Informal sector in the tobacco industry beamons 'impending' regulations

 

Botswana, which is better known for adhering to the principle of consultation, is set to further economically disadvantaged small medium enterprises, hawkers, and vendors, who are mostly dependent on the lucrative tobacco sector. As one expert put it this week, SMMEs and vendors who are critically important to the country’s job creation crusade, have now been thrown to the wolves, as government has taken a hardline stance not to even consult them on how they will implement new regulations affecting the tobacco industry. The regulations, will be a result of the passing of the controversial amendments to the Tobacco Control Act 2021. The new amends, among others, call for cigarettes to be sold in packets, not sticks as it is commonly the case. This is expected to turn the whole thriving industry asunder. An industry player told Botswana Guardian that, he 'finds it strange that even after passing the amends, there is no need for the Ministry of Health to at least sensitize the industry on the new regulations, given the fact the tobacco sector contribute millions of Pula in taxes to government coffers.'

The party further expressed concerns on government’s inconsistency when it comes to consultations, which (consultations) have been part and parcel of every laws or new regulations that govern various industries in the country. “To show consultations are important, government has been forced to abandon plans to amend the Alcohol Act, which among others will have resulted in alcohol being sold widely, including in filling stations.

This happened after the trade ministry made country-wide consultations with the industry. Why can’t the Minister of Health, Dr Edwin Dikoloti do the same,” asked the industry player. Meanwhile, the health ministry has disclosed to Botswana Guardian that they are at an advanced stages of drafting new regulations, following the amendment of the Tobacco Control Act of 2021.

“Once that (drafting) has been completed, implementation of the regulations will effect. The Ministry of Health did not consult with the Tobacco industry on the implementation of the regulations, taking into consideration Article 5.3 of the Framework Convention on Tobacco Control which spells out the diverse and even contradictory interests of public health and the Tobacco industry,” said ministry spokesman, Dr. Christopher Nyanga. Article 5.3 of the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) requires public officials to protect public health policies in relation to tobacco control “from commercial and other vested interests of the tobacco industry”.

Commenting on the matter raised by the health ministry on non-consultation on the implementation of new regulations on tobacco products, the immediate former parliament chairman on health, David Tshere, reiterated his stance that, 'government cannot hide under this clause from WHO by not consulting stakeholders. WHO is not government? Governments are supposed to consult constituents on new regulations affecting them,” he said as a matter of fact. While government is busy drafting the new regulations on Tobacco, on the ground, traders of tobacco, big and small are feeling the pinch. “Due to the new regulations coming, as well as the influx of fake cigarettes, I have stopped trading on cigarettes,' said Phuti Babotlhale.

For over 5 years, he has been running a business which among others retails various consumables to vendors at Gaborone’s biggest bus rank. Some critics of the latest tobacco regulations, have questioned the motive of the ‘economically disadvantaging amends to tobacco Act’ given the dire state of the country’s unemployment rate. Fast facts of the tobacco are that, over 90 percent of all tobacco products sold in Botswana are sold by the informal sectors, hawkers and vendors.

The two are already disadvantaged in the sense that, they do not have enough designated spaces to sell their products or even access to funding to expand their operations. There are over 105 000 businesses operating in the informal sector. The above businesses have created close to 200 000 jobs in the country. According to available data, about 71 percent of revenues generated by street vendors and hawkers come from the selling of tobacco. Most of these businesses are expected to go under, once the new regulations come into effect, as a results of the draconian law. The other concerning provision of the new tobacco regulations which are expect to further put traders, specially vendors and hawkers on edge is that, they will be required to have a separate trading license for tobacco selling. Traders will have to make their applications before the powerful Tobacco Control Committee, which can approve or reject them outrightly. The licensing application has financial implications and annual renewable fees.

The new regulations’ application process, is expected to further cause disruption in the supply value chains of the tobacco industry. Industry players, argue this is because there is no license system in place to be able to deal with the expected demand. The Secretary General of Botswana Informal Sector Association (BOISA), Tefo Metsing, has slammed government for being non-consultative, especially when deciding on matters affecting ordinary citizens and small businesses. “We wonder why government is not recognising the informal sector, yet we are one of the key players when it comes to employment creation.

Lately, government has been coming with laws which disadvantage informal traders, who are already disadvantaged by virtue of their positions,” he said. Metsing said, tobacco products contribute a lot when it comes to profit margins of informal traders. “If you come with unreasonable regulations like one affecting tobacco, you are effectively closing down the sector. Most of our members trade in tobacco, largely because unlike other products, it does not need a lot of storage and even more importantly, is non-perishable,” he said.

