It has been 100 days since the lockdown and the effective banning of the sale of cigarettes and tobacco products in South Africa.
Tobacco products remain restricted under the gazetted provisions of the "Advanced Level 3" lockdown, despite an application by British American Tobacco South Africa (BATSA) to set aside or correct Regulation 45 pursuant to section 27 of the Disaster Management Act, prohibiting the sale of tobacco products and e-cigarettes.
The World Health Organisation (WHO) reported that 600 billion cigarettes were sold illegally, where South Africa is reported to be the first country to have an illicit cigarette product, and having the highest sales in a given year even compared to the legally sold product.
Under lockdown Level 5, farmers were allowed to harvest and store planted tobacco crops (particularly given that Feb-April is harvesting season) and, by lockdown Level 4, tobacco manufacturers were allowed to purchase the harvested crops for processing, but sale remains prohibited.
These provisions most likely created a real festering ground for illicit trade, given that, even before the Covid-19 pandemic, the biggest culprits of illicit cigarette trades in the country were manufacturers who failed to declare the true value of their manufactured product and/or reported ghost exports, circumventing both VAT and excise tax collection.
While many might have thought that the illicitly traded cigarettes would have mostly come through our ports and borders from other countries (which historically was the case), evidence suggests that they now come predominantly from registered manufacturers in the country – the Trojan horses.
The SARS Project Honey Badger, aimed at investigating illicit trade in South Africa, alone resulted in 25% increase in excise and VAT payments in 2014 – gains which has since been lost since the disbanding of the five specialised units at SARS by Tom Moyane.
The excise tax revenue attributable to cigarettes in the 2019/2020 financial year was R14.4 billion, up 19.2% from the previous financial year, where, in the same year, tobacco revenues were reported 14% higher than budgeted revenue.
The University of Cape Town Research Unit on the Economics of Excisable Products (REEP) reports that illicit tobacco market grew from 5% of sales in 2009 to approximately 35% of sales by 2018.
Nicole Vellios, Corne van Walbeek and Hana Ross in their 2019 paper, Illicit cigarette trade in South Africa: 2002–2017, reported similar findings. The rise in illicit trade is clearly a result of more Trojans tearing the economy and its people from inside.
The Bone Collectors
In April 2019, SARS announced it was to invest in a track and trace system, which would provide volume verification at the manufacturing plant. This bone collector IT system would need to plug into the existing IT infrastructure of SARS, manufacturers, wholesalers and retailers to ensure the right data is collected and circumvention is detected early on.
The negative socioeconomic costs of illicit trade necessitate that it be taken a lot more seriously, like the combined global effort towards curbing the sale of "blood diamonds". The diamond sector in 2003 established what is now referred to as the Kimberly Process; which is a multilateral trade agreement that provides the Kimberly Process Certification as a safe guard against improperly procured rough diamonds as well as certifying them to be "conflict free".
This system ought to also be accompanied by an ongoing campaign to curb the purchase of illicit products withing communities similar to the 2001 launch of the Arrive Alive campaign. The campaign took over a decade to truly become effective in how society became intolerant to drinking and driving, also accelerated by the arrival of e-hailing services, like Uber, which democratised the cost of transport after hours.
Micheal Kofi Boachie, Laura Rossouw and Hana Ross, in their paper The Economic Cost of Smoking in South Africa, estimate the economic cost of smoking to be 0.8% of GDP and the healthcare cost of smoking-related diseases to be 3.2% of total healthcare expenditure, given findings from the 2016 South African Demographic and Health Survey that about 20% of South Africa's population aged 15 years and older smoked tobacco.
A recent survey from the Human Sciences Research Council published in May this year found that a mere 11% of smokers were able to access illicit cigarettes during the lockdown countrywide, while this number rose to 23.5% in informal settlements, and found that cigarette smokers were on average in contact with more people during lockdown than non-smokers, increasing the chances of transmission of the coronavirus.
Like alcohol, tobacco leaves can also be used for various medicinal and manufacturing purposes that could add value to the economy, while the tobacco and e-cigarette sale ban remains in place.
Tobacco has been reported to be useful in insect repelling, medicinal aid in minor cuts and scratches, clearing of sinus congestion and allergy relief, among other things.
We ought to look at alternative ways in which a primary and secondary sector of tobacco can remain active for medicinal and agricultural purposes, while also dealing with the Trojans, bone collectors and the chancers.
In crisis, there is always opportunity, and tobacco need not forever remain a "sin product" in South Africa, just like we are seeing now with cannabis.
Sifiso Skenjana is the chief economist at IQbusiness. Follow him on Twitter: @sifiso_skenjana