Cigarette ban

Photo: Pixabay

Cigarette ban: How a ‘worst-case scenario’ could cost pensioners R30bn

Could the government be biting one of the hands that feed them? According to Jacques Pauw, the cigarette ban may collapse a titan of tobacco.

Cigarette ban

Photo: Pixabay

When Jacques Pauw speaks, it’s certainly worth listening. The veteran investigative reporter – and acclaimed author – is no stranger to rocking the boat, and once again on Tuesday, he’s given us some interesting food for thought when it comes to the current cigarette ban.

How illegal sales have hit the tobacco market

The controversial policy has been a mainstay of lockdown, forcing smokers underground to get their tobacco fix. During a Think Big webinar with PSG, Pauw explained how an illicit market for cigarettes was formed more than 20 years ago, and weighed up the devastating effect the prohibition has had on the economy:

  • Government increased the tax on cigarettes from 20% of the sale price to 50% in 1997, which boosted the underground world of illegal cigarettes and created the black market we see today.
  • Contraband products now account for 35-40% of the tobacco industry in 2020, due to the ease of smuggling.
  • It’s estimated that it costs just R2 to manufacture a pack of smokes – despite an average pack selling for R36.
  • The government may have, by now, lost up to R4.5 billion in revenue as a result of the tobacco ban.
  • Over 90% of smokers still have access to cigarettes, as the illicit market moves to ‘leafier suburbs’.

Why the cigarette ban may put pensions at risk

However, Pauw turned his attention to the ongoing court case between British American Tobacco and the government. He predicts that a protracted legal battle will put a strain on the way the company works with the state. Should the cigarette ban be extended for a longer period of time, it could put BAT under severe financial strain.

Considering that the government holds 43 million shares in the tobacco giant, any policy that could drive the group to ruin has the potential to wipe R30 billion from the state pension pot. This is, by no means, the likeliest route the cigarette ban could go down – but it remains an outside possibility:

“Quite simply, the government can’t afford to bring the big companies down: Looking at British American Tobacco (BAT) alone, the state can’t afford to be in conflict with this massive company, as the state pension fund holds about 43 million shares of BAT at a value of R27 billion.”

“In addition, the GEPF holds 23 million shares in Reinet, whose biggest investment is in BAT. If BAT closes down South Africa’s state pensioners will lose way over R30 billion as a result of a conflict the state cannot afford to be in.”

Jacques Pauw