LISTEN! Edward Zuma partner Yusuf Kajee: how SA tobacco trade really works #BestofBizNews

Best of BizNews: Edward Zuma, Yusuf Kajee and the other players in SA’s tobacco industry

There were some memorable meetings during our UK sojourn from 2016 to May last year. One of them was this on-the-record interview with independent cigarette manufacturer Yusuf Kajee, owner of Pietermaritzburg-based Amalgamated Tobacco. Kajee, accompanied by business partner Paul De Robillard, expressed himself so freely that, at the time, publishing all his opinions would most likely have landed us in an expensive law suit. So after a fruitless attempt to engage with parties he attacked, I put the 45 minute interview to one side, promising myself to return to it at a more appropriate time. In recent weeks, much of what Kajee alleged is now in the public domain. And with a couple of hard hitting books putting tobacco back in the limelight and government’s controversial banning of cigarettes, there is plenty of interest in the industry and the controversial personalities who play in it. So here’s the edited version of what was originally a 45 minute gospel according to devout Moslem Yusuf Kajee – business partner of Jacob Zuma’s son Edward; the man who lost a kidney to poisoning; arch enemy of Paul O’Sullivan; and someone SARS apparently calls “Mr Half Pregnant”. Fascinating. – Alec Hogg 

Edward Zuma associate Yusuf Kajee: how SA tobacco trade really works

I’m at the Mayfair Hotel in London with Yusuf Kajee, a colourful, controversial entrepreneur character from South Africa. Yusuf, tell us a little bit about your background, your family, how they came to South Africa?

We’re third-generation South Africans. My great grandfather was a trader. We used to have furniture stores in the Indian areas of the apartheid era in Durban, Pietermaritzburg, Verulam, Tongaat, Stanger, those areas. My late dad was a very good friend of Jack Schaeffer the co-founder (with Alan Hellmann) and owner of Game Discount World and because of the monopoly in the furniture industry at that time, the Beare Brothers would not allow him to get into business. So he used to buy furniture via my father and wholesale in his stores, being the Game Discount World stores.

From there, my dad ventured into glassworks and then later sold out to PG Glass. Then we got into the chemical business. We were in the automotive paint business and I ventured out into cellular phones and by chance, I met John Bredenkamp once on a plane and we started talking. He asked me why don’t I help him with his marketing in South Africa. One thing led to the other and the next minute we were in the cigarette business from 2007. We began in the cigarette business in Johannesburg and we found ourselves in a position where we were competing with goods that were coming across the border. At that time, a packet of cigarettes with duties etc. was R10 and you’re trying to sell for at least R11, R12 and you found that people bringing stock across the border were selling the same product for R4 and R5.

Why was that? How did they get that right?

It’s very simple. Contrary to what people believe,  the cost to manufacture a case of cigarettes, which has 50 cartons and there’s ten packets in each carton is R120. So you’re looking at R2 a packet. That’s what it costs to make cigarettes. The balance of the money being approximately R12  today is your excise and VAT. The total packet of cigarettes should not cost you more than R17.50. At R18,50, R19 you can sell a packet of cigarettes and make a good mark-up. Historically, South Africans were being ripped off by the likes of PMI (Philip Morris), JTR (Japan Tobacco International) and British American Tobacco where the mindset is that, all that amount is taxes but no, it’s not taxes, it’s a profit. And the profit was 100% on cigarettes. If you paid R40 for a packet of cigarettes, they were making clean R20 on a packet of cigarettes. And that is changed in the last 5 years with people like us coming to the market.

They say when Indians come in, the profit disappears. That’s exactly what happened, we being Indian, can work on a very small margin because we live together as a family. We don’t have 5 homes, we have one home.

We found that we started butting heads with people like British American Tobacco. They had a group called FSS working for them. You must have heard of FSS? Stephen Botha and them, they would come in and harass you, bug your offices do all those things.

That’s illegal…..

