EDWARD KIESWETTER| Illicit trade hollowing out SA’s economy and rule of law

As we observe International Customs Day, it is opportune to reflect on the erosion of economic and social integrity through a topical issue that reared its ugly head when a well-known business announced the cessation of manufacturing in South Africa due to the proliferation of illicit trade. 

We face a silent, insidious threat caused by illicit trade, which undercuts our economy, fuels corruption and hollows out legitimate industry. From black‑market cigarettes and illegal alcohol to counterfeit goods, fuel adulteration and smuggled gold, this shadow economy is no longer peripheral — it is structural.

Globally, illicit activity is estimated to account for up to 5% of GDP; in South Africa, commentators have suggested that illicit trade could be far higher. Its effects are visible in battered industries, lost jobs, social erosion, weakened governance and billions of rand syphoned from the fiscus every year.

Take the tobacco sector as a cautionary tale. Once a robust industry supporting tens of thousands of jobs, it has been devastated by illicit trade. Today, about three out of every four cigarettes sold in South Africa are illegal — untaxed and often produced or smuggled by organised crime syndicates. The result is stark: the state loses about R18bn and R28bn a year in tobacco taxes, and legitimate manufacturers cannot compete with dodgy R10-R20 a pack specials (well below the minimum collectible tax of R26.22 per pack). Thousands of farm and factory workers have lost their livelihoods. 

Just this month, South Africa’s last major cigarette manufacturing plant announced its closure, citing the impossibility of competing against a flood of illicit cigarettes. When illegal trade wins, compliance loses — and criminal networks celebrate. But illicit tobacco is not an isolated failure; it is a gateway into a far wider criminal economy. The same networks that trade illicit cigarettes frequently diversify into illegal mining, gold smuggling, illicit alcohol, counterfeit goods and complex money‑laundering schemes. 

Tobacco profits are reinvested into other illicit sectors using shared logistics routes, compliant retailers, cross‑border channels and shell companies. This interconnectedness is the defining feature of South Africa’s illicit economy. And it is not just tobacco. The liquor industry reports that illicit alcohol now makes up close to a fifth of consumption, costing the fiscus more than R16bn annually and exposing consumers to unsafe products. 

Counterfeiting has expanded at the expense of smuggling, with its market share rising from 24% in 2017 to 31% in 2024 and its value nearly doubling from R4.9bn to R9.8bn. While smuggling has declined since Covid-19, falling from 31% to 21% of illicit purchases, counterfeit and illicit brands have grown significantly, becoming the largest illicit category by volume in 2024. As a result, fiscal losses have grown by an almost 10% compound annual growth rate since 2020.

Fuel adulteration syndicates cheat motorists, damage infrastructure and evade fuel levies at scale. Illegal mining and gold smuggling generate huge illicit financial flows, often laundered offshore through trade‑based mechanisms.

Meanwhile, counterfeit goods — from electronics and clothing to pharmaceuticals — flood the market, undermining legitimate business and endangering lives. These are not victimless crimes: they degrade public services, fuel violence in communities, distort markets and corrode trust in the rule of law.

So what is being done? More than is sometimes acknowledged. In recent years, the South African Revenue Service (Sars) has significantly rebuilt its enforcement capability across the illicit‑economy spectrum. Customs enforcement has shifted toward intelligence‑led, risk‑based interventions: using advanced analytics to flag suspicious consignments; deploying scanners, CCTV and targeted inspections at ports of entry; and matching trade, tax and financial data to expose evasion and laundering schemes. 

These efforts — often carried out jointly with the police, Border Management Authority (BMA), the Hawks and the Financial Intelligence Centre — have resulted in record seizures, significant recoveries and the collapse of several large syndicates.

Critically, enforcement success increasingly depends on integration. The BMA, as South Africa’s frontline defence, is central to closing the supply‑chain entry points exploited by illicit traders. Most illicit economic activity thrives at, or crosses, the border. As the BMA matures — strengthening seal integrity, risk profiling and inter‑agency co-ordination — it is becoming a pivotal player alongside Sars, the police, the army, the Hawks and the National Prosecuting Authority. 

Where borders tighten, upstream illicit supply chains begin to fail. These efforts are yielding results. Sars reports substantial growth in recoveries from illicit activity, amounting to R85bn since 2020/2021 even as compliance processes for legitimate traders are streamlined. This dual approach — facilitating lawful trade while increasing the cost and risk of non‑compliance — reflects an important insight: enforcement works best when honest taxpayers and traders are supported and criminal behaviour is decisively sanctioned.

Yet we should be clear‑eyed. We are not winning the war — yet. The scale of the illicit economy means enforcement is constantly chasing volume. For every warehouse seized or consignment intercepted, syndicates attempt to adapt, reroute and scale. Border capacity remains uneven, legal and policy gaps persist, and penalties do not always deter well‑resourced criminal kingpins. Corruption and collusion — whether at ports, factories or distribution points — can still unravel enforcement gains with devastating speed.

This is why enforcement, while essential, cannot stand alone. As I have consistently emphasised, success depends on a whole‑of‑government and whole‑of‑society response. That means sustained investment in enforcement capacity and technology across Sars, the BMA and law enforcement agencies. It means closing policy and regulatory gaps — such as delayed tracking systems, weak deterrents and unenforceable standards — that criminals exploit faster than the law adapts. It means agencies operating as a seamless system, not as silos with fragmented mandates.

Public partnerships with business have become critical. The government does not have the full know-how, capacity or resources to address the complexities and challenges of the illicit economy.

We’ve seen the positive effects already in the energy and logistics sectors when the private sector, enabled by regulation, becomes involved in the fix. Equally, it requires the active participation of business associations and civil society. Legitimate businesses must clean up supply chains, refuse to trade with non‑compliant operators and share intelligence where risks emerge.

Industry bodies can set standards, expose bad actors and collaborate with the government on preventive design. Civil‑society organisations, labour federations and researchers play a vital role in public awareness, accountability and sustaining pressure for reform.

Finally, public behaviour matters. The illicit economy survives because there is demand. Consumers must understand that buying a cheap illicit product is not harmless — it funds organised crime, destroys jobs and deprives communities of schools, clinics and safe infrastructure. Trust, transparency and integrity are critical: people comply when they believe the system is fair and functional.

South Africa cannot achieve inclusive growth, fiscal stability or economic recovery while a parallel illicit economy continues to thrive unchecked.

The good news is that the latest digital and AI technologies, institutional arrangements and partnership opportunities to reverse this trend increasingly exist. What is required now is scale, co-ordination and political resolve.

The government must elevate the fight against the illicit economy to a national priority. The rule of law must never be repurposed to legitimise illicit activities. Honest taxpayers and traders must welcome and not challenge lawful measures that enable compliance. Corrupt officials and actors in the private sector must be dealt with harshly. 

Consequence matters. Businesses must commit to ethical supply chains. Citizens must reject the false economy of illicit goods. A growing demand keeps the illicit supply alive. History shows that when South Africans unite behind a common purpose, progress follows. Confronting the illicit economy may not be glamorous — but it is fundamental. This is about protecting jobs, restoring fairness, upholding the rule of law and ensuring that public resources build South Africa’s future rather than bankroll criminal empires.

• Kieswetter is CEO of Sars, the recent past chair of the World Customs Organisation, vice-chair of the OECD Forum of Tax Administration, and visiting professor at several South African and international universities.