ILLICIT TRADING

According to industry players, the local tobacco industry is also chocked by an influx of illicit and non-compliant cigarettes in the form of Chelsea, Wish, Shasha, Caspian, among others. Chelsea is smuggled into Botswana from Zimbabwe through Francistown. Wish, which is also consumed in Botswana, originates from Zambia. On the other side, a local manufacturer, continues to outwit law enforcement authorities and still manages to produce Caspian and Shasha for the Gaborone market. Available data shows that, most of the smuggled and illicit tobacco products originates from Zimbabwe, the foremost producer of tobacco in Africa.

In fact, an authoritative report by World Bank under the title, Southern African Customs Union (SACU): Addressing the Illicit Flow of Tobacco Products, has confirmed this. “Aside from locally manufactured illicit sticks, a significant source of illicit cigarettes imported into all of the SACU countries is widely believed to be Zimbabwe, where it is estimated that six factories are manufacturing more than 20 brands of cigarettes. While no academic or official study could be found detailing the smuggling routes that feed the illicit trade across SACU, it is possible to piece together a view based on customs agency experience and limited-scope information in the public domain,' states the World Bank report.

An insider has told Botswana Guardian that, some of the illicit and smuggled products ultimately end up in neighbouring countries such as South Africa and Zambia. The mode of transport here is normally cross border trucks and busses.

According to a source, thanks to ‘connections’ between these drivers and customs officials, such products more often than not, pass with ease. Botswana, which is a member of SACU, is now seen as a main route in which smuggled and illicit cigarettes pass through to an even bigger market like South Africa. In the past, South African police in the North West province arrested a truck driver for possession of illicit cigarettes worth more than R4.8 million at the Kopfontein border with Botswana, near Zeerust.

It is easy to detect illicit tobacco in Botswana, despite limited enforcement by authorities. For example, a pack of 20 cigarettes must pay no less than P23.00 in Excise and VAT taxes. This is the Minimum Collectable Tax (MCT) applicable to every single pack of cigarettes sold in Botswana. However, all the above-mentioned tobacco products (illicit) are being priced way below the MCT since they are largely sold in the informal trade by hawkers. All cigarettes sold in SACU must have a Consumer Toll-Free Number on the packaging.

Cigarettes that don’t have a Toll-Free number are non-compliant with applicable regulations and constitute illicit products. However, most, if not all the above-mentioned cigarettes brands have toll free numbers. In addition, illicit cigarettes do not normally adhere to prescribed levels of tar and nicotine. Botswana's war against illicit tobacco, has been made worse by the amendment of the Tobacco Control Act last year. Players in the sector have suggested several measures which they believe can help to curtail illicit tobacco in the country and elsewhere.

“A comprehensive approach is required to deal with the illicit trade challenges the revenue authorities’ face. A full value chain solution is required to intervene and disrupt the illicit trade in the short to medium term with specific long-term solutions,” said an industry report. Among the solutions that law enforcement officers can deploy is to strengthen factory controls, which among others include volume verification and customs presence. Authorities are also supposed to closely monitor sales that are below MCT especially at wholesale level.

There is also need to tighten border controls as well as enforcing the power of destruction as set in the Excise Act. In addition, authorities also need to improve forensic capability, especially those that supports product enforcement, identification and prosecution for counterfeit. While Botswana is right at the center of illicit tobacco trade and smuggling, the most affected institution will perhaps be Botswana Unified Revenue Service (BURS), which is the local tax authority. Already BURS is struggling to meet its tax collections targets amid the fragile economic recovery that has been mostly caused by COVID-19.

In Botswana, the biggest tobacco company is British American Tobacco Botswana, which is also the biggest tax payer within the tobacco industry. Available data shows that, BAT Botswana alone contributes P131 million (in 2020) locally in total taxes to the fiscus – and an additional P153 million is excise only paid to SACU. In the past 3 years, BAT Botswana has paid an estimated P968 million total revenues both locally and to SACU. BAT Botswana alone supports an estimated 25,000 livelihoods in the value chain.

However, with the increasing incidents of smuggled and illicit tobacco, experts believe companies such as BAT Botswana, who are paying due taxes which supports the broader economic development are likely to be negatively impacted. Botswana’s formal tobacco sector is still coming to terms with the controversial passing of the amended Tobacco Control Act, which is also expected to further stifle players, while giving illegal tobacco traders a smooth sail.