The trade in illicit goods is destroying the country’s manufacturing economy, and robbing treasury of critical tax income.
As SA bleeds jobs and factories close, strategic interventions are vital if we are to rescue the sector at the 11th hour.
South African Finance Minister Enoch Godongwana made a remarkable admission during his budget speech to parliament early this year.
“The scourge of illicit trade threatens our economy,” he said. “It endangers consumers, and robs the fiscus of billions in revenue.”
As proof of this existential threat, Godongwana cited recent news that a major South African tobacco company was poised to close its last manufacturing facility in the country, at the cost of around 230 jobs in the Heidelberg area.
“The sophisticated and organised nature of illicit operations demands an intensified effort to curb this trade, secure prosecutions and dismantle its supply chains,” continued Godongwana during his speech.
A global challenge
Counterfeit goods – only one component of illicit trade – are a significant drain on the international economy, and recent OECD data indicates that they account for around $467 billion in global trade flows.
“Illicit trade threatens public safety, undermines intellectual property rights and hampers economic growth,” says OECD secretary-general Mathias Cormann. “The risks could increase as counterfeiters leverage new technologies and techniques to avoid detection.”
Economic impact
South Africa suffers massive economic impacts from the trade in illicit goods. In a presentation to parliament earlier this year, former Sars Commissioner Edward Kieswetter estimated that South Africa’s entire illicit economy could now be worth anything between R800bn and R1,2-trillion
Kieswetter estimated that in the past 15 to 20 years, the illicit economy had grown faster than the formal economy – from about 5% of GDP to about 12%-15%.
He believes this translates into R200bn-R300bn in taxes not collected. This tax loss carries huge opportunity cost, in terms of the social housing, the old-age grants, the tertiary education funding and other state support that taxes could finance.
On a human level, the illicit trade also carries enormous health risks, as food and beverage products circumvent established regulation, placing consumers’ lives at risk. Illicit food and alcohol products have been linked to numerous health scares, as well as deaths.
Coordinated responses
A recent OECD report calls for continued monitoring and more coordinated responses, including real-time information sharing among customs, police, financial intelligence units, and market-surveillance authorities to fight illicit trade.
The OECD report also identifies a need for stronger cooperation and exchange of best practices among trade intermediaries, postal and shipping services, free-trade zones, and logistics firms, to prevent misuse of their networks.
In the Southern African regional environment, Kieswetter has proposed a five-point plan to confront the illicit economy. He recommends creating a presidency-led national-disruption programme.
The plan would involve strengthening inter-agency collaboration through a command centre and a collaboration platform, initially targeting high-risk tobacco, alcohol and fuel value chains. There would also be dedicated prosecution teams and courts, more budgets, scaled-up investment in technology, data science and AI, and a national dashboard to measure progress.
Whether these recommendations are implemented remains to be seen, but it is clear that the illicit economy has already had a devastating effect on South African society – costing lives, and costing livelihoods.
At business level, an alliance between sector leaders is highlighting the impact of illicit goods on South African society – and proposing a way forward. The business alliance has formed a task force, and launched a consumer campaign titled #YourChoiceHasPower, in partnership with the Consumer Goods Council of South Africa (CGCSA), encouraging consumers to buy legitimate goods, and report illicit trade.
Documentary series
The alliance recently premiered a hard-hitting video documentary series highlighting the massively negative impacts of illicit goods.
The series, Someone Always Pays, features in-depth investigation of the human and economic effects of the illicit economy – across several of the industries affected.
“Our message to South Africans is that with Illicit goods, no matter how cheap they are, someone always pays,” says CGCSA CEO Zinhle Tyikwe. “But consumers can help to turn the tide against this scourge through the purchasing choices they make.”
Ultimately, with illicit trade growing right across the South African economy, it is a challenge facing the entire nation – not just legitimate manufacturers.
Illicit trade doesn’t just hurt companies – it destroys jobs and communities. Addressing it will require a concerted, focused national effort.
