Professor Corné van Walbeek, director of the research unit of the economics of excisable products at the University of Cape Town, has done extensive research on how the ban of cigarettes has affected South Africa. The good news is 16% of smokers have quit, but the bad news is while the sale of cigarettes continues undeterred for the remaining smokers, supplied mostly by illicit networks, the excise duties may go unpaid. Prof Van Walbeek emphasises that the cost to society in terms of the loss of revenue for the state and specifically also the entrenchment of these illicit networks, is a real problem that SA – and quite possibly the taxpayer – may be paying for very many years to come. – Vanessa Marks
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Professor Corné van Walbeek is with the University of Cape Town. He’s the director of the research unit of the economics of excisable products. Now that’s to do with booze and other “sins” I suppose, and taxes. Is that right Prof?
That’s right, everything to do with tobacco, with alcohol and most recently also with sugar sweetened beverages.
You’ve really been shaking things up as far as many people are concerned with the research into cigarettes which have now been banned for eight weeks. The presumption is that smokers would stop smoking. The reality is very different.
Absolutely. So we are a research unit that focuses primarily on public health. So our starting point is public health and we want to support public health and often our research puts us into conflict with the tobacco industry because of course public health and industry positions are quite diametrically opposed to each other. We looked into this particular issue because we thought it was interesting and we heard so many stories and rumours and anecdotes about how people have been able to get illicit cigarettes on the street, that illicit trade has become completely out of control. On the basis of that we did this particular survey of approximately 16.000 people.
Sixteen thousand – how did you contact them?
We put an online survey onto Survey Monkey. We used our own social media platforms and we used two other platforms. The one is Moya, which is a data free platform aimed specifically at people of lower socioeconomic groups. And another one, we latched it on to a survey that was done through change.org.
And the results?
Very interesting. We found a lot of people being able to smoke and being able to find cigarettes during this time period and being able to purchase cigarettes during this time period. We also started off asking people did you quit. And approximately 40% of people indicated that they attempted to quit. And of those 40% that attempted to quit, we found that approximately 40% were successful. In other words about 16% of smokers have at least during this lockdown period successful at quitting. And I think we need to celebrate that and that is cause for happiness in public health circles. However, of the 84% of smokers that did not quit and that we subsequently asked them a lot of questions about how was their experience during the lockdown, we see that approximately 90% of them have been able to purchase cigarettes.
We also see a very significant change in the market structure. Before the lockdown the multinational corporations British American Tobacco, Japan Tobacco etc., their market share was in the order of about 80%. After the lockdown, we see that the local manufacturers increased their market share from approximately 20% to more than 65%. So massive change in the whole market structure. We also see that the market structure changed in terms of the retail outlets. Whereas previously we had lots of people buying cigarettes through formal retail outlets as you would expect, we see that spaza shops have become more and more important, house shops and also outlets that previously have not existed before, specifically online platforms, WhatsApp groups and many people quite openly and honestly indicated that they were buying cigarettes from drug dealers, illicit traders, black market operators etc. So we see that the market has become very much more informal as opposed to the pre-lockdown period.
I’m a bit confused here. So the local cigarette manufacturers have grown their markets. But surely they’re not supposed to be supplying the market?
Exactly. And that’s the point. When I talk about local manufacturers I exclude British American Tobacco because even though they’re manufacturing locally they are classified as a multinational. So when I talk about local manufacturers I talk mainly about the manufacturers that are associated with the free trade independent Tobacco Association. Some of the names that are well-known in this circle are Gold Leaf Tobacco, Amalgamated Tobacco Company, and Best Tobacco Company, Carnilinx. These companies have been coming to the fore over the past 10 to 15 years and they have really used this particular lockdown to greatly expand their market. The question is how did these cigarettes enter into the market? That’s he question that sadly we cannot answer. Have there been manufactured during the lockdown? Were they leaked into the market because they were already released from bonded warehouses? That we cannot say because our questions simply did not go in that direction.
Professor Van Walbeek, how much is the state losing on excise duties?
