By not putting an end to the rampant illicit trade economy in South Africa, government seems to be emulating the dangerous traits of a failed state, writes Siseko Maposa.
The World Economic Forums’ (WEF) recently published Global Risks Report 2022 highlights the significant challenges facing South Africa. The annual report, which collates views and data from various experts and research institutions, offers an in-depth analysis of global economic, societal, and technological risks.
According to the report, South Africa’s top five risks are economic stagnation, unemployment, state failure and weak institutions, and the proliferation of illicit economic activity. All identified risks feed into growing anxiety that the country is at risk of sliding into chaos if urgent preventative action is not taken.
The sheer growth in illicit economic activity in South Africa over the past few years is alarming and has had a tremendously negative impact on the economy, taxes, and jobs.
While it is impossible to quantify the exact costs of illicit trade to the economy, the Global Financial Intelligence (GFI) report of 2019, which uses data from the International Monetary Fund (IMF), estimates that South Africa loses about R152 billion a year from illicit economic activity. The losses in taxes are equally devastating. In 2021, Business Leadership South Africa (BLSA) estimated that the country loses more than R250 million worth of tax revenue a day due to illicit economic activity. This has knock-on effects on job creation and service provision.
Illicit trade in South Africa has impacted some industries more than others.
The legal tobacco industry, for example, is reeling from the effects of illegal and cheap cigarettes flooding the local market, especially during Level 5 lockdown of the Covid-19 from March to August 2020. Many jobs have been lost in the legal tobacco market and companies forced to shut down manufacturing lines due to shifts in demand away from duty paid cigarettes.
The gold mining sector is also suffering the consequences of illicit mining and illicit export of gold through fraudulent Value Added Tax (VAT) claims totalling billions of rands.
Within the ambit of this illicit economy, there is also the illegal import of cheap vehicles from Asia. Under the guise that these will make their way to other African states, the vehicles are sold in South Africa to willing dealers and resold to willing buyers, leading to overwhelming consequences for South Africa’s second-hand vehicle market.
Is South Africa a Failing State?
The concept of a failed state is helpful in contextualising South Africa’s response, or lack thereof, to illicit trade in the country. South Africa is rarely ever mentioned among states that may be failing. However, the time may have come to look at the country’s steady decline through the prism of the concept of failing states.
A failed state is one that cannot project its authority over its territory and people, or a state which cannot protect its national boundaries from activities that threaten national security. This also includes the erosion of the government’s ability to implement collective decisions.
With regards to the rampant illicit trade economy in South Africa, government seems to be emulating these dangerous traits. Either that, or government does not see the proliferation of the illicit economy as a fundamental problem to be confronted decisively.
Where there has been some acknowledgement that illicit activity is a problem in the country, there seems to be a pervasive unwillingness to address the matter comprehensively.
The South African Revenue Services (SARS) seems to be a lone voice raising its concerns about the illicit economy. However, it is well known that the revenue service continues to struggle in its fight to combat illicit trade.
More recently, SARS has seemingly placed the blame for its’ poor performance on a lack of collaborative support on the part of government.
In November 2021, with regards to the illicit trade of tobacco, SARS Commissioner Edward Kieswetter stated that South Africa had "seen particularly during lockdown, a significant proliferation of the sale of illicit cigarettes that had embedded itself as an alternative to the regular brands".
In what can only be regarded as a concession to defeat, Kieswetter added that the revenue service was "fighting a losing battle in this regard" and that the "problem was significantly bigger than SARS". He called for a collaborative effort with government in advancing the battle against illicit tobacco trade.
Law-abiding or thugs?
Still, there is hardly any talk or action from the National Prosecuting Authority (NPA) and the Hawks. There has barely been any word from the Ministers of Police, Justice, or even the President himself at a political level. It is almost as if this is a technical matter for SARS to deal with, when in fact, this goes to the heart of the kind of country South Africa wants to become. Here, a critical question needs to be asked – are we a country of law-abiding citizens or a den for thugs wishing to make a quick buck? On the strength of governments inertia, we seem destined to become the latter. This is despite numerous warnings from business and civil society about the dangers of an entrenched illicit sector.
In some ways, this is not unique. It is simply another manifestation of the dysfunction that has characterised the security cluster in our government. It is a sign of the lack of coordination between institutions of state charged with maintaining law and order.
Despite numerous warnings, it was caught napping during the July 2021 unrest in some parts of the country. It is emblematic of a nonchalant posture towards issues of state security, which, despite an explosion in the cases of lawlessness, continues to reduce funding for police and the defence forces.
It goes against the often-repeated platitudes about reducing joblessness, poverty, and inequality, when a clearly discernible leakage in the state apparatus is not prioritised for plugging, even when it represents a quick win in terms of government efforts to raise revenue and support economic development.
Citizens are left to wonder if government has any sense, at all, of the challenges that they go through on a daily basis when criminal elements are allowed to take over large swathes of economic sectors without a sufficient law enforcement response to confront such conduct.
Siseko Maposa is a Public Policy and Stakeholder Relations Officer at Frontline Africa Advisory.
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