South Africa: New BAT Boss Will Have to Take Up Fight Against Illegal Imports

Source from:  Business Day 06/28/2010

BRITISH American Tobacco 's (BAT's) incoming CEO will have to oversee the fight against illegal cigarette imports in SA, which have grown from almost nothing to account for one-fifth of all cigarettes smoked in the country, an observer said yesterday. Nicandro Durante, whom BAT said yesterday would replace retiring Paul Adams as CEO of the world's second-largest cigarette maker in February, will need to defend the company's South African market share - about 10% of group operating profit - from a growing tide of illegal imports, Cadiz Asset Management portfolio manager Mark Ansley said. "BAT's got a very good market share in SA. It's a case of defending it - more than against competitors as (against) the illicit trade. That has grown to quite big numbers now," he said. London- and Johannesburg- listed BAT is the largest producer in SA, with a 90% market share. Mr Durante, currently chief operating officer, will become CEO-designate on September 1. The volume of illegal cigarettes sold in SA has grown from a negligible level in the mid- 90s to 5,5-billion sticks, or 20% of the 27,5-billion sold in the country each year, according to Cape Town-based industry body the Tobacco Institute of SA. The taxes on a packet of 20 cigarettes in SA equate to 52% of the purchase price, less than the 70%-plus of a country such as the UK, but still higher than any of SA's neighbours. This makes the country a magnet for imports made locally that evade taxes at the border. As many as 3-billion cigarettes come into SA from Zimbabwe and 1,5-billion from Dubai, institute spokesman Francois van der Merwe said yesterday. A further half-billion cigarettes are manufactured locally but not declared, he said. The revenue loss from illegal cigarette sales equates to R2,2bn in tax to the government and a further R2,2bn to the industry, Mr van der Merwe said. Enditem