Tobacco wars turn deadly

South Africa’s tobacco industry has long had a stench of the underworld. That much we know from former tax investigator Johann van Loggerenberg’s book Tobacco Wars, where he details the battles between established manufacturers such as British American Tobacco (BAT) and smaller but up-and-coming players such as Gold Leaf Tobacco Corporation, as well as several transport firms for which cigarette smuggling is their bread and butter.

“No tobacco manufacturer, regardless of size or brand, can claim not to have some skeletons in the cupboard,” writes Van Loggerenberg, whose name has been mentioned repeatedly as a key operative in the so-called ‘rogue unit’ operating within the South African Revenue Service (Sars), and tasked with hunting down tax dodgers. Van Loggerenberg left Sars in 2015 under a cloud, and many of the 15 criminal cases he was investigating against tobacco manufacturers and importers “died quiet deaths”, according to an interview he gave to City Press in 2018. That likely cost Sars R3 billion in lost revenue. The existence of the ‘rogue unit’ of which van Loggerenberg was supposed to be a part has been called into question.

Last week Gold Leaf’s founder Simon Rudland survived an apparent assassination attempt while entering the offices of the Fair-Trade Independent Tobacco Association (Fita) in Norwood, Johannesburg.

Read: Philip Morris launches first Africa store to spark alternative cigarettes demand

CCTV footage shows Rudland and a companion entering Fita’s front gate in a Porsche when a white VW pulls up behind and a gunman fires several shots at the car. Norwood is covered with CCTV cameras operated by local firm CAP Security, so there will be plenty video footage of the shooters’ vehicle and its escape route. Rudland was struck three times, but miraculously survived. After a brief visit to hospital, he was discharged and immediately returned to his home in Zimbabwe.

Gold Leaf has offered a R10 million reward for information leading to the conviction of the attackers.

Rudland is quoted in News24 as saying he is 100% sure the hit came from one of his fellow Fita members.

Fita is a tobacco association with eight registered members, including Gold Leaf, Afroberg Tobacco, Amalgamated Tobacco, Carnilinx, Protobac and Folha.

Rudland cautioned about comments

Fita chair Sinenhlanhla Mnguni distanced himself and his organisation from Rudland’s comments. “We have discussed with Mr Rudland the issue of comments attributed to him in the media regarding the incident on August 14, 2019 [where he says a fellow Fita member must have arranged the hit]. He is rightfully upset given the circumstances, but we have cautioned him against making bold public statements at such an early stage in the investigations into the shooting incident.

“Mr Rudland has expressed to us that he simply wants whoever is responsible for the cowardly act perpetrated against him and his attorney to meet the full might of the law. In this regard we give Mr Rudland our full support and backing collectively as an organisation. At this stage we have decided to just allow the police to conduct their investigations in relation to the aforementioned incident. We want whoever is responsible for this senseless and evil act to be apprehended and prosecuted swiftly,” says Mnguni.

He adds that most of Fita’s members have business interests outside of the tobacco industry, and that this, together with other factors would make it “too simplistic to limit the incident as emanating from within the industry despite its history”.

“We continue to maintain that the police should be allowed to conduct their investigations, and any comments in relation to the shooting at this stage are merely speculative.”

An industry with ‘strong’ and ‘colourful’ characters

There are also claims that fellow Fita members were unhappy about loss of market share after Gold Leaf lowered prices on certain brands of cigarette. This, too, is disputed by Mnguni. “Our members regularly sit around the table and the discussions are generally robust in nature. These are all strong characters, but at the end of the day they all come to an agreement on the way forward. Never have I once seen threats being thrown around by our members.”

Mnguni concedes that the industry is populated with “colourful characters” who don’t always agree on things. Fita represents many of the smaller manufacturers, though Gold Leaf is reckoned to have grown to the point where it will soon rival some of the bigger players, such as BAT, who are members of the Tobacco Institute of Southern Africa (Tisa).

Gold Leaf brands include Voyager, Sharp, RG, Savannah, Chicago and Sahawi, which are priced at the lower end of the price spectrum. Smokers are paying excise of R16.66 a packet of 20 cigarettes, making a massive annual contribution to the fiscus.

Outlaws

One thing is for sure: cigarette manufacturing is big business. Fita says it has been assisting Sars in clamping down on cigarette smuggling from Zimbabwe, Botswana and Mozambique, and has thrown its weight behind efforts to rid the sector of outlaws.

Tisa estimates sales of about 30 billion cigarette sticks a year in SA, with one third coming from illicit trade. The legal industry contributes R17 billion a year to the fiscus in excise and value-added tax. Mnguni says Fita members paid R4 billion in excise to the fiscus last year, and have gone a long way in cleaning up the image of the sector (though last week’s assassination attempt will not have helped in this regard).

Sars is losing R8 billion a year due to the illicit cigarette trade, says Tisa. The tax agency recently put out a multi-billion tender for the tracking and tracing of cigarettes as part of a campaign to clamp down on the illicit trade, though Tisa says this is a high-tech system that will impose excessive and impractical regulatory burdens on small retailers, which account for 80% of cigarette sales in SA.

“The system specified in the tender will capture only the legal market and could drive illicit trade up further,” said Francois van der Merwe of Tisa in a statement. “Tisa is acutely aware of the urgency of reversing the phenomenal growth of the illicit tobacco trade since the disastrous [former commissioner] Tom Moyane era at Sars and we applaud the revenue service’s determination to do so. We have already seen some positive results from new Sars crackdowns and tax revenue seems to be stabilising for the first time in many years.”

Tisa says cigarettes are the world’s most illegally traded consumer product, and cost the SA fiscus more than R40 billion in lost revenue between 2010 and 2018.

“This is due to the illegal industry’s high-profit margins, because of the non-payment of taxes, relative ease of production and movement and low detection rates and penalties. The World Health Organisation (WHO) estimates that approximately 600 billion counterfeit and contraband cigarettes are sold annually, accounting for more than 10% of global cigarette sales,” says Tisa, adding that organised crime is behind the illegal trade in cigarettes, and that this is used to fund drug smuggling, human trafficking and other serious crimes.

Friction

Relations between Tisa and Fita are less than cordial. In a recent press release, Fita bemoaned the fact that government had invited a delegation from BAT – and no other manufacturers – to provide input on the proposed Tobacco Amendment Bill, which is expected to introduce plain packaging for cigarettes, and rope e-cigarettes under the same legislation as tobacco.

A statement from the portfolio committee on health says other interested parties may also be invited to provide input.

There is a scene from the film Thank You for Not Smoking where a cigarette executive is lambasting his team for falling sales:

“We sell cigarettes,” he says. “And they’re cool, and available, and addictive. The job is almost done for us.”

Cigarette sales in SA are doing fine. The number crunchers at National Treasury know this. Yet the white coats at the Department of Health want people to stop smoking. The schizophrenia at the heart of government policy could not be starker. If everyone were to give up smoking, Treasury would have to find another R17 billion a year from elsewhere. In other words, they are delighted that smokers exist and are addicted.