Related to this are two other scams known as ghost exports and round-tripping. Ghost exports, in their essence, seek to create the illusion of goods having been exported when they were not. In its simplest form, exporters simply provide the paperwork that appears to show the goods have been exported, thus permitting the deduction of VAT and duties. Its more sophisticated form requires the actual exportation of one or more containers, often holding less than what is claimed on the paperwork or nothing at all. Previously corrupt customs officials would ‘confirm’ by way of a stamped customs document that the goods had left the borders of South Africa when they had not. As SARS began to clamp down on corruption at ports of entries and modernised its customs systems, more sophisticated versions of the scam appeared.
Another variation of ghost exports involves importers who claim to be importing goods for purposes of exporting them. Sometimes they claim the goods are being kept in bond in their warehouse, which defers the obligation of having to pay duties and taxes, and then fraudulently obtain proof of export thereof in one way or another. Alternatively, they claim that the goods are being imported into South Africa en route to another country, typically the two landlocked countries of Lesotho or Swaziland or countries north of our borders. Round-tripping is a derivative of ghost exports – the sophisticated cousin. Here, the goods are actually exported to another country, but then brought back by way of smuggling into the country for local consumption. All these scams have one aim in common: they seek to circumvent the legal requirement to pay excise, duties and taxes on the local sales of cigarettes.
Yet another scam that emerged in the 1990s was illicit or unrecorded manufacturing. While cigarettes are being made, the exact number of sticks coming off the production line is recorded by a counter fitted to the machine. In theory, they are sealed units and cannot be tampered with. They become the record-keeping devices that keep track of the volumes of cigarettes produced, for tax and excise duty purposes. Unscrupulous manufacturers use a secret and unrecorded manufacturing machine, either somewhere within South Africa or outside, in which case the cigarettes had to be smuggled into the country, or, more commonly, disconnect the counter and then produce as much as possible without the quantity being reflected on the counter. The result is that manufacturers are able to sell more packets of cigarettes than what they actually declare to the taxman and, as a consequence, pay less excise duty and pocket the difference.
As I’ve indicated, the fourth most prevalent scam in the golden era up to and including the 1990s was counterfeiting. Crooks would simply produce cigarettes in underground manufacturing plants and package them with the counterfeited branding. The most popular brands suffered most from this scam. Smokers buying them would have been none the wiser unless they knew exactly what to look for on the packaging, including the so-called diamond stamp (with the letters RSA within it), which is issued by SARS as part of the licensing rights of manufacturers. Some counterfeiters were extremely professional in copying brands. Of course, none of those involved in these scams would pay income tax on the profits from their earnings. The net effect of these illegal practices was that the market share of the well-known brand holders began to shrink.
Soon they began to cry foul. In 2010, BATSA went on record to state what a serious problem illegal cigarettes constituted. ‘More than 15 million illegal cigarettes are sold daily in South Africa and the profits are used to fund organised crime.’9 According to a BATSA spokesman, containers used to smuggle illicit cigarettes into the country also often carried guns and weapons. ‘There are clear links between illicit cigarettes and organised crime, drug smuggling and arms smuggling.’10 Moreover, the trade in illicit cigarettes was ‘directly linked to organised crime and the profits used to fund prostitution, gangsterism, human trafficking and even terrorism’.11 Unfortunately for BATSA, not a single person convicted of smuggling cigarettes into South Africa has been found with guns, weapons or drugs included in the cargo or shipment or to have been involved in human trafficking. The claim is pure hocus-pocus – scaremongering on the part of the big companies. In reality, counterfeiting of the big brands had declined by 2010 to levels that were measurably low. In January 2005, SARS confiscated 1500 cartons of counterfeit cigarettes with an estimated retail value of around R4.7 million. But this was one of the last recorded seizures of this size. Indeed, counterfeiting and the other scams were by 2010 no longer the big headache they had once been to the ‘big boys’. Another, more serious threat had emerged: the ‘new independents’ who started to flood the market with cheaper, lesser-known brands – the ‘cheapies’. They would change the tobacco trade for ever.
2
The new kids on the block
All the conditions I have described – new legislation, increased ‘sin taxes’ and decreasing number of adult smokers – created new opportunities within the tobacco industry. Some sharp business people saw the gap in the market to offer unknown brands of cigarettes – or ‘cheapies’ as they are called – at a significantly lower price than the established, famous brands. Given the significant increase in the retail cost of cigarettes, those hooked on the habit simply couldn’t afford to remain brand-conscious and were prepared to move away towards new brands that were cheaper. From the early 2000s, new cigarette manufacturing plants were set up in South Africa run by small, independent businessmen, all trying to get a slice of the ‘pizza’ and many succeeding in doing so. They were smaller outfits, leaner and meaner than the multinationals who had once dominated the market, and as a result they could manufacture their products far cheaper than the latter. Within a few years, they sprang up like mushrooms all over the country and began to make serious inroads into the market share of the large tobacco firms. The myriad of smaller manufacturers, importers and traders did not form part of TISA and openly took on the monopoly once held by the big boys’ club in any way they could. Some of them were also quite prepared to cut corners with SARS and not pay their dues to the fiscus. In effect, the emergence of these new players also began to edge the counterfeiters out of the market and take over the slice of ‘pizza’ that the latter used to represent.
By 2012, some of the new independents began to put their heads together and formed their own ‘club’, the Fair-Trade Independent Tobacco Association (FITA). The primary founder members were Carnilinx Tobacco, Amalgamated Tobacco Manufacturers (ATM), Botswana-based Benson Craig, and United Africa Tobacco Manufacturers (UATM). These remained the major role-players. Several of the other smaller traders and manufacturers preferred to sit on the sidelines, belonging to neither the TISA group nor FITA, and continued to do their own thing. By 2017, FITA had grown to include companies like Afroberg Tobacco Manufacturing, Best Tobacco Company, Folha Manufacturers, Gold Leaf Tobacco Corporation (GLTC), Protobac and Home of Cut Rag, having also shed a few of the original members along the way. FITA was a registered not-for-profit company which relied on member contributions to operate and to pay for expenses incurred in furthering its stated aims. On the face of it, it was intended to counter the TISA ‘club’ and promote the interests of the newcomers to the tobacco industry. According to its website, FITA sought to encourage smaller manufacturers in the tobacco industry in southern Africa to collaborate in respect of industry, regulatory and legislative matters which are common to all and to which, individually, there is little hope of making any significant difference.
Not all local manufacturers joined FITA on its establishment, however. At first, GLTC stayed away, as did a few others. Some would tell me afterwards that it was because they did not really trust each other, and others thought it a waste of time. Among the first of these new kids on the block were Highway Hennie of Apollo Tobacco, Simon Rudland of GLTC, Tribert Ayabatwa of Mastermind Tobacco, and John Bredenkamp of Masters International. A few others soon followed, including Delta Tobacco and Westhouse. This motley crew of independent tobacco manufacturers had