By Jonathan Erasmus
Illicit trade across 12 industries cost the economy an estimated R126 billion in lost gross domestic product and R68 billion in potential tax revenue in 2024, while displacing about 87,500 formal jobs.
This is according to the recently released “Illicit Trade in South Africa” report, prepared by Econometrix for the Consumer Goods Council of South Africa, covering 2024.
The report valued illicit markets at R279.3 billion and estimated that they displaced about R193 billion in formal production during that year.
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Weak enforcement, porous borders, regulatory failures and the Covid-19 pandemic bans on alcohol and tobacco allowed illegal suppliers to establish parallel markets that increasingly compete with, and in some cases dominate, legitimate businesses.
Mining, gambling and tobacco are the three largest illicit markets, while tobacco and alcohol account for more than 70% of the estimated fiscal losses.
A fiscal loss is money the government does not collect because economic activity takes place outside the legal tax system.
The report estimated the illicit alcohol market at R39.8 billion when measured at formal market equivalent prices. It cost the state about R16.9 billion in potential revenue, displaced R23.4 billion in GDP and affected 6,056 jobs.
Illicit alcohol accounted for about 18% of all alcohol consumed in South Africa in 2024, but only 7% of the market by value because illegal products were generally sold at much lower prices.
The value of the illicit market increased by about 96% between 2017 and 2024, while illicit volumes grew by about 55%.
The Covid-19 alcohol bans gave illegal suppliers the opening they needed to rapidly expand production and distribution, creating a “powerful demand-and-supply shock”.
When legal sales resumed, those networks remained in place and continued to undercut compliant producers, sometimes by more than 40%.
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“South Africa’s illicit alcohol market has evolved into one increasingly characterised by organised counterfeiting operations, particularly within the spirits category, distinguishing it from many African markets where informal homebrew remains the dominant form of illicit alcohol,” the report said.
“It is a large, organised, commercial and strategic parallel market that responds to the same price, demand and profit incentives as the formal alcohol industry, competing directly with legal producers.”
High excise duties and the resulting price gap between legal and illegal products have continued to sustain demand, particularly among consumers under pressure from unemployment, inflation and constrained household incomes.
Illegal cigarettes
A similar pattern can be found with tobacco, which accounts for the greatest fiscal damage of any sector assessed.
The illicit cigarette market was valued at an estimated R45 billion in 2024 and costs the state about R31.4 billion in tax revenue annually – almost half the report’s total fiscal loss. It also displaced an estimated R35.9 billion in GDP.
About 23.9 billion of the 36.2 billion cigarettes consumed in South Africa in 2024 were estimated to be duty-not-paid products, giving the illicit market a 66% share. More recent industry estimates cited in the report place it as high as 75%.
The report described the Covid era 2020 tobacco sales ban as a “major structural turning point”. Illegal manufacturers and distributors expanded while lawful sales were prohibited and retained their customers after the ban was lifted.
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Illegal products can cost between 40% and 70% less than compliant cigarettes.
“South Africa’s market is now dominated by domestically produced, duty-not-paid (DNP) cigarettes, reflecting deep weaknesses in excise enforcement, tax administration, bonded-warehouse oversight and product traceability, as well as entrenched criminal networks operating across domestic and regional supply chains,” the report said.
The damage culminated in British American Tobacco (BAT) South Africa announcing in January that it would close its Heidelberg plant, its last major local cigarette manufacturing facility. The plant was operating at only 35% of capacity as legal sales collapsed, placing more than 230 direct jobs at risk.
Illegal mining
Illegal mining is estimated to be South Africa’s biggest illicit market, valued at R60 billion. It displaced about R25 billion in GDP, R1.9 billion in potential tax revenue and 21,621 jobs in 2024.
The country’s pre-1994 mining legacy has left about 6,000 derelict and ownerless mines, providing zama zamas and criminal syndicates with shafts and other infrastructure through which to access residual deposits.
The report said these networks have developed into an “organised and economically entrenched criminal activity”. They provide finance, equipment, transport, security and guaranteed buyers, while increasingly targeting operational mines.
“As the world’s largest producer of platinum group metals (PGMs) and a major producer of gold, chrome, coal, and diamonds, the country combines the highest value mineral endowment in sub-Saharan Africa with structural vulnerabilities – socioeconomic, geographic and institutional – that make it one of the jurisdictions most affected by illegal mining globally,” the report said.
Gambling
Gambling is the second largest illicit market, valued at R55.1 billion. It is estimated to have cost the state R7.7 billion, displaced R24.6 billion in GDP and affected 31,259 jobs – the highest employment impact in the study.
The growth has been driven overwhelmingly by online gambling and South Africa’s failure to modernise its regulatory system.
Legislation passed in 2008 to regulate interactive gambling has never been brought into effect, creating a “regulatory gap that has persisted for over 17 years”, according to the report.
While South Africa has a well-established licensed gambling industry, online casino-style gambling and poker remain prohibited. The report found that 2,084 illegal operators targeted South Africans in 2023/24, capturing an estimated 68.4% of the overall online market.
“The National Gambling Amendment Act of 2008 would have provided a legal basis for licensing and regulating interactive gambling, but has never been brought into effect – creating a regulatory gap that has persisted for over 17 years while the online gambling market has grown exponentially,” the report said.
The other sectors that formed part of the report were chemicals; clothing, textiles, footwear and leather; food; automotive fuel; non-alcoholic beverages; cosmetics and personal care; pharmaceutical products; and toys and games.
