Mbabane – The Mozambique/Eswatini cigarettes and alcoholic beverages black market has significantly dwindled as a result of the former’s political turmoil.
Mozambican nationals and emaSwati alike, dealing in the black market in importing, distributing and selling of the aforementioned illicit products in the black market between the two SADC member states confided to this publication on the dwindling market.
The political unrest in Mozambique following the national presidential elections has been cited as the major cause to their problem.
The definition of illicit trade set out in Article 1 of the World Health Organization (WHO) Framework Convention of Tobacco Control (FCTC) is “any practice or conduct prohibited by law and which relates to production, shipment, receipt, possession, distribution, sale or purchase including any practice intended to facilitate such activity.”
“The unrest in Mozambique has severely affected our trade. For weeks now, we can not get to stock these cheaper tobacco cigarettes produced in that country because of the ongoing conflict,” confided a local trader.
Another mentioned that they easily got access to the cheaper cigarettes and alcohol along the Eswatini/Mozambique borderline but highlighted it has since become very difficult to get these products.
According to a SADC Study into the illicit trade in excisable products with particular reference to alcohol and tobacco products, key findings included that effect of tax increases on revenue and consumption.
The evidence found in Zambia and Mozambique served to illustrate that tax increases, either by increasing excise or VAT rates or by a levy (such as recently introduced in Botswana for alcohol), do not increase revenue unless accompanied by robust control and enforcement. Nor do increases in taxation result in decreases in consumption to any significant degree.
The impact of tax increases drives a switch to consumption of lower quality or illicit products. Research has shown that the best way to achieve reduced consumption e.g. of cigarettes has been through a long-term campaign of raising awareness of the health implications and providing support to those who wish to stop smoking. High tax rates encourage some smokers to try to give up smoking and may discourage some from starting to smoke but the impact of high taxes on actual consumption has been found to be marginal. Smoking is no longer culturally as acceptable as it was and education has played a large part.
In size of illicit trade in alcohol and tobacco products there was satisfaction that there is a significant loss of excise revenue (and VAT) across the region as a result of illicit trade in alcohol and tobacco products. There has been little official effort devoted to estimating the size of this illicit trade but many of the members of industry we consulted in the countries visited were able to provide us with estimates based on their knowledge of retail sales through contact with distributors and retailers. Only in South Africa did we find academic and independent private sector statistically robust research based on actual purchases by consumers. The Universities of Cape Town and Stellenbosch had both been working on methodologies for estimating consumption and thus the size of illicit trade. The private
sector estimate of illicit trade based on purchases by consumers arrived at a similar conclusion to one of the academic studies based on consumption.
(a) Cigarettes
The size of the estimated illicit cigarette trade in South Africa, estimated
through academic or private sector research, was:
- 23 % of total consumption in South Africa (about 6.3 billion sticks –
estimated revenue loss US$ 323 million).
In the other countries visited, the estimates below of the size of illicit trade
were provided by industry:
- 12% to 15% of total consumption in Namibia (50 million sticks:
estimated revenue loss of US$ 4 million);
- 10% to 13% of total consumption in Zambia (estimated revenue loss of
US$2 million);
- 10% to 12% of total consumption in Swaziland (10 million sticks:
estimated revenue loss of US$ 0.8 million);
- 1% to 2% of total consumption in Mozambique (estimated revenue loss
of US$ 250,000); and
- Minimal proportion in Zimbabwe.
(b) Alcohol
There has been some limited and incomplete academic and private sector
research in this sector in South Africa. We found few estimates available
from industry in any country visited but we heard that:
- For 2009, about 160,000 hectolitres of spirits and about 400,000
hectolitres of wine were estimated by industry as illicit in South Africa
(estimated revenue loss of US$ 96 million);
- No estimate available for Swaziland but one importer estimated that
legitimate sales of spirits had reduced by 40% in 2010 (estimated
revenue loss of US$ 3 million);
- Mozambique is experiencing significant illicit consumption of imported
and national products. One rough estimate from an interviewee was that about 60% of all consumption is illicit. Industry estimate is that up to
50% of nationally produced spirits is not tax paid and 50% plus of
imported product is illicit. Following steep increases in the excise duty
rate, revenue receipts for spirits and wine fell in 2009 by 35%.
(Estimated revenue loss about $US1.6 million from domestic production
and US$1.2 million from imports = US$ 2.8 million.);
- In Namibia, industry’s best rough estimate was “less than 10%”. (No
revenue loss estimate available);
- In Zambia, there is significant smuggling of genuine and counterfeit
premium brand spirits, wine and beer products. One interviewee
estimated, unofficially, that the excise loss was about K15 bn a year or
approximately US$ 3.1 million with a possible additional US$ 3 million
advised by industry in relation to losses from opaque beer. (Excise duty
receipts on imported spirits and clear beer fell by 35% in 2010);
- In Zimbabwe, an industry estimate of illicit alcohol was between
100,000 and 150,000 litres a month and growing (estimated revenue
loss US$ 2 million).
For tobacco, the illicit trade is a problem for all countries visited but it manifests itself in different ways in each country. Some countries are sources of illicit cigarettes e.g. Zimbabwe whilst all others are transit countries such as Zambia, Botswana and Namibia. The main destination country is South Africa but some illicit cigarettes find their way onto the market in all countries, particularly in and around border areas and centres of high-density population. There have been some instances of counterfeit cigarettes from Dubai entering SADC through Tanzania and the main ports in South Africa and Namibia but, for the most part, the illicit trade is of smuggled genuine products.
For alcohol, it was found evidence of smuggled genuine premium and low-quality products from South Africa and of premium brand and counterfeit spirits, mainly whiskies, from Europe, with a massive unregulated market in traditional and home-brewed beer and spirits. We were informed of untaxed locally produced cane spirits (and, in South Africa, partially taxed wine products) entering the market in South Africa, Mozambique and Zambia.
There is a glut of very cheap spirits produced in South Africa, Mozambique and Zambia using supplies of bulk ethanol from South Africa, Eswatini and, possibly, Zimbabwe and Malawi. A concern for the health and social welfare departments in several countries is the presence of small plastic sachets and bottles of fruit flavoured spirits sold at informal markets and at
legal outlets to minors. Although we were told that these products are illegal for the South African market, they are produced in South Africa, ostensibly for export to Angola and DRC but have been found in Namibia and Zimbabwe.
Whilst there is an element of cross-border shopping by individuals and small-scale commercial operators, the extent of illicit trade, particularly in South Africa, suggests that it has to be organized by criminal syndicates and it must, in a large part, involve corruption.
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