British American Tobacco (BAT) will close its only cigarette factory in South Africa by the end of 2026, a move the company’s CEO attributes to the unchecked growth of the illicit cigarette trade. The decision, announced last month, will impact approximately 230 employees at the facility located in Gauteng province, which has been operating since 1975.
BAT CEO Tadeu Marroco told Bloomberg News on Thursday that the company repeatedly warned the South African government about the potential for this outcome. “They cannot say they didn’t realize,” Marroco said. “Every time we did a downsize, we went back to the government and said, ‘look we are doing all we can’,” adding that the issue was never adequately addressed.
The closure marks a significant pullback for BAT in South Africa, where the company has a history spanning over a century. Instead of local production, BAT will now rely on imports to serve the South African market.
The rise of the illicit cigarette trade in South Africa has been a growing concern for more than a decade, exacerbated by a weakening of the country’s enforcement institutions during the nine-year presidency of Jacob Zuma, which ended in 2018. According to reports, the South African Revenue Service (SARS) and prosecutorial bodies experienced a loss of leadership, skills, and independence, leading to reduced oversight in key sectors like tobacco.
This decline in enforcement capacity allowed illicit manufacturers to expand, often by under-declaring production and avoiding excise duties. The destabilization of SARS, once a strong tax authority, was particularly pivotal, as specialist units and experienced investigators were lost, creating opportunities for organized networks to flourish.
The situation worsened during the COVID-19 pandemic. Marroco stated that BAT alerted President Cyril Ramaphosa’s government that a ban on the sale of alcohol, tobacco, and vaping products for several months in 2020 would further fuel the illegal cigarette market. BAT South Africa attempted to overturn the ban, which was implemented to contain the spread of the virus.
Currently, illicit trade accounts for approximately 75% of South Africa’s traditional cigarette market, a figure the government has been unable to reduce to “meaningful levels” since the pandemic, according to Marroco. President Ramaphosa acknowledged the issue in his state-of-the-nation address on Thursday, pledging a broader crackdown on the illicit economy and increased support for a new national program to disrupt illegal dealings.
SARS has warned that international criminal organizations are increasingly partnering with South African networks to penetrate the local illicit market. Data from SARS indicates that tax collection from tobacco has stagnated despite rising consumption over the past five years, creating a tax revenue gap of R40 billion post-COVID-19, excluding displaced consumption absorbed by illicit trade.
Research suggests that the illegal tobacco industry in South Africa represents between 60% and 75% of the entire sector, resulting in estimated tax losses ranging from R51 billion to R84 billion. Formal consultations with affected employees and union representatives began on January 15th, as per Section 189A of the Labour Relations Act, and are expected to conclude by the end of March 2026.
