BAT's Exit from South African Cigarette Production: The Illicit Trade Tipping Point

In a landmark decision that highlights the deepening crisis in South Africa’s tobacco industry, British American Tobacco South Africa (BATSA) announced on January 15, 2026, that it will cease local production of factory-manufactured cigarettes and shutter its sole remaining manufacturing facility in Heidelberg, Gauteng, by year’s end.

This decision, is driven by the rampant illicit cigarette trade that has rendered legal operations unsustainable, and marks the end of an era for BAT, which has operated in the country for over a century. The Heidelberg plant, established in 1975, currently runs at just 35% capacity due to plummeting demand for legal products.

BATSA emphasised its continued commitment to the market through imports, but the closure threatens approximately 230 direct jobs and ripples across the supply chain, potentially endangering up to 35,000 livelihoods in tobacco farming and related sectors. Johnny Moloto, Head of Corporate and Regulatory Affairs at BAT Sub-Saharan Africa, stated, “With approximately 75% of the South African cigarette market now estimated to be illicit, continued local manufacturing has become unviable.” This development highlights the broader economic fallout from unchecked criminality in the sector.

Foundation of Failure – Poor Policing of Illegal Trade

The roots of BATSA’s decision trace back to a decade-long surge in illicit tobacco trade, exacerbated by policy missteps and enforcement failures. South Africa’s legal tobacco market has been under siege since the mid-2010s, when illicit cigarettes began eroding market share from multinational corporations like BAT.

A pivotal turning point was the 2020 COVID-19 lockdown, during which the government imposed a five-month ban on tobacco sales—a measure deemed unconstitutional in subsequent court rulings. This prohibition, intended to curb virus spread, instead fueled black-market networks, as smokers turned to illegal sources. Post-ban, the legitimate industry never fully recovered, with BATSA noting that above-inflation excise tax hikes further widened the price gap between legal packs (around R50-60) and illicit ones (as low as R5-10). These cheap, tax-evading products, often produced by local manufacturers evading duties, have flooded spaza shops and informal vendors, displacing brands like Peter Stuyvesant and Dunhill.

Rapid Expansion Robbing Tax Revenues

Confirmed statistics paint a grim picture of the illicit trade’s exponential growth. Independent research from Ipsos and the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) shows the illicit market share rising from 30% in 2017 to 60% by 2021, peaking at around 60-70% during 2020-2022 amid the ban’s aftermath.

By 2025, estimates from BATSA, SARS, and other sources indicate it has ballooned to an amazing 70-75% of total cigarette sales. This dominance translates to staggering fiscal losses: The South African Revenue Service (SARS) reports R40 billion in excise revenue forgone between 2020 and 2025, with annual shortfalls hitting R28 billion in recent years—equivalent to a frightening R100 million daily in tax revenue lost.

Some analyses peg cumulative losses as high as R84 billion from 2020-2022 alone. Over 90% of these illicit cigarettes originate from 14 local factories, not imports, underscoring a domestic production issue. Enforcement efforts, while ramped up, have yielded limited results: SARS recorded 576 seizures worth R265 million in 2024/25 and 233 worth R135.5 million in early 2025, a drop in the ocean compared to the market’s scale.

Law Enforcement Failure

The government’s law enforcement arms have been criticized for their inability to stem this tide, despite repeated warnings from industry stakeholders. BATSA has engaged authorities for over a decade, providing data and advocating for stronger measures like track-and-trace systems and ratification of the WHO’s Protocol to Eliminate Illicit Trade in Tobacco Products—signed by South Africa in 2013 but still remains unratified.

Structural setbacks include the 2014-2018 “state capture” era under former SARS Commissioner Tom Moyane, who disbanded specialized enforcement units, allowing evasion to flourish. Moyane’s dismissal in 2018 followed a presidential inquiry, but SARS has struggled to rebuild capacity fully. Current Commissioner Edward Kieswetter has highlighted the illicit economy’s growth to R570-880 billion annually, with tobacco as a key component, but critics argue responses remain fragmented.

Proposed tobacco control legislation before Parliament could worsen the problem, as SARS itself warned it might drive more activity underground. International criminal syndicates, partnering with local networks including gangs, have exploited weak borders and corruption in enforcement, further entrenching the trade.

Rumors of government officials’ involvement in the illicit trade have persisted, fueled by the sector’s opacity and historical ties to organized crime. Allegations suggest complicity at various levels, including police officers arrested for trafficking during the 2020 ban. However, confirmed details are scarce. No high-level South African officials have been definitively linked through prosecutions or inquiries specifically to the tobacco trade. Broader corruption probes, like those into state capture, revealed systemic weaknesses but not direct involvement in illicit cigarettes. Cross-border connections, such as Zimbabwean firms with political ties exporting to South Africa, add to suspicions, but evidence remains circumstantial.

Further Erosion of Other Industries Ahead

BATSA’s withdrawal signals a dire warning for South Africa’s manufacturing landscape. Beyond job losses, it jeopardizes rural economies dependent on tobacco farming, where BAT once procured 60% of the crop.

Recent reports indicate that illegal alcohol manufacturers and importers are undermining South Africa’s local alcohol industry, much like the illicit tobacco trade. This has been substantiated by multiple sources from 2025 and early 2026. The Drinks Federation of South Africa (DF-SA), along with research from Euromonitor International and industry analyses, highlight a surging black-market alcohol sector that is costing billions in revenue, threatening public health, and pressuring legitimate businesses and jobs. This parallels the tobacco crisis, where unchecked illicit trade has driven players like British American Tobacco shutting down local operations.

Finance Minister Enoch Godongwana has acknowledged the 70% illicit share of the tobacco trade, and R27 billion annual losses, with excise collections falling 29.6% from 2015/16 to 2024/25. To reverse this, experts call for a coordinated “whole-of-government” approach: bolstering SARS, implementing digital tracking, and moderating taxes to narrow price disparities. Without action, more industries may follow BAT’s lead, ceding ground to criminals and eroding fiscal stability.