Business
How government missteps opened the door for illicit trade in South Africa
When good intentions opened the door to criminals
During the Covid-19 pandemic, South Africa made a drastic call. Cigarettes and alcohol were banned from legal sale, framed as a public health intervention. What followed, however, has become one of the clearest examples of how policy decisions can reshape an entire economy in ways nobody intended.
While legal shelves sat empty, illegal supply chains quietly stepped in. Those networks did not disappear when the bans ended. Instead, they grew stronger, cheaper, and more deeply embedded into everyday life.
Today, illicit cigarettes are estimated to make up around three-quarters of South Africa’s market. That is not a side problem. It is a structural shift that has hollowed out legitimate industries and cost thousands of jobs.
The collapse of a local economic anchor
Few stories show the damage as clearly as British American Tobacco’s factory in Heidelberg. At its peak, the plant produced around 26 billion cigarettes a year. It directly employed about 1,000 people and supported another 35,000 jobs indirectly, from suppliers to logistics to local businesses.
For the Heidelberg municipality, the factory was not just an employer. It was economic gravity.
As illicit trade surged, BAT was forced to run the facility at only 35 percent capacity. Eventually, the numbers stopped making sense. The plant closed, leaving a hole that no informal market could ever replace.
For many South Africans, this closure landed hard. On social media and call-in radio shows, the frustration has been consistent. People are angry that a globally competitive factory closed while illegal cigarettes remain openly sold at spaza shops and street corners.
Why legal businesses cannot compete
Business Leadership South Africa CEO Busi Mavuso has been blunt about what went wrong. The pandemic ban gave illegal traders a once-in-a-generation opportunity to build distribution networks without competition. Those networks never shut down.
But bans were only part of the story.
Repeated increases in excise taxes on cigarettes and alcohol have steadily pushed legal prices higher. Today, the excise duty on a box of legal cigarettes is about R26. Meanwhile, illegal boxes sell for between R10 and R20, sometimes even less.
Members of Parliament have publicly reported finding boxes selling for as little as R10 near Parliament itself. That detail alone has become symbolic online, often shared with disbelief and anger.
For consumers under severe financial pressure, the choice is obvious. Many smokers who turned to illicit cigarettes during the pandemic now do so simply to save money. What started as a temporary workaround has become a habit.
A slow-motion policy failure
Mavuso has described the situation as a crash that everyone could see coming. Businesses warned the government repeatedly. Proposals were made. Engagements happened. Nothing changed.
This failure also wiped out years of progress made by SARS in the 2000s and early 2010s, when the illicit tobacco trade had been pushed back through stronger enforcement and oversight. Those gains have effectively been undone.
While tax policy plays a major role, enforcement cannot be ignored. Illegal products should not be this easy to find. The reality that they are points to deep failures across multiple arms of the state.
More than cigarettes and alcohol
The danger is that this pattern does not stay contained. Once illicit networks are established, they do not limit themselves to one product. The alcohol sector is already showing similar warning signs, with illegal trade taking a growing bite out of legitimate sales.
The broader concern is what this signals for South Africa’s economy. When policy decisions make legality unaffordable and enforcement unreliable, criminal networks thrive. Legitimate investors retreat. Jobs vanish quietly.
The cost of ignoring the warnings
The story of illicit trade in South Africa is no longer abstract. It is visible in shuttered factories, hollowed-out towns, and lost livelihoods. It is felt every time a legal business pays more in tax than an illegal trader charges for an entire product.
As pressure on households continues, the gap between legal and illegal markets only widens. Without decisive enforcement and a rethink of how excise taxes interact with economic reality, the damage risks becoming permanent.
This is not just about cigarettes or alcohol. It is about whether South Africa can still protect legitimate industries when policy mistakes open the door to organised crime.
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Source: Daily Investor
Featured Image: Good Things Guy
