South Africa- Country Profile

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South Africa had an estimated population of approximately 58 million people in 2018.[1] Approximately 44,000 South Africans die from tobacco-related diseases annually.[2]

Tobacco Use

A 2017 national survey found that about 20% of South Africa’s adult population (age 15+) smoked cigarettes,[3] and a 2012 survey found that about 5% of the adult population used other tobacco products.[4]

In 1993, smoking prevalence among adults was estimated at approximately 33%.[5] The decrease in smoking consumption occurred between 1990 and 2010, after which it plateaued around the current level.

Who Dominates the Tobacco Market?

British American Tobacco South Africa (BATSA) is the largest tobacco manufacturer and distributor of tobacco products in South Africa.

Market research company Euromonitor International estimated that in 2016, BATSA held 74% of market share, followed by Japan Tobacco International (JTI) (9%) and Philip Morris International (8%).[6]

Local manufacturers (such as Gold Leaf Tobacco, Best Tobacco Company, Amalgamated Tobacco Manufacturers, and Carnilinx Tobacco Company) have recently entered the market by offering lower priced brands, and are steadily gaining market share.[6] To offset the decline of sales due to new entrants, BATSA has focused on introducing more ‘cheap’ economy brands to the market.[6]

Next Generation Products

In December 2017, BATSA agreed to acquire South African e-cigarette manufacturer Twisp.[7][8] However in July 2018, South Africa’s Competition Commission blocked the deal on grounds that the deal was anti-competitive.[9]

A few years earlier BAT briefly trialled snus in South Africa and other markets.[10] The trial in Johannesburg was launched by David Crow who was quoted at the time saying that “snus has roughly the same amount of nicotine as cigarettes, but is significantly less harmful” and that BAT was testing the product in response to “an overwhelming demand for healthier nicotine products”.[10] BAT abandoned sales in South Africa in 2011 when the company announced that it was reviewing its “approach to developing new reduced risk product categories”.[11] Also see: Cigarette Companies Investing in Snus.

Tobacco Farming

Tobacco leaf is grown in several provinces of South Africa, but from 1990 to 2014 production decreased by 54%.[12] Along with the decline in the area of tobacco planted, the number of primary producers and tobacco processors decreased. In 1996, there were 620 commercial tobacco farmers cultivating 14,717 hectares of land. This number decreased to 175 commercial tobacco producers in 2014, cultivating 4,734 hectares of land.[12]

BATSA, Farmers and Corporate Social Responsibility

A 2016 BATSA report on the tobacco company’s “contribution to the South African economy”, stated that BATSA buys over 90% of the tobacco leaf grown in South Africa.[13] The report further claimed that BATSA had invested over R280 million (roughly equivalent to £15 million in August 2018) in sustainable development programmes to support South African farmers and their communities.[13]

In May 2018, it was reported in the media that the Eastern Cape Development Corporation (ECDC), a government agency, and BATSA had signed a memorandum of understanding to collaborate on a project which would see BATSA fund skills training for emerging farmers and commit to buying their tobacco leaves.[14] An impact study funded by the Tobacco Institute of Southern Africa (TISA) of a similar private-public partnership initiated in 2011 with BATSA in another part of South Africa, concluded that the project had “changed the lives of participating farmers, their families and the wider community”.[15]

Yet others have been critical of these public-private partnerships, arguing that they are often used as part of a tobacco company’s Corporate Social Responsibility strategy, and that farmers remain poor because they earn so little from the low prices they are paid by tobacco companies for their leaves.[16][17][18]

Roadmap to Tobacco Control

During the 1970s and 1980s tobacco control was not on the public agenda in South Africa. A 2003 World Health Organization (WHO) report documents how the tobacco industry used its cordial relations with the South African government to prevent tobacco control measures that would negatively impact its business.[19] However, from 1994 onwards when the African National Congress (ANC) came into power there was a major turnaround in government tobacco control policy. On 19 April 2005, South Africa ratified the WHO Framework Convention on Tobacco Control (FCTC), which came into effect on 18 July 2005. The Treaty obliges South Africa and other Parties to protect public health policies from the vested interests of the tobacco industry.