It is illegal but what they did is they made it look like they’re assisting SA Revenue Services. Now, what they talk about being the illicit market, R3bn or R5bn a year. They steal that on a monthly basis. You asked me how they steal it on a monthly basis, they steal it in transfer pricing. They charge himself a royalty with a Guernsey company for the brand, Peter Stuyvesant. South Africa doesn’t benefit from any of the cigarettes sold by British American Tobacco because South Africa doesn’t see the profit because the profit is transferred in transfer pricing.

Tobacco industry profits – how they work

Just to give us an understanding, what would your profit margin be and what would their profit margin be?

Our profit margin, we work on a very simple system. We work on R1 a packet. British American Tobacco profit could be anything from R5 a packet to R25 a packet.

Why do people buy their products then?

It’s the way they’ve marketed over the years and the way they’ve sold the thing to the public. It’s the mindset that they’ve created with all these billboards, etc. There’s no such thing as bad tobacco or good tobacco. All tobacco is bad for you. There are different quality grades of tobacco, but with colouring, with casings, etc, you can adapt everything. It’s very difficult to work out a good cup of coffee from a bad cup of coffee. You can camouflage it. What happens is the poor guy Johann van Loggerenberg (head of SARS investigative unit) then lost his job. He didn’t lose his job because of us. If you go and investigate it, the woman that infiltrated him Belinda Walters, she was employed by British American Tobacco. Her job was to take him down because the first fine he hit them with was $1.1bn. He was coming with six more fines. He would have shut them down altogether. We hear in the market, they’re looking at shutting down their South African operation altogether and importing goods from Dubai.

The public story is, and it was written in RW Johnson’s book, you are the guy who brings in cigarettes from Malawi and Zimbabwe under the radar. Don’t pay tax on it and as a result of that, you are able to, first of all, cheat the taxpayer and compete unfairly with the multinationals.

You’re most welcome to go and speak to SARS, all the SARS officials. We took our case to SARS officials in 2008, 2009. We told them, listen, there’s product coming into the market: either I go out of business or I buy the stock and average my price out.

So, yes, as they would call me in SARS, half pregnant. That’s the name they gave me because I told them, until you can protect your borders I’m going to buy that stock. Zimbabweans are hungry.

They bring their stock across the border. It’s coming to the country because wherever there’s high excise duty, there’s always room for people to make money.   SARS has found that BAT was doing more smuggling as one company than the total combined goods that were coming across the border.  Just on transfer pricing, they make out of South Africa R5bn a month.

Just explain that to someone who doesn’t understand what transfer pricing is.

A product cost R15 with excise duty and everything that product sells on the shelf at R35 to R45. On the South African box, R15 goes to manufacturing, excise duties, etc, R15 is paid to an overseas company in “royalty” because the brand holder, so-called, is in Guernsey or British Virgin Islands. So South Africa doesn’t see the money. They don’t benefit from that money.

That’s an extraordinary situation. Is SARS aware of this? And if so have they been able to make any progress in addressing it?

That’s why Van Loggerenberg lost his job. Belinda Walters was paid – I’ll send you all the emails to travelex card, all the interceptions – she’s admitted on record and she was interviewed by Interpol as well here in London because Interpol was looking at investigating British American Tobacco. Where there’s money, there’s always power. And money’s power. These guys were able to buy themselves out of these situations in South Africa and they put up smoke screens and divert the attention onto the smaller players. In the apartheid era I couldn’t own a cigarette company so we’ve come into the market when they’ve put in all these laws that you cannot advertise, you cannot do anything. Fully understood. How do we market our product? There’s no way we can market our product. Then you have on top of that they have the money, they have the huge profit base to go and tell customers on a continuous basis that, listen, be careful, these people, it’s illegal products.  They play that game all the time.

They (BAT) were spending on average with FSS in the region of R10 million a month to counteract the competition. They were caught out with all the bugging devices, etc. It’s all recorded.

I don’t know if you’ve had interviewed Johann van Loggerenberg (we have: watch here), but it’ll be very good for you to understand. He’s been to them. He’s spoken to them. This KPMG story, the Sikhakhane Report etc – Van Loggerenberg nailed me at the time for taxes of R7 million and we ended up paying it. Because he was rightfully right. We avoided paying the tax, not evaded it but we avoided it. If you can beat the system, you want to beat the system so when we came to the party, we ended up paying it.

