NEWS ANALYSIS | How data blind spot undermines fight against illicit alcohol

South Africa risks building a costly policy response around an illicit alcohol market that keeps moving, and not necessarily because the market itself is constantly changing, but because there is still no single agreed way of measuring it.

The illicit alcohol debate has always been a numbers game: an estimated value of R25bn, R16.5bn in lost excise revenue and one in five bottles sold are illicit. Every intervention, from National Treasury excise reviews to industry lobbying, tends to start with the size of the problem and work backward from there.

But there is a lot riding on those numbers. The government has built a national enforcement programme around it, deploying the South African Revenue Service (Sars), the police and the Border Management Authority (BMA) against smuggling and illegal manufacturing. The National Treasury is reviewing alcohol taxes, weighing changes to excise duties and other measures against warnings that higher prices could push some drinkers towards cheaper illegal products.

Brewers are lobbying around the issue and public health groups are pushing back, worried that “illicit trade” is becoming a convenient argument against tougher alcohol controls. For a debate that touches tax revenue, more than 500,000 jobs and public health, South Africa still does not have one shared way of measuring the problem and that is a gap worth talking about.

A Euromonitor International study commissioned by the Drinks Federation of South Africa (DF-SA) estimates that illicit alcohol accounts for 18% of the country’s alcohol market. It puts the value at more than R25bn and estimates that R16.5bn in excise revenue was lost in 2024. The study also said illicit volumes have increased 55% since 2017, with spirits particularly exposed.

But those numbers do not exist in isolation. Researchers and public health groups have questioned aspects of the industry’s interpretation of the illicit market, putting the methodology and the assumptions behind the estimates under scrutiny.

Illicit vs unrecorded

That matters because “illicit” and “unrecorded” alcohol are not the same thing.

The DF-SA defines illicit alcohol as alcohol that is produced, imported, distributed or sold illegally. That includes counterfeit products, smuggling, tax fraud and alcohol produced outside the law.

Unrecorded alcohol is different. It simply refers to alcohol that is not captured in official statistics. The distinction sounds technical, but according to the DF-SA, it can change the size of the market being measured.

A counterfeit bottle of a well-known spirit, a truck carrying smuggled alcohol, a legitimate producer underdeclaring its output and an illegally manufactured spirit may all be treated as part of the illicit market. But they are different problems, with different causes and enforcement solutions. That is why a single percentage can be useful as a warning sign while still being difficult to use as a precise policy tool.

The disagreement is particularly important now because the Treasury is reviewing the alcohol excise policy.

The government is considering changes to the way alcohol is taxed, including a more progressive structure between categories and measures aimed at encouraging lower-strength drinks. It is also looking at policies such as minimum pricing.

At the same time, the state is stepping up enforcement through Sars, the police and the BMA, while the National Illicit Economy Disruption Programme is aimed at illegal manufacturing, smuggling, customs fraud and criminal networks.

The industry said these measures need to work alongside tax policy.

SAB has previously argued that annual excise increases should be linked to inflation, saying repeated above-inflation increases could widen the gap between legal and illegal alcohol. Heineken Beverages has made a similar warning and has compared the risk facing alcohol with the growth of illicit tobacco.

But there is an important catch. The R16.5bn figure cited by the DF-SA is an estimate of lost excise revenue, based on an estimate of the size of the illicit market. It is not money that Sars has simply identified and can now collect. But that does not make the figure meaningless; it means the assumptions behind the market estimate matter.

If the size of the hidden market changes depending on the definition or methodology used, the estimate of lost tax revenue might change too.

Public health groups are wary of allowing the illicit-trade argument to dominate the alcohol policy debate.

Kashifa Ancer, project lead for the Rethink Your Drink campaign, once argued that stronger alcohol controls do not automatically lead to a bigger illegal market, Business Day has reported.

“The alcohol industry frequently argues that regulation will drive consumers towards illicit alternatives,” she said.

Her point is that the government can increase taxes or tighten rules while also improving enforcement against illegal producers and sellers. There is evidence in the DF-SA’s own research that makes the debate more complicated.

The study found that 66% of surveyed consumers identified price as the main reason for buying illicit alcohol. It also found that 72% said illicit alcohol was 10%-50% cheaper than legal alcohol, DF-SA said.

The alcohol industry frequently argues that regulation will drive consumers towards illicit alternatives.

—  Kashifa Ancer, project lead for the Rethink Your Drink campaign

That suggests price matters. But it does not, by itself, prove that every increase in legal alcohol prices will result in consumers switching to illegal products, as consumer behaviour is more complicated than that.

Some people buy illegal alcohol because it is cheaper. Others may buy it because it is easily available, because they are already part of informal trading networks or because they do not care whether the product is legal. And that is where the debate gets stuck and what South Africa needs to agree on.

The DF-SA is calling for the government, researchers, public health experts, law enforcement and industry to sit around the same table and agree on definitions and evidence.

That may sound like a small administrative issue. It is not. If the government does not know whether it is dealing with one large illicit market or several different forms of illegal activity, it becomes harder to decide where enforcement money should go, how tax policy should be designed and whether a particular intervention is actually working.

The industry may be right that price can push some consumers towards illegal products. Public health groups may also be right that the threat of illicit trade should not become a reason to avoid policies that reduce harmful drinking.

Both things can be true. The bigger problem is that South Africa is trying to settle that argument while still arguing over the size and shape of the market itself. The question, then, is not simply whether the illicit alcohol market is worth R25bn, whether 18% of alcohol is illegal or whether R16.5bn in tax is being lost.

It is whether those numbers are measuring the same thing and whether the government, industry and public health researchers can agree on what they mean. Until they can, the country risks building an expensive policy response around a target that keeps moving.

“No single intervention or stakeholder can address illicit alcohol in isolation,” DF-SA said.

“A credible response to illicit alcohol must begin with credible evidence. It must then translate that evidence into coordinated action that protects consumers, supports responsible trade and strengthens the integrity of South Africa’s alcohol market.”

Business Day