Although South Africa was a tobacco control leader in the 1990s and early 2000s, today the country is arguably falling behind.[20]

Tobacco Tax

Figure 1: Cigarette consumption and cigarette prices:1960-2016.[21]

South Africa levies excise taxes as a specific tax (i.e. fixed amount per pack of cigarettes). Unless the tax is adjusted regularly, inflation erodes the tax, which is what happened in South Africa during the 1970s and 1980s.[19] When the ANC came into power in 1994, the Minister of Finance announced that the government would increase the excise tax on tobacco products from 20% (which excluded VAT) to 50% (which included VAT) of the retail price over a number of years.[5] The 50% target was achieved in 1997.[5]

The inverse relationship between cigarette consumption and the real price of cigarettes is shown in Figure 1. As the excise tax (and retail price) increased, cigarette consumption decreased. At its peak in 1991, South Africans consumed almost 1.9 billion packs annually, which decreased to about 1 billion packs in 2016.[21] Tobacco taxation was the main driver of the decrease in consumption.[22]

The method by which the excise tax is calculated depends largely on the tobacco industry’s pricing policy. The tobacco industry over-shifted the tax increases by raising retail prices more than the tax increase.[23] Higher profit margins compensated the industry for the reduction in sales due to higher tax. Between 1994 and 2010, inflation-adjusted tax increased by 377% while the industry increased its net-of-tax price by 173%.[23] This increased both tax revenue and the industry's profits, despite lower sales. Up to 2010 the annual excise tax increases were driven solely by the tobacco industry’s pricing strategy.

Since 2010, the tobacco industry has introduced many low-priced cigarettes to the market.[21] As a result, the range of cigarette prices has become much wider, and on average, cigarette prices have decreased by less than the inflation rate.[21] The National Treasury has invoked a rule that the excise tax should grow by at least the inflation rate, when the “implied” tax increase (based on pricing and the 52% rule) is less than the inflation rate. In 2018, the minimum collectable tax rate on a pack of 20 cigarettes was set at R17.85 (about £1 in August 2018), a total tax burden of 52% of the retail price. This is much lower than the WHO’s recommendation of a minimum of 70% of retail price.[24]

Tobacco Products Control Act 83 of 1993

The Tobacco Products Control Act 83 of 1993 is the primary tobacco control law in South Africa. There have been several amendments over the years.[19]

The original Act prohibited smoking on public transport and introduced health warnings for the first time. In 2018, South Africa had eight rotating text-only health warnings covering 15% of the front of the pack and 25% of the back of the pack, which had not changed since 1995.[25] In 1999 the government significantly expanded the Act and included bans on tobacco advertising and sponsorship, smoking in all public places (including workplaces), and the sale of tobacco to minors. Nearly all forms of tobacco advertising and promotion are prohibited, with certain exceptions including that tobacco products may be visible at point of sale but must be displayed in such a manner that customers may not handle tobacco products prior to purchase. The original ban on smoking in public places amounted to a partial ban in restaurants because 25% of the floor area could be enclosed and designated for smoking. This loophole persists, with the result that indoor public places are not yet fully smoke free in South Africa.

New Draft Bill 2018

On 9 May 2018, Minister of Health Aaron Motsoaledi invited public comment on the proposed Control of Tobacco Products and Electronic Delivery Systems Bill, which will repeal the Tobacco Products Control Act 1993.[26] The new Bill seeks to introduce, plain packaging, remove designated smoking areas in restaurants, ban outdoor smoking in public areas, ban retailers displaying cigarettes and cigarette vending machines, and regulate e-cigarettes as tobacco products, among others.

The tobacco industry has strongly opposed South Africa’s new draft Bill.[27]

Illicit Trade

As in other countries, the tobacco industry in South Africa has overestimated the extent of illicit tobacco trade to dissuade government from adopting tobacco control measures.[28] For example, the industry has argued that if tobacco taxes are increased, people will switch to cheaper illicit cigarettes (taxes not paid), and the government will therefore receive less revenue.[29] This argument has worked particularly well in South Africa.

The National Treasury and South African Revenue Service (SARS) have not made any significant increases in excise taxes in past few years (aside from inflation increases). Following Tom Moyane’s appointment as SARS Commissioner in September 2014,[30] SARS has struggled with a purge of senior executives, which included personnel who worked on tax and customs enforcement and investigations.[30][31] Five specialised and highly-skilled units were disbanded; one of which was National Projects, which investigated the illegal cigarette trade.[30] These investigations sought to identify cigarette manufacturers who were not paying excise taxes on the cigarettes produced, which is known as tax evasion, and undermines the effectiveness of tax as a public health measure and results in loss of government revenue. Tax evasion is common in South Africa and acknowledged by both the tobacco industry and independent researchers.[28][32]

