What's Happening?
BAT South Africa (BATSA) has announced the closure of its manufacturing facility in Heidelberg, Gauteng, by the end of 2026. This decision is driven by the overwhelming impact of the illicit cigarette
trade, which now constitutes approximately 75% of the South African market. The company has been operating at only 35% capacity due to significant volume losses attributed to this illegal trade. Despite efforts to maintain operations, including efficiency initiatives and engagement with government authorities, BATSA has determined that local manufacturing is no longer viable. The closure will affect around 230 employees, and the company plans to shift to an import-based supply chain to continue serving the market.
Why It's Important?
The closure of BATSA's manufacturing facility highlights the severe economic impact of illicit trade on legitimate businesses and government revenue. The South African government reportedly loses up to R30 billion annually due to illicit tobacco and alcohol trade. This situation underscores the challenges faced by legal market players in competing with illegal operations that evade regulatory frameworks. The decision by BATSA could prompt other companies to reconsider their operations in regions heavily affected by illicit trade, potentially leading to job losses and reduced economic activity. It also raises questions about the effectiveness of current enforcement measures and the need for stronger regulatory actions.
What's Next?
BATSA's transition to an import-based supply chain will require adjustments in logistics and distribution strategies. The company will likely continue advocating for stronger enforcement against illicit trade, which could involve lobbying for policy changes and increased collaboration with law enforcement. The South African government may face pressure to enhance its regulatory framework and enforcement capabilities to curb illicit trade and protect legitimate businesses. The proposed new tobacco legislation currently before Parliament could play a crucial role in shaping the future landscape of the tobacco industry in South Africa.
