British American Tobacco South Africa (BATSA) today announced that while it has suffered a loss in sales, it has decided not to close its Heidelberg factory, for now. The company said the aim of keeping the factory open was to minimise the impact of job losses.
In a statement, the company said the latest market research shows that the company lost competitiveness, with a third of their volume going down.
In the wake of the Covid-19 lockdown, tobacco products were banned by the government. The ban lasted nearly almost five months. When the ban was in place, the illicit cigarettes trade flourished.
According to the South African Revenue Services 2019/2020 annual report, the unit made 445 cigarette seizures (102.0 million sticks) to the value of R103.5 million.
The company said during the lockdown, they fought an uphill battle to convince the government to act against the illicit trade in cigarettes.
“The sales ban turned the local tobacco market upside down and SA now has the biggest illicit market in the world.”
BATSA general manager Johnny Moloto said “The company, however, failed to convince the Ministry of Finance not to increase excise until the government had implemented proper enforcement against illicit traders. The Minister chose instead to increase the rate on tobacco products by double the inflation rate to 8%.”
He added “This move was made despite evidence pointing to a stretched consumer who cannot afford basic goods and services and who will be forced to buy cheaper illicit tobacco products,” said Moloto.
“As a consequence of the growth in the illicit cigarette trade and lack of enforcement, we have to adjust our cost base in line with our current volume forecast,” he said.
Moloto said the company’s current production and sales forecast are significantly below the 2019 volume, which will result in approximately R4bn lower total tax contribution in 2021 compared to 2019.
“Despite this volume decline, BATSA has opted to save its Heidelberg factory for now and minimise the impact of job losses. If we don’t optimise our business, we will become uncompetitive and lose jobs anyway,” he said.
BUSINESS REPORT ONLINE