South Africa- Country Profile
- 1 Tobacco Use
- 2 Who Dominates the Tobacco Market?
- 3 Tobacco Farming
- 4 Roadmap to Tobacco Control
- 5 Illicit Trade
- 6 TobaccoTactics Resources
- 7 Notes
A 2017 national survey found that about 20% of South Africa’s adult population (age 15+) smoked cigarettes, and a 2012 survey found that about 5% of the adult population used other tobacco products.
In 1993, smoking prevalence among adults was estimated at approximately 33%. 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.
Local manufacturers (such as Gold Leaf Tobacco, Best Tobacco Company, Amalgamated Tobacco Manufacturers, Mastermind Tobacco and Carnilinx Tobacco Company) have recently entered the market by offering lower priced brands, and are steadily gaining market share. To offset the decline of sales due to new entrants, BATSA has focused on introducing more ‘cheap’ economy brands to the market.
Next Generation Products
In December 2017, BATSA agreed to acquire South African e-cigarette manufacturer Twisp. However in July 2018, South Africa’s Competition Commission blocked the deal on grounds that the deal was anti-competitive.
A few years earlier BAT briefly trialled snus in South Africa and other markets. 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”. 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”. Also see: Cigarette Companies Investing in Snus.
Tobacco leaf is grown in several provinces of South Africa, but from 1990 to 2014 production decreased by 54%. 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.
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. 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.
In May 2018, it was reported in the media that the Eastern Cape Development Corporation (ECDC), a government agency, and BATSA had signed a memoranda of understanding to collaborate on a project which would see BATSA fund skills training for emerging farmers and commit to buying their tobacco leaves. 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”.
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.
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. 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.
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. 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. The 50% target was achieved in 1997.
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. Tobacco taxation was the main driver of the decrease in consumption.
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. 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%. 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. 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. 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.
- For more information on why pricing and taxation is key to the tobacco industry, go to Price and Tax.
- The tobacco industry has a history of arguing against tax increases. For a summary of these arguments, go to Tobacco Industry Arguments Against Taxation.
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.
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. 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.
- Further information on the Tobacco Products Control Act 83 of 1993, as well as its amendments, can be found on the Campaign for Tobacco-Free Kids website.
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. 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.
- For more information go to: South Africa: Industry Interference with the Control of Tobacco Products and Electronic Delivery Systems Bill.
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. 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. 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, SARS has struggled with a purge of senior executives, which included personnel who worked on tax and customs enforcement and investigations. Five specialised and highly-skilled units were disbanded; one of which was National Projects, which investigated the illegal cigarette trade. 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.
The tobacco industry’s illicit trade estimates are significantly higher than those of independent researchers. 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. 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. 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. 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%.
Multinational Tobacco Companies Blamed Local Manufacturers for Illicit Trade
In 2018 TISA commissioned Ipsos to measure illicit trade in South Africa. Ipsos audited 2058 independent retailers in South Africa and found that in almost 3 out of 4 of these outlets illicit cigarettes were sold. 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%). The study’s findings were summarised by TISA in a media pack, which included an executive summary, media presentation, press release and infographics. The study gained widespread media attention.
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. 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”. 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.
- South Africa: Industry Interference with the Control of Tobacco Products and Electronic Delivery Systems Bill
- British American Tobacco in Africa: A Past and Present of Double Standards
- FCTC Compliance in Africa
- Africa's Tobacco Epidemic
- Hugh High consultant to the South African Tobacco Institute,
- See ITIC for information on the creation of the Africa Tax Institute based in Pretoria, South Africa
- KPMG was embroiled in allegations made by SARS
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