Africa needs stronger weapons to tackle illicit, conflict-fuelling tobacco trade

The South African government has recently stepped up its efforts to address the country’s rampant illicit tobacco trade. The South African Revenue Service (SARS), facing a severe and persistent reduction of cigarette excise tax revenues, is now endeavouring to curb the illicit tobacco trade by enhancing inspections and search and seizure operations against cigarette companies and manufacturers across the country. This approach has led to a major victory at the end of August, with SARS granted the entirety of Gold Leaf Tobacco’s assets due to the latter’s large-scale tax evasion, possibly linked to its alleged role in the illicit sale and smuggling of cigarettes in South Africa.

While activists against tobacco smuggling have cheered the development, calling it “a huge breakthrough in the battle against the illicit cigarette trade”, efforts across the continent will need to go further given the scale of the problem. Current interventions would significantly benefit from advanced technological solutions, such as full-scale independent track and trace systems, that tackle the illicit tobacco trade at its source, particularly considering that tobacco smuggling is a well-established funding source for armed groups spreading conflict in Africa.

Big Tobacco fuelling Africa’s illicit tobacco trade

Protracted conflicts have made Africa a particular hotbed for the illicit tobacco trade. Big Tobacco has fuelled a smuggling plague on the continent, capitalising on political instability by oversupplying markets, fully aware of armed groups’ use of this illicit market to finance their operations.

While this move might seem counterintuitive, the reality is that the tobacco industry receives the same payment from local distributors regardless of whether its products sell on the legal or black market. Smuggling also lowers the market price of cigarettes, encouraging higher consumption in youth and low-income demographics that the industry has long preyed on. Big Tobacco even uses smuggling surges to dissuade governments from raising tobacco excise taxes by misleadingly attributing smuggling rises to higher taxation.

The industry has funded a slew of dubious studies to legitimise this claim; however,  independent research has found that the tobacco industry grossly exaggerates the correlation between smuggling and tobacco taxation. This minor link can be overcome with effective tobacco control measures, including track and trace systems, which can also support governments’ broader efforts to strengthen tax enforcement. Yet widespread, successful implementation of such a system has proven elusive, notably in Europe.

Track and trace misfires in Europe

In 2019, the EU launched a bloc-wide track and trace system that has also been considered as a potential global solution for implementing the WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products (ITP). Disappointingly, the EU system has proven ineffective in the first years of its implementation. It has both failed to substantially boost tax revenues from the legal tobacco trade and curb the illicit trade, which has seemingly skyrocketed by 2.1 billion cigarettes since deployment, while licit cigarette sales have dropped by 4.9%.

These poor results reflect the system’s deep design flaws. Crucially, it lacks independence from Big Tobacco, delegating critical functions to players with ties to the industry including marking products, reporting traceability information, nominating data storage providers and choosing external auditors, in violation of the ITP’s independence obligations.

What’s more, the EU track and trace system has inherited elements of the controversial Codentify, developed by Philip Morris International and implemented by Blue Infinity, a company that Dentsu – which operates a key component of the EU system – bought in 2017. Simply put, Big Tobacco cannot be involved in tackling a problem that it actively perpetuates. 

Beyond the independence issue, the many parties involved in the EU system create complexity and opacity, and given its unreliable database that depends on these actors accurately reporting all logistical information, the system is vulnerable to corruption, which Member States have already reported to the EU Commission in the form of misreporting errors. And while Dentsu claims to provide track and trace services to all EU governments and the UK, it has only done so for the UK, with only a few months of experience and no demonstrable additional revenue. Without transparency and credibility, the value of a system designed to tackle smuggling is highly dubious.

More robust system needed for Africa

Given the risk of the EU’s track and trace system being implemented in other ITP regions, African countries should seek out improved systems as part of their fight against the illicit tobacco trade that finances conflict and deprives governments of much-need funds for public services. According to the Framework Convention Alliance, the EU system is unsuitable for countries outside the bloc due to its lack of independence, complexity and susceptibility to manipulation or misreporting.

The African continent needs a track and trace system that is independent of Big Tobacco and operated by a single provider to ensure clear accountability and legitimacy. Such a system would provide reliable data across the supply chain, leaving no room for industry-linked actors to omit or tamper with critical information. Furthermore, this solution needs sufficient technological sophistication to render contraband virtually impossible.

Crucially, a track and trace system tailored to Africa’s needs would not only play a key role in weakening armed groups, but also help governments boost much-need tax revenues. Tax revenue recovered from the illicit tobacco trade could then be invested in programmes to address the root causes of conflict, such as poverty and exclusion, as well as in anti-smoking media campaigns and bolstered health services in African countries where smoking is on the rise.

Ongoing armed conflicts and tobacco smuggling surges across the continent have made clear the urgent need for new solutions. Moving forward, African governments should consider implementing effective track and trace systems to counter the illicit trade of tobacco and other conflict-fuelling commodities, which can bolster broader peace efforts in conflict-hit regions while helping to finance enhanced public services – such as healthcare and education – that improve quality of life and economic prospects.

Source: Africa Times