Illegal cigarette trade may reduce economic harm of tobacco ban - govt in court papers

South Africa instituted its ban on the sale of cigarettes in late March, 2020.
South Africa instituted its ban on the sale of cigarettes in late March, 2020.
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  • Nkosazana Dlamini-Zuma says an 'ironic feature' of the ban on cigarettes is that the illegal cigarette trade will reduce its economic harm. 
  • Analyses which predict "maximum economic damage" from the cigarette ban are "on the face of it not credible" - due to the economic activity from the illegal cigarette market.
  • The state says emerging research supports the view that smoking leads to more severe cases of Covid-19, and the ban is necessary to reduce strain on SA's public health system. 

Economic damage to South Africa from the current cigarette ban, which is thought to include the loss of billions of rands in excise tax, will be partly mitigated by economic activity from the growing illegal cigarette trade.

This is one of the statements included in court documents lodged by Cooperative Government and Traditional Affairs Minister Nkosazana Dlamini-Zuma to keep the 12-week ban on the sale of cigarettes and tobacco products in place, opposing a second court bid to resume legal trade.

Her 500-plus page affidavit contains a wide array of facts, analyses and opinions to retain the ban - which has been criticised by the tobacco industry as harmful to jobs, not effective in stopping smoking, and not supported by evidence. 

The main focus of her argument in retaining the temporary ban is that emerging research supports the view that smoking leads to more severe cases of Covid-19, and that the ban is necessary as a precautionary measure to safeguard South Africa's healthcare system. 

Dlamini-Zuma's affidavit was recently lodged in a case brought by the country's largest tobacco manufacturer, British American Tobacco South Africa, and other tobacco groupings to have the ban undone.

This case is distinct from a challenge launched by the Free Trade Independent Tobacco Association, which was argued in court last week.

Judgment in the FITA case has not yet been handed down.  

The respondents in the case lodged by BATSA and co. are Dlamini-Zuma, President Cyril Ramaphosa and the National Coronavirus Command Council.

In her legal response, Dlamini-Zuma argues that the economic impact of the ban would not be as severe as the scenario outlined by the applicants. 

Citing a study by Genesis Analytics, she states: "(A)n ironic feature of the impact of the ban is that to the extent illicit trade in cigarettes grows, the adverse economic impact of the ban will be reduced."

Therefore, she says, any analysis which predicts "maximum economic damage" from the cigarette ban is "on the face of it not credible" - due to the economic activity from the illegal cigarette market.

To support her case that the ban may not have had as large an impact on informal traders as the applicants say it has, she notes - again citing the Genesis Analytics study - that "new trade in illicit tobacco products" may have made up for losses from legal cigarettes for informal traders. 

Once the ban is over, she argues, there is reason to believe that smokers will return to buying legal cigarettes, meaning the inroads made into the market by illicit trade will be undone. 

"It is also likely that a significant portion of the market will move back to purchasing cigarettes legally once the ban is lifted".   

Dlamini-Zuma also argues that the ban has been successful in cutting smoking. 

Paragraph 159 of the affidavit reads: "On the assumption that the current ban on cigarette sales continues for a full year, the result will be an overall annual decrease in sales of about none billion cigarettes, i.e. from 26 billion down to 17 billion."

This appears to represent a prediction that the illegal cigarette trade may grow to around 63% of the legal cigarette market before the ban was introduced. At other points in her affidavit she underlines how difficult it is to determine the true size of the illicit market. 

And even though the government will earn no taxes from these illicit sales, the Minister argues the illegal market would have some positive economic impact.

On the number of South Africans who quit smoking, or smoke less, in paragraph 158, she says the ban may lead to only one in 10, or one in eight smokers kicking the habit: "(T)here are about eight million smokers in South Africa. If 10% to 15% of them quit smoking due to the ban, this represents 0.8 to 1.2 million quitters."

She continues: "In my respectful submission, the number of quitters and the overall decrease in the number of cigarettes sold shows that regardless of the increase in illicit activity the current ban will have a very significant positive health impact during the Covid-19 crisis."

In her concluding remarks in the affidavit, Dlamini-Zuma says: "The ban is currently necessary to avert the Covid-19 related health risks of smoking I have mentioned."

"I reiterate the ban is not a permanent measure. It will be lifted as soon as this can safely be done, having regard for the state of the Covid-19 pandemic in our country, the capacity of our healthy systems to cope with severe Covid-19 infections requiring hospitalisation, and high care, intensive care and ventilation in our hospitals, and the risk posed by smokers of severe Covid-19 disease."

A controversial ban

South Africa banned the sale of tobacco products at the start of the nationwide lockdown in late March, citing health reasons. The ban was extended under Level 4 and again under Level 3 of the lockdown.  

BATSA and its co-applicants, meanwhile, argue in their founding court papers that the ban unjustifiably limits the economic rights of farmers and manufacturers, while infringing on the rights of smokers to enjoy "psychological integrity", among other reasons.

The emotional well-being of smokers was being harmed by the state's tobacco ban, said BATSA, who argued that tobacco and vaping products are "similar to coffee in the ways they are experienced and used by consumers", provide users with "enjoyment and help them cope in stressful circumstances". 

Banning them, it says, has harmed the "emotional well-being" of smokers, and is unconstitutional. 

BATSA also argued that the ban cost it between R300 million and R350 million in lost revenues per week, and has harmed the prospects of South Africa's tobacco farmers, who sell roughly 90% of their stock in the local market.

The tobacco manufacturer has estimates that the fiscus lost out on roughly R2.4 billion in lost taxes during the first eight weeks of the lockdown, which it says coincided with a steep rise in illicit trade. 

* Additional reporting by Jan Cronje 

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