…As cigarette smugglers cash in on South African ban
BERNARD MPOFU
South Africa’s ban on cigarette sales in response to the Covid-19 pandemic is making a lot of smugglers rich.
According to Zimbabwe’s main business chamber, the country is losing more than US$10m a month in cigarette export revenues to smugglers feeding the increased demand south of the border.
“The banning of cigarette sales in South Africa is likely to worsen the problem as smuggling of tobacco increases, with dire ramifications on revenue leakage at a time when the country is facing serious fiscal constraints,” said economist Persistence Gwanyanya.
Zimbabwe’s famed tobacco is used as a flavoring by global cigarette makers and grown by more than 170,000 mostly small-scale farmers.
It is the country’s second -biggest foreign currency earner after gold, contributing roughly 19% of export earnings, according to official figures.
Tobacco last year brought in $892m, according to statistics published by Thomson Reuters.
Desperate smokers in South Africa have been willing to pay almost double the normal price for smokes, which has fuelled the illicit trade during the lockdown, according to experts.
Official estimates of losses due to cigarette smuggling before the COVID-19 outbreak are hard to find. However, Zimbabwean government officials and business groups often put the figure at “hundreds of millions” of U.S. dollars.
Such losses are potentially devastating to Zimbabwe, whose economy was already suffering from chronic foreign currency shortages, hyperinflation, lack of food, medicine and fuel shortages before the global pandemic emerged.
With a drought last year, poor rains this season and the coronavirus outbreak, humanitarian groups have warned that more than half of Zimbabwe’s population may need food aid this year.
Cigarette smuggling has long been a problem along the porous border between Zimbabwe and South Africa, with “runners” carrying the contraband in plastic bags attached to their backs cross the Limpopo River in the dark, according to a 2019 investigation by the U.S.-based Global Initiative Against Transnational Organised Crime.
On the South African side, they offload the cargo into small trucks that travel on backroads to avoid detection, said Simone Haysom, the report’s author and a senior analyst with Global Initiative.
“The buyers at the South African side are businessmen who will be waiting to fetch the cigarettes from the runners,” said Haysom.
“To get to their destinations, their trucks use small and private roads to avoid tollgates, roadblocks, and adhoc searches by law enforcement on main roads.”
Chris Mugaga, Zimbabwe National Chamber of Commerce chief executive, said the weakening Zimbabwean currency may also have contributed to the increased smuggling as syndicates try to cash in on currency gains.
Before last October’s abandoning of the multi-currency system, Zimbabwe’s dollar was at par with the U.S. dollar.
Now the domestic currency is trading at 1:90 on parallel markets and officially at 1:76.7 to the greenback.
“This (estimated $10 million a month) is a big loss,” he said. Between January and June this year the excise duty was the thirdlargest revenue source after corporate tax and VAT, he said.
“Therefore, the loss is significant and is also spurring job losses within the value chain of the tobacco industry.”
He said Zimbabwe’s tax agency should strengthen production con trols by insisting that cigarette manufacturers install production counters on all cigarette-making lines.
“Zimbabwe’s cigarette industry has not been spared from the economic challenges that have bedeviled the country generally,” Mugaga said in an interview.
“The fact that tobacco leaf is the main component in the manufacture of cigarettes, our industry is therefore heavily exposed to exchange rate fluctuations, which impacts its costs of production.”
He added: “We are of the view that if the illicit cigarette market is eradicated, government will increase tax collection because there will be less tax leakage.”
The coronavirus pandemic has restricted formal trade between Zimbabwe and South Africa after they shut their borders to limit the spread of the virus, which has killed 40 people and infected 2 817 in Zimbabwe as of yesterday.
South Africa is the only country in the world which currently has suspended the sale of cigarettes. India and Botswana have lifted their bans. Tobacco companies such as BAT Zimbabwe, a unit of BAT Plc and Savanna Tobacco, have for years blamed the country’s porous borders and corruption at various ports of entry for the smuggling of tobacco mainly to South Africa.
The Tobacco Institute of South Africa has estimated that 60% of South Africa’s illicit cigarettes are produced domestically, while 38% are smuggled from Zimbabwe, and the remainder from other countries within the region.
In 2012, the South African Revenue Services estimated that Africa’s most developed economy could be losing between R2bn to R4.5bn each year to illicit cigarette trade. As smuggling continues, the Zimbabwe Revenue Authority has promised to work with other security agencies in the country to minimize smuggling and corruption at the border.
This story was produced by the Business Times. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at www.wealthof-nations.org. The content is the sole responsibility of the author and the publisher
