South Africa loses up to R68bn in tax revenue each year because of the illicit economy, which is estimated to be worth as much as R280bn, according to a new study by Econometrix.
Illegal gold mining, tobacco, gambling, alcohol and food trading are among the sectors contributing to the illicit economy, the study found.
Azar Jammine, chief economist at Econometrix, said lost tax revenue was forcing the government to borrow more to fund its obligations.
“As a result of illicit activity, the government has been losing annually R68bn in tax revenue. The government has to borrow to cover for that and has to pay interest amounting to probably R8bn a year. This is money the government should not be paying,” Jammine said while presenting the study’s findings.
The study estimates that the illicit market displaces about R193bn in formal production and 87 500 direct jobs.
It said demand supplied through illicit channels was diverted from compliant businesses. This strengthened crime, weakened institutions, increased consumer risks and undermined confidence in legitimate markets.
The study also found that illicit trade reduced formal production and constrained GDP growth.
Mining and gambling among biggest illicit markets
Zama zama mining was identified as the largest illicit market, with an estimated value of R60bn, followed by gambling at R55bn and tobacco at R45bn.
Together, these three sectors account for about 58% of South Africa’s estimated illicit trade. Alcohol, food, clothing and toys were also among the sectors identified in the study.
Tobacco accounted for the largest share of lost tax revenue, at an estimated R31.5bn a year. The illicit tobacco economy was also estimated to reduce GDP by R35.9bn, while illicit mining had an estimated GDP impact of R25bn.
British American Tobacco South Africa announced in January that it would close its Heidelberg manufacturing facility by the end of 2026, citing the impact of illicit cigarette trading on the local market.
Alcohol was estimated to cost the government up to R17bn a year in lost tax revenue. The article should confirm the study’s separate estimate for gambling before publication.
Study covered 12 industries
The research assessed illicit trade across 12 industries, including non-alcoholic beverages, chemicals, cosmetics and personal-care products, and pharmaceuticals.
Jammine said the products covered by the study accounted for 30.5% of South Africa’s GDP. This figure should be explained more clearly in the report, including whether the study’s findings can be applied to the wider economy.
He said consumers were attracted to illicit products because they were cheaper and widely distributed through established networks.
The research was commissioned by the Consumer Goods Council of South Africa under the auspices of the National Economic Development and Labour Council, which brings together business, labour and government.
Neo Momodu, CGCSA executive for legal, regulatory and stakeholder engagement, said the study’s findings would be handed to President Cyril Ramaphosa as part of efforts to find solutions to illicit trade in South Africa.
Jordi Borrut, managing director of Heineken Beverages South Africa, said illicit trade was affecting formal, tax-paying businesses.
“We fully support efforts by government and industry to combat illicit trade. We also believe that continued engagement between policymakers and industry is essential to ensure that interventions are effective, practical and informed by experience,” he said.
Parliament’s portfolio committee on health has called for the preamble to the Tobacco Bill to be expanded to acknowledge “the detrimental impact of illicit tobacco and related products on public health and the need for measures” to address illicit tobacco trading.
THE NATIONAL