The tobacco industry’s illicit trade estimates are significantly higher than those of independent researchers.[28] For example, estimates from a peer-reviewed study found that the size of the illicit market in South Africa was between 7% and 11.2% of the total market in 2007.[28] TISA, the body representing the interests of multinational tobacco companies, reported that South Africa's illicit cigarette market share was 20% in the period of 2006 to early 2011.[29] TISA further claimed, that this share increased to 25% in late 2011 and 30% in 2012. The tobacco industry has also adjusted previous estimates of the illicit trade share downwards to create the impression that illicit trade is high and constantly rising.[29] For example, in a 2012 presentation by TISA to National Treasury, the illicit market share in 2008 was indicated as 7.9%, compared with claims in that year that the illicit market share was 20%.[29]

Multinational Tobacco Companies Blamed Local Manufacturers for Illicit Trade

In 2018 TISA commissioned Ipsos to measure illicit trade in South Africa.[32] Ipsos audited 2058 independent retailers in South Africa and found that in almost 3 out of 4 of these outlets illicit cigarettes were sold.[32] According to Ipsos, these shops accounted for 79.7% of all tobacco sales; 33.4% of cigarettes sales in these shops were below minimum tax (R17.85) owed per pack, and thus illicit. The report presented the smaller local manufacturers as the producers of the illicit brands, claiming that Gold Leaf Tobacco Company accounted for 75.1% of illicit tobacco sales, followed by Best Tobacco Company (6.3%), Amalgamated Tobacco Manufacturers (3.6%), Savannah (Zimbabwe)(2.3%), Carnilinx Tobacco Company (1.9%) and other attributable brands (10.8%).[32] The study’s findings were summarised by TISA in a media pack, which included an executive summary, media presentation, press release and infographics.[33] The study gained widespread media attention.[34][35][36]

The Ipsos report mentioned no illicit trade activity by the big tobacco companies, who funded the report. Gold Leaf Tobacco, one of the local independent tobacco manufacturers, strongly refuted the claims made in the report.[37] The company issued a press statement which criticised the methodology of the Ipsos study and questioned TISA’s agenda, accusing it of wanting “…to influence the public, by manipulating the media by pumping out false information (such as the recent Ipsos report) and gaining leverage with various government departments such as the South Africa Police Services, South African Revenue Services (specifically the Customs and Excise division) and the Tactical Intervention Unit”.[37] It also drew attention to allegations made against BAT and other big tobacco companies of anti-competitive behaviour, smuggling and tax evasion. For more information on these claims see pages on Tobacco Smuggling and KPMG.

