One might disagree over the mechanics of it, but there are strong arguments for a dedicated, overarching government strategy to deal with the illicit economy, as proposed recently by South African Revenue Service (Sars) commissioner Edward Kieswetter.
Of course, this is just one element of the rampant crime and corruption that plagues our society and the grip that organised criminal syndicates exercise over it, all of which require the focused attention of our overstretched law enforcement agencies. But it is probable that the different elements intertwine so addressing the illicit economy would probably penetrate other crimes as well.
It is safe to say that the illicit economy is one of the many crises South Africa faces.
It is not only a matter of lost tax revenue of about R200bn-R300bn from an illicit economy estimated by Kieswetter to have an annual value of between R800bn and R1.2-trillion, though that in itself is sizeable and undermines the tax base. It is also about its negative impact on the profitability and sustainability of legitimate tax-paying, job-creating enterprises.
This was dramatically illustrated by the recent announcement by British American Tobacco that it would close its sole cigarette manufacturing plant in South Africa as it was unable to compete with much cheaper illicit cigarettes on which no excise duty is paid. Illicit cigarettes are estimated to make up 75% of the local market.
The alcohol industry has similar complaints, with a 2025 study estimating that the illicit alcohol market, valued at about R25bn, represented about 18% of the total volume of alcohol consumed in the country. Widespread fuel adulteration is a concern of the fuel industry while illicit gambling makes inroads into law-abiding businesses.
In comments made in parliament, Kieswetter estimated that in the past 15-20 years the illicit economy has grown faster than the formal economy, from about 5% of GDP to about 12%-15%, though he did not provide details of how these figures were arrived at. Ill-advised government policies during the Covid-19 pandemic, when the sale of alcohol and tobacco products was prohibited, only contributed to this growth.
Strengthening border controls would be a key element of any dedicated strategy to combat the illicit economy as huge quantities of illicit goods enter the country through porous borders and ports of entry. The Border Management Authority plans to use R990m of its total R7.9bn budget over the next three years to build much-needed capacity. It also needs to invest in technology.
Strengthening border controls would be a key element of any dedicated strategy to combat the illicit economy as huge quantities of illicit goods enter the country through porous borders and ports of entry.
Given the enormity and significance of the problem for government revenue, there is substance to Kieswetter’s proposal for the creation of a presidency-led national illicit economic disruption programme. This was one proposal in a five-point plan that the commissioner presented in parliament recently, which he suggested should focus on high-risk value chains in the tobacco, alcohol and fuel industries.
The advantage of a presidency-led initiative is that it is more likely to ensure interdepartmental co-operation and ministerial accountability. A major problem, Kieswetter noted, was the lack of integration of efforts with each department pursuing its own narrow mandate. He proposed that budgets be allocated to projects.
Kieswetter also stressed the crucial importance of inter-agency collaboration, which could be achieved by the establishment of a command centre.
Not all of these suggestions will see the light of day but a dedicated strategy is definitely required. Kieswetter’s plan has been discussed with finance minister Enoch Godongwana who will hopefully promote it in the cabinet.
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