Profits up in smoke

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IOL smoking smoker INDEPENDENT NEWSPAPERS File photo: Ross Jansen

Durban - The tobacco smuggling industry in sub-Saharan Africa is a multibillion-rand business with tons of illegal cigarettes, and the tobacco leaves used to make them, passing undetected through South African ports every year.

Research indicates that one in every three cigarettes available on the open market is illicit.

In an industry where there are huge profit margins, allegations of espionage and the evasion of import duties and excise are widespread.

With the legitimate trade dominated by global corporations, smaller players claim collusion with tax authorities in trying to run them out of business.

It is a complex pan-African illicit trade network.

British American Tobacco, founded in 1902, is the industry leader by far.

According to its website, it makes more than 200 brands, catering for one in eight of the world’s billion adult smokers. Its subsidiaries sold 694 billion cigarettes in 2012.

While many producers operate within the bounds of the law, South Africa has become the end-destination for millions of smuggled cigarettes from neighbouring states and other countries.

Land border points traditionally have been the entry point for the contraband, with experts identifying a startling change in tack.

With the illicit global trade on the rise, coastal ports of entry have become a conduit for the illicit cigarettes and the tobacco used to make them.

The trade is estimated to cost the country’s fiscus nearly R5bn a year, with no sign of this abating.

Considered one of the largest organised criminal enterprises, sophisticated networks face off with the South African Revenue Service.

The lucrative legal trade is governed by regulatory bodies that cater for mega-companies and their smaller competitors.

The Tobacco Institute of Southern Africa (Tisa) is the main industry body for regulation and oversight of the industry in South Africa, with a mandate and reach that extends into Africa.

Tisa represents tobacco growers, leaf merchants and processors, manufacturers, importers and exporters of the products in South Africa.

Tisa also prescribes what companies must comply with in the industry.

In what looks like an attempt to give smaller growers and producers a stake, the Fair Trade Independent To-bacco Association (Fita) was set up in 2012.

It aims to encourage smaller manufacturers in southern Africa to collaborate on industry, regulatory and legislative matters, whereas individually they would not have a significant impact.

The smaller manufacturers in southern Africa say they do not have the same opportunities for industry representations as larger players.

According to Fita literature, it takes pride in transparency, the fair representation of all members, promotion of fair trade and prohibition of anti-competitive practices, such as price fixing.

Its members include:

*Amalgamated Tobacco Manufacturers.

*Benson Craig.

*Carnilinx.

*Fodya.

*Folha Manufacturers.

*United Africa Tobacco Manufacturing.

Instances of industrial espionage abound. Tales of hijacking syndicates paid to steal a competitor’s stock is a chief complaint from smaller manufacturers.

Tobacco producers, and the fleets that deliver their wares, are often targeted because of the ease with which the cigarettes are sold on to change hands.

Whether this is prompted by competitors is in dispute and has not been proven.

Amalgamated Tobacco Manufacturing based in Mkhondeni, Pietermaritzburg, is a smaller player in the industry that has courted controversy.

The taxman began to investigate the company in 2010 after suspecting it was involved in importing tobacco from Zimbabwe and distributing some of the cigarettes manufactured without paying the required taxes and excise duties.

One of the listed directors of the company is Yusuf Kajee. Three years ago, Kajee was investigated by Sars for tobacco smuggling. The probe led to the liquidation of Delta Tobacco.

Businessman Paul de Robillard is also registered as a director.

President Jacob Zuma’s eldest son, Edward, was a director of the company. He resigned in 2011. The trio are also directors of low-cost airline Fastjet Holdings.

Police seized a “huge consignment of illicit” cigarettes in Edenvale, Joburg, last August and the brands were registered to ATM.

Martin Wingate-Pearse, Gavin Lombard, Mohammed Sayed, Adriano Sauro Mazzotti and Kyle Phillips are listed as directors of Carnilinx.

In December the cigarette manufacturer was under investigation for allegedly spying on the government’s tax investigators. Carnilinx has also been accused of illegally intercepting the police’s Crime Intelligence operations.

Sivalingum Pillay and Joao Oscar Simoes are listed as directors of Folha Manufacturers. According to its website, it is a progressive and proudly South African cigarette manufacturer.

Emmanel Rutagamirwa is listed as a director of United Africa Tobacco Manufacturing.

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Sunday Tribune


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