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British American Tobacco SA

Smoking the illicit tobacco

trade in Africa

company report

Smoking the illicit tobacco trade in Africa Editorial – Joe Forshaw Production – Chris Bolderstone

In the last 20 years, tobacco companies have faced bigger challenges than ever but one of the major threats right now is the growing illegal trade that is present all over the world. We take a look at the business of BAT SA and discover what they think about the illicit tobacco market and also the factors that have made them one of Africa’s Top Employers.

British American Tobacco (BAT), headquartered in London, UK, is the world’s second largest tobacco group by sales. Its history is well documented and while anti-smoking activists tirelessly campaign against the company’s operations, there are many who respect the business for its contribution to economic development in nations all over the world and its sterling reputation for job creation. The group has 44 factories in 39 countries and employs over 55,000 people worldwide. The company supplies over 180 markets with nearly 700 million cigarettes and while business conditions are changing all the time, BAT is constantly adapting and looking to address the concerns of all stakeholders. In South Africa, BAT celebrated its 100 year anniversary in 2004 and the company employs over 2000 people. BAT SA commit R30 million every year


to CSI projects, they purchase 60% of the local tobacco crop for production and export, they own around 65% of the legitimate tobacco market and BAT factories in South Africa produce around 26 billion cigarettes annually for domestic and international markets and 1400 tonnes of cutrag tobacco for export. Clearly the business is important to the economy but, as in any market, the sale of cigarettes is still shrouded in controversy. BAT SA, headquartered in Stellenbosch, was given another hurdle in February when the government’s Minister of Finance, Pravin Gordhan, announced a tax increase on all tobacco products. Effective from March 4th, the price of a packet of cigarettes has increased by R1. A 20 pack of Peter Stuyvesant, BAT South Africa’s biggest selling brand and the most popular in the country, will now cost R28.50 (up from R27.50) at recommended retail selling price.

British American Tobacco SA

All images courtesy of BAT

The budget announcement was met with concern by BAT SA with head of corporate and regulatory affairs, Leslie Rance, saying: “This increase is announced in a context of already high tobacco taxes and where the company remains seriously concerned with the proliferation of cheap illegal cigarettes that now constitutes up to 30% of the total cigarette market, due to illegal operators avoiding these very same taxes.”

“We aspire to the highest standard of responsibility in all areas of our business, excellence in leadership, and a sustainable future”


company report

ILLEGAL TRADE The trade of illegal cigarettes and the production of illegitimate merchandise is a longstanding problem for BAT SA and also the South African government. In 2012, the illicit trade in cigarettes grew to 30% of the total South African cigarette market, up from 21% in 2010. Research has shown that approximately 55% of illegal tobacco products reach South Africa from Zimbabwe, more than 30% is manufactured locally and the rest originates from neighbouring and Middle Eastern countries. Apart from taking market share away from BAT SA, illicit trade has also caused a problem for the Finance Minister with research suggesting that around R5 billion was lost in excise duties and VAT, a problem which has been felt by other SACU (Southern African Customs Union) member states - Botswana, Lesotho, Namibia and Swaziland. “Whilst we remain encouraged by the government’s response to the problem of illegal cigarettes, the reality is that illicit trade is on the increase and we are expectant of further supportive actions to drive down this growing trend, especially given the Minister of Health’s recent signing of a global Protocol to Eliminate Illicit Trade in Tobacco Products,” said Mr Rance. The company also said that it remains committed to a balanced regulatory environment, fair and open trade as well as cooperation with authorities in addressing the illicit trade in tobacco products. The entire BAT group see the illegal trade of cigarettes as a major threat. In its 2012 Sustainability Report, the company said: “The global illegal market is roughly equivalent in size to the world’s third largest multinational tobacco company by volume. “Up to 12% of global tobacco sales are estimated to be illegal, making cigarettes one of the most commonly traded products on the black market.” Because of this the company say they are working with other tobacco companies, governments, law enforcement agencies, customs officials and international organisations, such as the World Customs Organisation, to tackle the black market and educate consumers about the people behind it. “Our Anti-Illicit Trade Intelligence Unit works hand in hand with law enforcement agencies to share intelligence and take swift action,” BAT says. Illegal tobacco activity generally falls under three categories – smuggling, counterfeiting and local tax


evading. Of course, all of these have a negative impact on the business of BAT but the company has singled out counterfeiting as a significant problem saying: “A key focus is placed on the protection of our brands which is our most important asset.”

BEST EMPLOYERS With over 2000 employees in South Africa, BAT SA is a large employer and the company takes pride in the relationships it has with its staff. In public media, the company often reiterates its commitment to first class HR. In the 2012 Sustainability Report, the company says: “Great people and an engaging culture are key to our success.”

British American Tobacco SA

Giovanni Giordano, Group HR Director, states: “Having a talented workforce has become one of the most critical factors in our industry. We want BAT to have excellent people, engaged teams and be a great place to work. After all, it is our people who deliver our Group strategy.” This outstanding commitment was recognised by the CRF Institute in 2012 when BAT SA was named as one of the country’s BEST Employers, alongside only 72 other and also one of Africa’s Top Employers alongside only seven others including Microsoft, Unilever and G4S. The CRF Institute said of BAT SA: “With more than 20 different brands of cigarettes, BAT SA exports its products to 31 countries across Africa and the Middle East and is one of BAT’s most successful subsidiaries. BAT SA sees its staff members as valued individuals with needs and dreams and it is this view that has given the company an established reputation as an employer of choice.

company report “The Top Employers certification is only awarded to organisations that meet the highest standard in HR. In the research, all critical areas of the HR management of the participating organisations were assessed. The rating showed that BAT SA has outstanding employee offerings and thus qualified for the exclusive Top Employers certification.” Research by the CRF Institute also showed that BAT SA, through their work in Angola, Malawi and Zimbabwe as well as South Africa, invested significantly in training and development, have a competitive rewards scheme and promote a real culture of excellence. Based in the Netherlands, the CRF Institute is renowned for its independent, objective HR assessment and acknowledgement. CEO, David Plink, says: “… current and prospective employees can trust upon the certified organisations to have excellent conditions in place for their development and growth.” Ziyanda Khumalo, a management trainee at BAT SA, told CRF Institute researchers: “What I appreciate most about working for BAT is the focus on development. The organisation is committed to helping individuals realise their goals and further their careers through the support of coaching and mentorship.” BAT SA operates in a challenging environment. There are the well documented health risks associated with smoking along with tax concerns, packaging rules, advertising laws and, as discussed, the illegal market that is decimating sales and also causing further health concerns. However, even with these powerful burdens, the company still operates very successfully. Major investment is made into CSI, levels of scientific research are at an all-time high, the products are made to the highest quality standards and the company even engages in ethical marketing campaigns which are often detrimental to their own sales, not just in South Africa but also in global markets. The company is keen to point out as often as possible that smoking is a choice and so there will always be a market. To ensure that this market is always served in the best possible manner, BAT SA will ensure they continue to attract and retain the best employees possible, something which to date, they have been very successful with. BAT SA Managing Director, Brian Finch, sums this up by stating: “We aspire to the highest standard of responsibility in all areas of our business, excellence in leadership, and a sustainable future.”



British American Tobacco SA


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