TobaccoTactics Resources

Notes

  1. Stats SA, P0302- Mid year population estimates 2018, published 23 July 2018, accessed August 2018
  2. P. Groenewald, T. Vos, R. Norman, et al. Estimating the burden of disease attributable to smoking in South Africa in 2000. South African Medical Journal, 2007;97(8 Pt 2):674-81
  3. Southern Africa Labour and Development Research Unit, National Income Dynamics Study 2017, Wave 5 [dataset]. Version 1.0.0 Pretoria: Department of Planning, Monitoring, and Evaluation [funding agency]. Cape Town: Southern Africa Labour and Development Research Unit [implementer], 2018. Cape Town: DataFirst [distributor], 2018
  4. P. Reddy, K. Zuma, O. Shisana, et al. Prevalence of tobacco use among adults in South Africa: Results from the first South African National Health and Nutrition Examination Survey. South African Medical Journal, 2015;105(8):648-55
  5. 5.0 5.1 5.2 C. Van Walbeek, The Economics of tobacco Control in South Africa. PhD thesis: University of Cape Town. 2003
  6. 6.0 6.1 6.2 Euromonitor International, Cigarettes in South Africa. July 2017
  7. L. Prinsloo, British American Tobacco Expands in South Africa With Vape Deal, Bloomberg.com, 21 December 2017, accessed August 2018
  8. D. Chambers, Tobacco giant snaps up vaping company, Sunday Times, 21 December 2017, accessed August 2018
  9. T. Kahn, Competition Commission puts the kibosh on British American Tobacco deal, Businesslive.co.za, 26 July 2018, accessed August 2018
  10. 10.0 10.1 Staff reporter, Nicotine bag pays lip service to smokers, Mail & Guardian, 25 May 2005, accessed August 2018
  11. British American Tobacco, British American Tobacco Sustainability Report 2010
  12. 12.0 12.1 C. Du Preez, Declining tobacco production: analysing key drivers of change. University of Pretoria: Master of Commerce in Agricultural Economics Dissertation. 2017
  13. 13.0 13.1 British American Tobacco South Africa, The contribution of British American Tobacco South Africa to the South African economy, A study conducted by Quantec Research, 2016, accessed August 2018
  14. BAT signs MOU to help emerging tobacco farmers in E Cape, Fin24.com, 15 May 2018, accessed August 2018
  15. C. Kgosana, It’s boom time for tobacco farmers, News24.com, 11 May 2017, accessed August 2018
  16. M.G. Otañez, M.E. Muggli, R.D. Hurt, et al, Eliminating child labour in Malawi: a British American Tobacco corporate responsibility project to sidestep tobacco labour exploitation, Tobacco Control 2006; 15(3)224-230
  17. Southeast Asia Tobacco Control Alliance, Tobacco farmers remain poor in ILO-Big Tobacco partnership, Tobacco Industry Watch,12 November 2017, accessed November 2017
  18. V. da Costa e Silva, Time to ban the wolves in sheep’s clothing, 11 July 2017, accessed September 2017
  19. 19.0 19.1 19.2 C. Van Walbeek, Tobacco Excise Taxation in South Africa, World Health Organization, 7 July 2003, accessed August 2018
  20. M. Hefler, Worldwide news and comment. Tobacco Control, 2018;27(2):125
  21. 21.0 21.1 21.2 21.3 Economics of Tobacco Control Project, South Africa time series data for cigarettes: 1960 − 2017. Version1.0. 2018, Cape Town
  22. G. Chelwa, C. van Walbeek, E. Blecher, Evaluating South Africa’s tobacco control policy using a synthetic control method, Tobacco Control, 2017;26:509-517
  23. 23.0 23.1 H. Ross, J. Tesche, N. Vellios, Undermining government tax policies: Common legal strategies employed by the tobacco industry in response to tobacco tax increases, Preventive Medicine, 2017 Dec; 105 (Supplement):S19-s22
  24. Tobacco Free Initiative, Taxation, World Health Organization, 2018, accessed August 2018
  25. Republic of South Africa. Regulations relating to the labelling, advertising and sale of tobacco products as published in GN 2063 in GG 16111 of 2 December 1994 as amended by GN R1148 in GG 16588 of 4 August 1995
  26. Republic of South Africa, Government Notices-Goewermentskennisgewings. Department of Health: Invitation for Public Comment on the Draft Control of Tobacco Products and Electronic Delivery Systems Bill 2018, Government Gazette Staatskoerant, 9 May 2018, accessed August 2018
  27. L. Omarjee, Six things that concern the tobacco industry about the new draft bill, fin24.con, 18 May 2018, accessed August 2018
  28. 28.0 28.1 28.2 28.3 E. Blecher, A mountain or a molehill: Is the illicit trade in cigarettes undermining tobacco control policy in South Africa? “Trends in Organized Crime”, 2010;13:299-315. doi: 10.1007/s12117-010-9092-y
  29. 29.0 29.1 29.2 29.3 C. Van Walbeek , Measuring changes in the illicit cigarette market using government revenue data: the example of South Africa, Tobacco Control, 2014; 23:e69-e74
  30. 30.0 30.1 30.2 Huffington Post, Sars Is A Mess Thanks To Tom Moyane. Here's How He Did It, 26 June 2018 accessed August 2018
  31. T. Kahn, Tobacco excise revenue plunge shows SARS collection up in smoke, Business Day, 26 May 2018 accessed August 2018
  32. 32.0 32.1 32.2 32.3 Ipsos, 2018 National Tobacco Market. Executive Summary Report, 2018, accessed August 2018
  33. Tobacco Institute of Southern Africa, Launch of the IPSOS 2018 National Tobacco Market Study, 5 July 2018, accessed August 2018
  34. G. Hosken, If you’re buying cigarettes for R5 a pack, not R17.85 – you could be robbing someone of a job, Sunday Times, 5 July 2018, accessed September 2018
  35. Illegal cigarette trade costing $510mln a year – study, Reuters, 5 July 2018, accessed September 2018
  36. Illicit cigarette traders permitted to operate with impunity- tobacco body, The Citizen, 5 July 2018, accessed September 2018
  37. 37.0 37.1 Gold Leaf Tobacco, Press Statement and Industry Facts, 6 July 2018