What he was going to do is level the playing field. His argument was simple: you guys are avoiding paying income tax, these guys (BAT) are avoiding paying a tax on the profit tax where they transfer pricing. Now, if you look at it, the amount of goods that comes into South Africa is minute to the amount of money they are stealing on a monthly basis. It’s simple. Alec doesn’t want to come into the limelight so he puts the limelight on Yusuf. That’s what they’re doing and it goes on like that. SARS was fully aware of what we were doing.

We would inform SARS that we were buying the stock that’s coming across the border and with their permission, we used to buy it because if I didn’t buy it, I’m going to go out of business. Here’s a coffee shop, I have lights, water and telephone to pay, my cup of coffee costs me R10. Here’s some Joe Soap bring it across the border, his coffee is R5. Human nature, who are you going to buy from?

Tell me a little more about this half pregnant, that SARS call you half pregnant. What do they mean by that?

What they meant by that was they were aware that we are bringing goods and manufacturing goods and we are paying duties, etc. We made them aware that I cannot help you protect your borders. So until you get your borders in line, if that product is available, I’m going to buy to average my price out instead of it getting into the hands of my competition, who doesn’t pay any duty and VAT, I rather take the product. So on that product, I’m prepared to pay the income tax and VAT. But you can’t expect me to pay excise duties because that product is in South Africa already.

What did SARS say to that?

They understood it was a huge problem and they were looking. This was where Johann van Loggerenberg set up this thing where he was going to level the playing field out and the next minute he was kicked out of SARS.

Why do you think that was?

Firstly, he hit BAT with a $1.1 billion fine. That was one of many fines for them. Secondly, he caught up with what their game was and he told them, you are just as guilty as the other party. There are no angels in this room. The guy that represents BAT at all these meetings is Francois van der Merwe.  I’m sure you’ve heard of him. I sat with him as well. I said, listen, there’s an opportunity on the table. Talk to British American Tobacco, they should rather engage us and work with us. Give us small players an opportunity. Take a shareholding in our company and stop badmouthing us. We can all grow together. But no, they’re not interested. They want to control that segment of the market.

So in RW Johnson’s book, he says that you’re being investigated for fraud, for customs evasion, for money laundering. Has this all been instigated by your enemies?

100%. Paul O’Sullivan instigated it with a guy called Hennie Niemann (a SAPS colonel) and Willie Schreiber. They arrested me for fraud etc. These are guys that work for British American Tobacco. They have a job with South African police and they work as private investigators.

Seriously, they work for British American Tobacco AND they work for the police?

Yes. We have Tavelex cards. We did all the investigation. We’ve got all the documents for this. What the newspaper reads and what actually happens is two different things. They have Travelex cards that were paid from London. There was a Twitter group that we created to expose this thing and we put all the articles there. Belinda Walters was a bad woman. She was chairman of FITA.

Whats FITA?

Fair and Independent Tobacco Association. We thought she’s with us, she’ll assist us because she told us all she’s been to the United Nations, etc. But we did not have any idea that she was there to play out British American Tobacco’s agenda. She was a State Intelligence operative. She had a few fronts. When British American Tobacco realised that Johann van Loggerenberg is here to make sure that everybody’s treated evenly. There’s no benefit to one and none benefit to the other, they went all out to take this poor guy out. That created a lot of problems. But whatever process he started, he says, listen, you owe R7 million and I ended up paying it.

I had to go through that fraud case that Paul O’Sullivan and them created. I tried to have a meeting with him a few times but Paul O’Sullivan thinks he is the government. I don’t watch movies so when I see Paul O’Sullivan….he’s a funny guy.

What about your connection with Edward Zuma?  

Edward’s a partner with us. There’s two camps in ANC. You’ve got the Mbeki, Ramaphosa camp and you’ve got the Zuma, the Zulu camp. February 2011, if you go and get the clip on the Budget speech. (Finance minister) Pravin Gordhan says in the budget speech that he’s shut down an illicit tobacco manufacturing plant in Pietermaritzburg. Right.

