Illicit goods: An existential threat to the South African economy
Illicit trade is not just an economic issue; it's a crisis that threatens jobs, public safety, and the future of South Africa. What can be done to combat this growing menace?
The illicit trade of goods is inflicting catastrophic damage to South Africa's manufacturing industry, while simultaneously depriving the government of vital tax revenue. In the face of such a dire threat, urgent and targeted actions are necessary to restore the sector. Finance Minister Enoch Godongwana acknowledged the severity of illicit trade during his budget speech, emphasizing its potential to endanger consumers and rob the state of billions in revenue.
He cited the impending closure of a major tobacco company in Heidelberg, which would result in the loss of approximately 230 jobs. Godongwana stressed the need for intensified efforts to curb the trade, secure prosecutions, and dismantle its supply chains. Counterfeit goods represent a significant drain on the global economy, accounting for an estimated $467 billion in international trade flows, according to recent OECD data.
OECD Secretary-General Mathias Cormann warned that illicit trade poses risks to public safety, undermines intellectual property rights, and hampers economic growth. As South Africa grapples with this issue, former Sars Commissioner Edward Kieswetter estimated that the country's entire illicit economy could be worth between R800 billion and R1.2 trillion.
Over the past 15-20 years, this illicit economy has grown faster than the formal economy, from around 5% to 12%-15% of the GDP. This translates to a tax loss of R200 billion to R300 billion, which could have otherwise funded essential social services. Illicit trade also poses significant health risks, as food and beverage products bypass established regulations, putting consumers' lives at risk.
Recent OECD reports call for enhanced monitoring and coordinated responses, including real-time information sharing among various authorities. The OECD also emphasizes the need for stronger cooperation among trade intermediaries, postal and shipping services, free-trade zones, and logistics firms to prevent the misuse of their networks.
South Africa's regional context calls for a five-point plan to tackle the illicit economy, including the creation of a national disruption program, strengthening inter-agency collaboration through a command center and collaboration platform, dedicated prosecution teams and courts, increased budget allocation, and investment in technology, data science, and AI.
The proposed plan would initially target high-risk tobacco, alcohol, and fuel value chains. While the effectiveness of these recommendations remains to be seen, the devastating impact of the illicit economy on South African society is undeniable. Lives have been lost, livelihoods destroyed, and communities devastated. In response to this crisis, a business alliance has formed a task force and launched a consumer campaign titled #YourChoiceHasPower.
In partnership with the Consumer Goods Council of South Africa (CGCSA), the campaign encourages consumers to choose legitimate goods and report illicit trade. The alliance has also produced a compelling video documentary series, Someone Always Pays, which investigates the human and economic effects of illicit goods across various industries.
The CGCSA CEO, Zinhle Tyikwe, urges South Africans to understand that no matter how cheap illicit goods may seem, someone always pays. Ultimately, the challenge of illicit trade affects the entire nation, not just legitimate manufacturers. Addressing this issue requires a concerted, focused national effort to safeguard jobs, communities, and the economy.
Written by urgent.news from IOL's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
