The rise of unregulated sales is reshaping formal industries across Africa, from alcohol to pharmaceuticals, as illegal trade drains revenue and threatens jobs.

British American Tobacco South Africa (BATSA) announced on Thursday that it will end all local production of factory-made cigarettes and close its Heidelberg facility in Gauteng by the end of 2026.

The company, backed by major institutional investors including BlackRock, Vanguard, and Capital Research and known for brands such as Dunhill and Peter Stuyvesant, said the closure could put approximately 230 jobs at risk.

It blamed the decision on the rapid rise of the illicit cigarette market, which it says has made local manufacturing unsustainable.

“With approximately 75% of the South African cigarette market now estimated to be illicit, continued local manufacturing has become unviable,” said Johnny Moloto, Head of Corporate & Regulatory Affairs at BAT Sub-Saharan Africa.

Operations Under Pressure

The Heidelberg plant is currently operating at just 35% of capacity as legal cigarette volumes have collapsed.

While BAT says it remains committed to the South African market, it plans to serve consumers entirely through imports once the factory shuts.

“This is an incredibly difficult day for BATSA and for the approximately 230 employees and families who may be affected,” the company said. “These are skilled, dedicated people who have given years of service, who, unfortunately, are affected by an illicit market that operates outside of the regulatory net.”

BAT confirmed that it has begun a formal consultation process with affected employees and unions in line with South Africa’s Labour Relations Act, with discussions expected to conclude by the end of March 2026.

The full closure of the manufacturing facility is planned for the end of 2026.

South Africa’s illicit cigarette trade surged during the COVID-19 lockdowns, when legal sales were banned, allowing illegal networks to entrench themselves.

Experts from the University of Cape Town (UCT), cited by NewsInSA, warn that the country is losing billions of rands each year to this booming market.

They stress that the trade is not a shadowy street operation but a sophisticated, profit-driven network, involving major tobacco companies operating within the country.

Research suggests that illegal cigarettes now make up 60% to 75% of the market, resulting in tax losses of $2.7 billion to $4.4 billion over the past five years and a $2.1 billion revenue gap since the pandemic.

The scale of the illicit market has also created a major enforcement challenge for authorities, costing the state tens of billions of rands in lost excise and VAT revenue over the last decade

“All indicators are that illicit is becoming a significant issue in multiple industries, including alcohol, pharmaceuticals and cosmetics, food, clothing and even toys,” Moloto said. “If this can happen to a facility that’s been operating for 50 years, it can happen to anyone.” (Business Insider Africa)