South Africa’s renewed focus on tackling the illicit economy is long overdue. The Presidency-led National Illicit Economy Disruption Programme, announced in the state of the nation address (Sona) earlier this year, reflects a growing recognition that illicit trade is not a marginal issue but an existential threat to local jobs, businesses, value chains and public services dependent on tax revenue.
From tobacco and alcohol to medicines and food, fake goods place consumers in danger and distort markets. If this programme is to succeed, it must confront a fundamental issue: the problem is not only what is being sold in the market but also how these goods enter the country.
Beyond fake goods, a wide range of products are flooding South Africa through customs fraud, including misdeclaration, under-invoicing and transshipment. These enable goods such as shoes, furniture, tyres, clothing, vehicle components and other goods to bypass duties and standards and regulatory controls, creating the same distortions in the market as the fake goods trade, and in many cases, at a far greater scale.
Can South Africa meaningfully tackle the illicit economy without addressing customs fraud at its borders? Enforcement action by the South African Revenue Service (Sars), including recent raids targeting customs officials allegedly involved in fraud and bribery, have exposed the scale of the challenge. These cases point to weaknesses at ports of entry, where misdeclaration and collusion enable customs fraud to flourish.
The proposed Illicit Economy Disruption Programme risks focusing too narrowly on fake goods such as tobacco, alcohol and medicines. While these are important, they are ultimately symptoms of a deeper structural problem. Customs fraud enables the illicit economy, cutting across many sectors of the economy.
Through misdeclaration, under-invoicing, smuggling, transshipment and abuse of rebates, goods are able to enter South Africa without paying the appropriate duties or complying with regulations. This allows illegally imported goods to undercut compliant businesses, distort pricing, and weaken entire value chains.
This is not a new phenomenon. As early as 1993 the National Economic Development and Labour Council’s (Nedlac’s) predecessor, the National Economic Forum, raised concerns about “deficiencies in South Africa’s customs and excise infrastructure, which has led to a large quantity of manufactured articles fraudulently brought into the country without being subject to applicable tariffs”.
Three decades later the problem remains, only now it operates at a greater scale and with increasing sophistication.
Consequences for all
For business, the implications are immediate and material. Companies that comply with tax and regulatory requirements are forced to compete against goods that enter the market at artificially low prices because taxes have been evaded. This is structural unfairness.
For policymakers the consequences are equally serious. Industrial policy tools, including tariffs designed to support labour-intensive sectors and greenfield operations, are rendered ineffective when they can be easily bypassed through misdeclaration. This undermines efforts to rebuild manufacturing capacity and drive inclusive growth.
The effect is particularly severe in light manufacturing industries central to job creation. When these sectors are weakened by illicit imports, the result is factory closures and retrenchments, lost investment opportunities and profits, and increased informalisation.
At the same time, the fiscal cost is significant. Revenue lost through customs fraud reduces the state’s ability to invest in critical public goods and services. In a context of constrained public finances, this has direct implications for service delivery, infrastructure investment and economic support measures.
The threat to workers and working-class communities is dire; not only are local jobs lost but so will measures designed to protect society from harmful products. If the National Illicit Economy Disruption Programme is to achieve its objectives it must place customs fraud at the centre of its strategy. This requires a shift from a narrow, fake goods focus to a systemic approach that targets light manufacturing products more broadly at the ports of entry. That shift has practical implications.
Enforcement at ports of entry must be significantly strengthened, with greater inspection capacity, expanded use of scanning technology and more effective targeting of high-risk consignments. Equally important is co-ordination. Sars, the Border Management Authority, the South African Police Service and the National Prosecuting Authority must operate as an integrated system, ensuring that cases move from detection to prosecution without delay. Without visible consequences, the incentives that sustain the illicit economy will remain firmly in place.
Data must also be used more effectively. Identifying trade mismatches between exporters and importers and strengthening information sharing with trading partners are essential to detecting misdeclaration in real time. South Africa cannot hope to tackle illicit trade while leaving its borders vulnerable. The illicit economy does not begin in the marketplace. It begins at the border. And unless that reality is confronted, the broader strategy will remain incomplete.
This is a call to action that Cosatu and its affiliates will continue to drive.
• Losi is president of Cosatu
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