Gareth Ackerman, chair of the Consumer Goods Council of South Africa (CGC), says the government needs to take decisive action to combat illicit trade or “we’re going to end up with a total mafia-driven state”.
“We’re not quite at the tipping point yet, but we could get there soon,” he says.
The extent and cost to the country of illicit trade in a wide range of products was hammered home at a webinar hosted last week by the CGC, which represents large retailers such as Pick n Pay, which Ackerman also chairs, Spar, Checkers and Woolworths, and producers of food, household goods, cigarettes and alcohol.
“Illicit trading is a very serious issue the CGC has been dealing with and speaking to government about for many years,” he says.
It was having a “huge impact” on retailers before Covid when, for example, 26% of cigarettes sold in South Africa were illicit.
When government banned the sale of cigarettes during the pandemic illicit sales “exploded”. By the time the ban ended 60% of cigarettes being smoked were illicit. That number has gone down but is still estimated at more than 40%, he says.
“This is hurting the industry, it’s hurting jobs, it’s hurting the government and it’s hurting the economy.”
Tax expert judge Dennis Davis told the webinar illicit trade was costing R100bn in lost taxes every year, which Ackerman believes is “probably on the low side”.
You need the capacity within the state to make things happen, to prosecute and actually lock people up
Apart from its impact on the fiscus, the cost to the retail sector of illicit trade is “devastating”, he says, citing a 2019 Global Financial Intelligence report that South Africa loses about R152bn a year from illicit economic activities.
“That’s being lost by retail,” he says, but he suspects their actual losses are higher.
“The FMCG (fast moving consumer goods) market is about R750bn a year in SA. The sales of formal retailers make up about R450bn of that. So anywhere between R300bn and R400bn a year is being done by informal traders, a lot of it illicitly.”
There’s nothing new about the local manufacture and sale of counterfeit merchandise including brandy, spices, cigarettes, “you name it”, he says.
“But it has got much worse as a result of the Covid bans which led to these scams proliferating.”
The CGC talk to the police regularly and tell them where the illicit products are coming from.
“They are doing a little bit here and there to help clean it up but a lot of it is very organised crime — it has to be at the scale they’re operating at — and the police don’t have the capacity, the skills or the systems to close this down.”
The CGC is working with the South African Revenue Service, National Prosecuting Authority and Hawks but the problem comes down to getting people into court and successfully prosecuting them, he says.
Business could be doing more, “although a huge amount is being done quietly behind the scenes”.
Within the CGC is a unit staffed by former police officers that gathers intelligence, which helps the police bust operations.
“But you do need the capacity within the state to make things happen, to prosecute and actually lock people up.”
Police point to improvements in visible policing but this is not much good in fighting the illicit economy, says Ackerman.
“You need proper crime intelligence and properly trained detectives to go out and nail the big guys, the gang leaders and syndicate leaders, which visible policing is not going to do.”
Business can do more to help with intelligence gathering and data analysis, but there are legal and other limits to what they can do, and what the police have to do, to get cases to court.
“That’s our frustration. And the big question is often who in the police can you trust.”
He believes only something like the Scorpions, a body that is neutral and free from political interference, can break the back of illicit trading and the organised crime it funds.
“Government is being lobbied all the time around this. The problem is there just isn’t the capacity within government to deliver on these issues.”
He says there’s little sign the government has the necessary political will to tackle effectively the illicit economy, in spite of it being “an existential threat to the country”.
You need proper crime intelligence and properly trained detectives to go out and nail the big guys, the gang leaders and syndicate leaders, which visible policing is not going to do
Partly, this is because it has been so focused on internal ANC politics around the forthcoming electoral conference, and on winning the elections in 2024.
“We desperately need a government that is focused on implementing their policies.”
He believes another reason for the failure to wage a ruthless war on illicit trading and organised crime is the issue of politically-connected people with a vested interest in the status quo.
“You’ve just got to look at what’s happening at Eskom. Unfortunately, this runs right through the economy.”
There’s a lot of push back within the government to offers of assistance from business to fight illicit trade and organised crime, but business should be doing more to change this.
“You’re not seeing enough heads of businesses standing up. They don’t want to do it because of potential political ramifications.
“The business stakeholder lobby needs to be a lot more forceful than it is on the illicit economy, on crime. Government needs to feel it.”
Organisations such as Nedlac, the National Economic Development and Labour Council, need to be more than just talk shops, they need to make sure things happen, he says.
“You can’t just leave it to business to do everything. There’s got to be a concerted effort from all stakeholders to fix this country.
“But government needs to lead. They’ve got to say: ‘We’re not going to accept this any more; we’re going to do things properly. Business, labour, community organisations, help us get it right.’”
He concedes this is unlikely given the ongoing distrust of business by government, which is standing in the way of the fight against illicit trade and other crises facing the country.
“Unfortunately, government is still driven by quite a strong ideological base, which isn’t always on the same page as business in trying to create a growing economy.
“It comes down to law enforcement, policy certainty and making sure everybody in government sings from the same hymn sheet and not from different hymn sheets.”
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