British American Tobacco Plc had repeatedly warned the South African government that it might halt local production by the end of 2026 if authorities failed to curb the surge in illicit cigarette sales, according to its chief executive.
- British American Tobacco (BAT) has announced its intention to end its domestic production operations in South Africa by 2026.
- BAT cites the rising prevalence of illegal cigarette sales in South Africa, which presently comprises approximately 75% of the market.
- The Heidelberg manufacturing plant, operational since 1975, has seen decreased activity, operating at only 35% capacity.
- Impacted by governance lapses, the weakened enforcement and tax oversight in South Africa have facilitated the growth of a parallel market, undercutting compliant producers.
The company now plans to supply the South African market through imports, bringing to a close more than a century of domestic manufacturing.
The plant, which has been operating since 1975 and is BAT’s eighth-largest globally, could see around 230 jobs affected by the planned shutdown.
“They cannot say they didn’t know,” said CEO Tadeu Marroco told Bloomberg News. “Every time we did a downsize, we went back to the government and said, ‘Look, we are doing all we can,” he said, adding that the problem was never effectively addressed.
Illicit cigarette sales in South Africa have been rising for more than a decade, a trend that accelerated during the nine-year presidency of Jacob Zuma, which ended in 2018.
During that period of so-called state capture, enforcement institutions were systematically weakened. The Heidelberg plant is currently operating at just 35% of capacity as legal cigarette volumes have collapsed.
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As enforcement declined, illicit manufacturers expanded operations, under-declaring output and evading excise duties, fuelling the growth of a parallel market.
Tax Authority Weakened
The weakening of the revenue service proved particularly significant. Once regarded as one of Africa’s strongest tax authorities, it lost specialist units and skilled investigators, creating room for organised networks to flourish.
Untaxed cigarettes quickly gained market share, undercutting compliant producers like BAT and costing the government billions in lost revenue.
The situation worsened during the Covid-19 pandemic. Chief Executive Tadeu Marroco said BAT had warned President Cyril Ramaphosa’s administration that banning the sale of alcohol, tobacco and vaping products for several months in 2020 would further entrench the illicit market. BAT South Africa challenged the prohibition in court, arguing it would strengthen illegal trade.
According to Marroco, illicit products now account for roughly 75% of South Africa’s traditional cigarette market, and authorities have yet to reduce that share to “meaningful levels” since the pandemic.