It can only be one.

There’s only one. We hadn’t even started manufacturing cigarettes. We had put up our plant. It was ready. We had submitted our applications for our licence and they sent a letter to SARS and they sent out a document all over. Belinda Walter was the author of this document, stating that we are manufacturing illegal Peter Stuyvesant cigarettes in the factory. SARS doesn’t have the knowhow or the intelligence or the manpower to do any of this. They came with TISA, which is the Tobacco Institute of South Africa (representing multinationals, since disbanded). They came with FSS being Stephen Botha, and they went through that whole factory and they found nothing and they frustrated us for two years not giving us our licence. That’s when we said, listen, only way are going to do this, is let’s choose a political camp as well. So we did exactly what Johann Rupert does. We chose a political camp and we said, listen Edward (Zuma) please assist us.We would like to take you in. We would pay for your shares. Join our company. Assist us in getting our licence. And when he started investigating the whole process, we had meetings with (SARS Commissioner) Oupa Magashula at the time. (SARS Deputy Commissioner) Ivan Pillay who was part of Trevor Manuel’s crew came into the meeting and said, Edward its best you stay out of this business because this business is for the Old Regime. Why you want to get into this business? He tells Edward in that meeting, please stay out of this business, I’m sure your father (former president Jacob Zuma) wouldn’t be happy to get into this business.

So Edward Zuma says, why can’t I get into the tobacco business? Is it only for Johann Rupert and his family? Are we not allowed to be in this business? And that’s where our argument started.

The next best thing was when we decided to get into the airline business, we were looking to get into Fastjet. When we bought Fastjet and we started setting up the whole process in South Africa, again, all the mudslinging started. The Stellenbosch Mafia control all these industries. Every day, I hear you guys talking, in the newspaper and everywhere about how corrupt Dudu Myeni is. Do you know of a R6 billion loan given by Christo Wiese while Nico Bezuidenhout was the CEO. No tender process, nothing. They locked into that for 5 years. Are you aware of this loan?

Is this SAA? I have no knowledge whatsoever of that loan, no.

That’s what I am saying. They own the media, so only what they want reported, is reported.

So why are you talking to me then, if they own me?

I don’t think they own you.

Thank goodness for that.

I don’t think they own you, they are trying to influence you. They’ve realised now you are a runaway train. You’re starting up your own business, so they’ve sent Paul O’Sullivan to you to come and sit here, this Guinness bar and this bar and bullshit you. That’s what he’s doing. We’ve always engaged the press, everyone in south Africa from Jaques Pauw…..whoever called me and asked me information, I would send them all the emails I’ve met with every journalist, but the journalists only write what makes their bosses happy. They never write the truth. And we’ve challenged it. I was poisoned in 2014.

What happened there? 

I lost a kidney. They removed one kidney because there was a murder hit on me, they tried to poison me. They tried everything. I was shot at. I’ve been through it. But I believe that you only die when God wants you to die. I’m not going to stand back and say I’m not going to be in the tobacco business.

How were you poisoned, what happened? Tell us that story.

We were at one of the FITA meetings, I had a cup of coffee, I started getting sick. I started bloating, turning blue. I didn’t realise what was going on. Then I went on humanitarian work to Aleppo in Syria – as a South African Muslim we do a lot of charity work uplifting these people – and coming from there I was in London and I started vomiting, just vomiting all the time and got very sick. I flew back to South Africa and when to see the doctor. When a doctor looked at me, said, shit, I need to take you into theatre. I said, For what? He says, I need to do an emergency operation, your one kidney has collapsed and they removed the kidney. Then they did a test on the kidney and it was from poisoning.

How do you deal with something like that? How do you deal with Johnson’s book How long will South Africa survive? There it is in black and white saying that you’re a crook. How do you deal with that?

I have one simple philosophy. He’s educated to be an idiot. I can’t compete with an idiot. I don’t have the qualifications. If he took the time to come and speak to me before he wrote this book, I could have guided him and given him the facts. If a man doesn’t take the time, it is like calling a woman a whore without seeing your eyes that she’s selling herself on the street. How can you do that?

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