trade and crime in general. This requires all of society, but the government needs to play a stronger leadership role, he says.
“I’m optimistic we’ll be removed from the greylist on the basis that we’ve acted on the FATF recommendations. But we need to do more, and do it urgently, to combat all crime and corruption, in particular illicit trade.”
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