The Government last year obtained approximately R14-billion for the financial year and in the current year they’re expecting a similar quantity of money to be collected in the form of excise duty. That’s approximately R1.2bn per month. That’s a huge amount of money for you and me and for anybody but one has to look at it in context. So approximately 1% of total government revenue comes from excise taxes on tobacco products. So 1% is 1% – a lot for someone, little for others. One can safely assume that during this lockdown period approximately R1.2bn of revenues would have been lost.
Of course it would be interesting to see that if these cigarettes that have actually entered into the market came from bonded warehouses and have been released before the lockdown became effective and that’s sort of been leaked into the market, but the excise tax has been paid. That is potentially possible and one needs to think about that as a possibility. At the same time though many of these companies have had a record in the past of dodging taxes, of being in trouble with the South African Revenue Service because they have not been paying taxes. With that I’m including all tobacco companies. The tobacco industry, I’ve studied it for many many years, it is a very dirty industry. All industries have skeletons in the closets, but the tobacco industry more so than most other industries.
What’s concerning a lot of people and including Paul O’Sullivan who we spoke to in a webinar last week, is that a number of these local tobacco companies actually funded politicians, quite openly and quite well known. If you join the dots as Paul did, it doesn’t add up to a very nice picture?
Absolutely. And some of these links with politicians are very well explained in Jaques Pauw’s book as well as in Johan van Loggerenberg’s book “Tobacco Wars” and of course a politician’s son is very much involved with Amalgamated Tobacco and that I think is very well known as well.
The public in South African, we are shaking our heads because the people who smoke are still smoking, they still buying cigarettes. But we as taxpayers are now going to have to put more money in because the excise duties are not being collected or almost certainly not being collected. Is there a new underground group of suppliers that have emerged, in other words criminals? Is the criminal element moving in?
I can only speculate on that. So what we’ve done in the research unit that I lead is over the past two or three years we’ve investigated the illicit market in South Africa in substantial detail. We’ve come to the very strong conclusion that since 2010, there’s been a very significant increase in illicit trade in South Africa. Before 2010, the tobacco industry made a bit of a fuss about it, especially British American Tobacco and its Tobacco Institute. But there wasn’t much evidence for it. However since 2010, there has been a very significant increase in the illicit and since 2014, even more so and especially under the Moyane years at SARS it was fair game for anybody to enter the illicit market in cigarettes. By 2017 – 2018, we estimate that the illicit market was as high as 30% or possibly even as high as 35% of the total market. That was a real problem. Last year, the indications are that SARS has been able to turn it around, not fully but partially, and we believe that the illicit market has probably decreased by anything between 6% and 10%.
What’s happening now is a real tragedy because the gains that SARS have been making over the past year under our new commissioner, much of it has been turned around. We see that illicit trade groupings have become more entrenched, marketing and distribution channels have become more entrenched into the market, and it’s going to be very difficult for SARS to be able to break into those new networks, turn them around and actually put a cap on illicit trade, even in normal circumstances without a ban on the sale of cigarettes.
After the release of your report, there certainly has been quite a lot of publicity around it. Have you been contacted by SARS, by government by anybody who should be paying attention?
At this moment in time not. I know that some people within the tobacco industry are looking at this and saying this is the evidence that we have been looking for and they have been very impressed by the research that we’ve done. We’re not here to impress anybody. We are here to do research and to look for the facts. People in the tobacco control community might look at this and say well we don’t really need that type of evidence because we like the lockdown because we want actually people to quit smoking. And I think even in this very strict lockdown where cigarettes are becoming very very expensive we are finding that there are going to be some people who are going to quit.
So the benefit of the lockdown is that some people will be forced to quit, cold turkey, to some extent against their wishes. The cost to society in terms of the loss of revenue for the state and specifically also the entrenchment of these illicit networks, this is a real problem and we might be paying for this for very many years to come. And it’s going to be a real problem for the illicit economy unit at SARS to try and turn around what has happened over the past number of weeks.
