Black Market Booming
Having spent an early part of my career working for one of the biggest tobacco companies I know the challenges imposed when it comes to fighting the illicit trade. I worked in South Africa and the UK for a number of years and there were some similarities. South Africa with it's porous borders is a soft target and thus ripe for crime. The UK with the cheaper prices in France/Belgium had smuggling issues as well, but this was not as bad as what is currently being experienced in South Africa.
Forecasting sales for a Government price increase was one of my specialties as
this was the biggest earning period for a tobacco company. In the factory warehouses there is a red line where stock that moves over that line has duty paid immediately. There are tight controls as this can be abused as an increase of 8 or 10% is instant profit if you do this the day before the new taxes are announced in the budget speech.
I was reading a report yesterday stating British American Tobacco was reducing it's staff compliment by retrenching 20%. Over the last 5 years that is a 50% staff reduction and knowing the work involved this will impact severely on what can be done. This is a far cry from when I was involved when I even had a chauffeur. I guess the staff there now are more like a skeleton staff and there is no such luxuries. This not only affects the cigarette companies, but also the tobacco farmers as the entire industry is under pressure from bad players.
The problem happened when lockdowns occurred as one of the government ministers placed a ban on the sale of alcohol and cigarettes. The reasons were rather obvious as she was part of the illicit trade and was involved in the black market smuggling operations. Thank goodness she never got the votes to run the country as this was the aim as one could inly imagine how even more corrupt the place would be.
The bans only fueled the illicit trade and this has grown from an estimated 20% to over 70% just within 3 years. This is 70% of taxable revenue that is being stolen and is worth in the region of R40 million per day. Every single packet of cigarettes' has it's own unique code which can be tracked back to the date it was manufactured and at what factory.
One of the jobs we did back in my days was to hunt for illegal black market packets which were counterfeit and could be easily spotted by the quality of the packaging. I guess that doesn't happen now as the trade has got so big you would be engaged in a war.
I pulled up some data on brands in South Africa as this tells a bigger story if you know the market.
If this is the market share they are stating then the market is in much bigger trouble than they are letting on. The ones in green would be less than 15% of the market share instead of 75%. The 25% in white would be the two main brands which should read 85% so there are huge volumes missing. The black market is more like 80% of the total volume which is disastrous.
British American Tobacco has lost 40% sales over the last 5 years and this is all down to smuggling. What is typical is the Government not understanding how dire the situation is are increasing the excise duty in February by another 8% which will only increase the profits for the black market.
There is only 1 solution to claw back the missing billions being lost to smuggling and that is to match the black market trade price and start over. The Government is making R20 per packet currently and is making 20% of what they normally would so reduce that by 60% and receive triple what they are currently earning as sales will go back up. Instead of receiving R10 million per day they would be receiving R25-30 million per day which is what they are after as the country needs the revenue.
Nothing fazes me with the Government think tank anymore as obviously the ones crunching the numbers do not understand the industry. More taxation does not always mean more revenue as this is going to produce less and less. This may also be on purpose by Government officials who are involved in the illicit trade. This would make more sense as what they have proposed doesn't.
Posted Using LeoFinance Beta
Is it possible that more people just aren't smoking? I mean you have to consider that vaping wasn't around back then and it could just be that more people are not smoking cigarettes these days.
Posted Using LeoFinance Beta
No not to that extent as the majority of the volume is by the uneducated and lower class. They are not going to be vaping and the overall market has not really declined that much.
Posted Using LeoFinance Beta
I agree with you that people hardly stop smoking, at most someone manages to smoke less.
I like your analysis; I believe that smuggling develops naturally at a certain point, people when they have to satisfy vices that become too expensive often take refuge in this kind of thing.
We should reflect, if I think of my country I realize that taxation is too high in all fields... I think that here too many people fall back on the subterfuge of smuggling to continue to maintain their vices and, although it is a advocate of the rule of law, in some ways I don't know how to blame them.
In general however for my way of life if I can't keep something I eliminate it, or alternatively, I work harder to get to be able to pay for it.
This post has been manually curated by @bhattg from Indiaunited community. Join us on our Discord Server.
Do you know that you can earn a passive income by delegating your Leo power to @india-leo account? We share 100 % of the curation rewards with the delegators.
Please contribute to the community by upvoting this comment and posts made by @indiaunited.