Press release – FITA 26 October 2018

Press release – FITA – for immediate release

As previously indicated, FITA had been made aware of a new “strategy” that has been utilised by the Tobacco Institute of Southern Africa (“TISA”), an organization which represents foreign interests and which misleadingly claims to represent the legal tobacco sector in South Africa and some of its members. Amongst other things, this “strategy” specifically states that the intention is to target FITA members, and to do so by among other things “Securing regional and national front page headlines” and to “influence the media, and by extension the public, and retailers…”. These tactics smack of old apartheid regime acts and the public at large, including the targeted retailers, should be aware of the fact that they are being used as mediums to carry propaganda as part of a “strategy” that is designed to malign FITA members and root out competition. It seems that this strategy is now in full swing via the #TakeBackTheTax campaign, and the placing of undue pressure on government officials, retailers and other role players along the tobacco industry value chain.

We can in fact confirm that we are in possession of a communication which has been circulated by management of a large chain of retail stores to its numerous retailers in the whole Western Cape area urging them not to support any FITA member brands on the basis that they were identified by a report commissioned by a competitor as being illicit. This reasoning we feel is absurd as it would be akin to the retail store not stocking one soft drink manufacturer’s brands on the basis that another soft drink manufacturer had commissioned a report which had adverse findings against its competitor in a very competitive market.

One should take into consideration the fact that this is not the first instance worldwide where multinationals have been behind attempts to control and manipulate tobacco supply and pricing, placing undue pressure on inter alia retailers and governments through their financial muscle to implement policies that suit only their commercial interests.

We have previously, and at length, stated our strong view on the illicit trade issue, and we fully support any effort by the state and affected industry stakeholders to curb smuggling and the illicit trading in cigarettes.

One of the main problems with the South African economy however, is that it remains largely untransformed and largely controlled by the same companies, institutions and people as in the past. The tobacco industry is no exception to this and has been dominated by monopolistic, foreign capital for centuries. Unfortunately, this trend has not abated in post-democratic South Africa.

The underhanded and at times unlawful methods which big tobacco have utilised to root out competition worldwide are well documented in the media. South Africa itself has been no different and it has been well documented that in the past TISA members have had inter alia the following conduct attributed to them, which conduct had the intention of ensuring that the tobacco industry remains anti-competitive and dominated by a small number of multinationals:

  • Private investigators illegally entering private premises and planting surreptitious listening devices and bugging phones;
  • Private investigators operating an illegal covert network of spies throughout South Africa who in turn were paid to spy on FITA members and other industry role players;
  • The illegal infiltration and manipulation of FITA, which included the bugging of our board room and board meetings;
  • The setting up of an illegal spy network in neighbouring Zimbabwe;
  • Private investigators illegally entering our premises and planting tracking devices on our vehicles. We can now reveal a photograph of one such device found on one of our trucks;
  • Corrupt practices in terms of the Prevention and Combatting of Corrupt Activities Act which includes the illegal accessing of private and confidential information only privy to FITA members in exchange for a fee. These matters have already been registered with law enforcement agencies in the United Kingdom and our attorneys have been in constant contact with them since;
  • Money-laundering practices, including the payment of persons spying on us by way of cash passports and debit cards in fictitious or false names;
  • Infiltration and manipulation of some of us by means of “agents of influence” with the sole intention to disrupt our business activities and pit us against each other. Some of these activities included duping us into manipulating the media to report on each other in a negative light. In some cases these reports carried a clear political agenda and were clearly aimed at seeking to embarrass us and those politicians;
  • The anti-competitive dominance of shelf space in inter alia retail stores and forecourts, of which the conduct complained of in this letter is a manifestation, and which conduct we will be challenging via a complaint to the Competition Commission;
  • Instances where TISA members have used their access to and influence over state officials to instigate and direct actions against ourselves;
  • Instances where information obtained from us by way of state actions, ended up in the hands of our commercial competitors;
  • Conducting raids against some of us under the pretext of one statutory provision, whereas the true intent was to achieve an entirely different outcome to our detriment;
  • Preferential treatment obtained by some multinationals including attendance of senior government officials at their conferences where they purport to act on behalf of the entire local tobacco industry stakeholders.
  • Media statements and interviews intended to vilify us in the public domain; and
  • The escorting of the deliveries of multinationals via state resources whereas we have to pay for our own security, to name but a few.

To understand the reasons for the strategies employed by the multinationals, one needs to understand that the tobacco industry per se, as a whole, is a shrinking sector in the economy. This is largely attributable to government’s efforts over the past 15 years to curb smoking and the consumption of other tobacco products.

Around 1999 about 27% of total adults in South Africa smoked. That translates to about 50% of 42 million. That translates to about 5.8 million smokers. At this time, the multinationals occupied about 80% of this market. This translates to about 4.6 million smokers of multinational brands. Smokers were more brand conscious then than price conscious.

By 2015, the total number of adult smokers were around 11% of the population of about 50 million people. This translates to about 25 million adults of which 11% smoked. That translates to about 2.7 million smokers. By this time FITA members (who are all local manufacturers) had entered the market and were beginning to offer cheaper brands. This led to a loss of market share for the multinationals. Smokers became more price conscious due to increased excise year on year.

The total base of smokers went from 4.6 million to about 2.7 million. This means the multinationals lost massive market share. Needless to say, they needed to vilify the new entrants so as to lead them to shut down or be harassed.

As an organization we therefore feel highly disappointed that certain government officials, nationwide retailers, and other important role players in the tobacco industry have allowed themselves to be caught in the middle of this fight for market dominance, and have indirectly allowed themselves to perpetuate market dominance by foreign multinationals at the expense of local manufacturers. Such conduct will have a significant impact on not only the commercial interests of our members, but the jobs of a large number of their employees and their families. This at a time when the President of the Republic has called for the support of local businesses to cure the current jobs crisis we face.

We urge all retailers to act free of undue influence from any role player in the tobacco industry, especially when the information they use in support of their argument, the so-called Ipsos report, has been proven to be subjective and biased by a large number of leading academics, researchers and media houses, and can at best be deemed to be a malicious misrepresentation of facts with the desired intention of harming the business interests of competitors in the tobacco industry.

The anti-competitive practices of the multinationals have ensured that our members are side-lined and left to trade primarily in the informal sector via hawkers and spaza shops, as the multinationals own and control shelf spacing in retail stores, and put pressure on the retailers in relation to which brands they should stock on the shelves, this despite current consumer demand for FITA member brands. This is extremely anti-competitive and we have requested that government step in as a matter of urgency as such practices are killing local businesses who cannot compete on the same level as the foreign multinationals.

It has for instance been concluded by experienced academics and researchers in conducting research on economics of tobacco control, that one must be wary of the tobacco industry painting itself as both the victim and saviour when it comes to the illicit tobacco trade[1]. It has proven time and again by its behaviour and a litany of legal cases to simply not be credible when it comes to illicit trade in tobacco;

One must be cognisant of the fact that “big tobacco” has been a global serial repeat offender when it comes to illicit tobacco, and has spent millions on lobbying to block regulation and promote its own agenda. Big tobacco has paid billions of dollars in fines over

[1] https://www.dailymaverick.co.za/article/2018-07-09-who-can-we-trust-and-what-can-be-done-about-illicit-trade-in-tobacco-products/#.W0xyQtUzbIU

the years and has been found to be either directly involved or complicit in illicit trade in its own product.

We as an organization align ourselves with the sentiments of Eads, Ross and Kalideen, as stated above, on the notion that we are of the firm view that If South Africa is serious about tackling the problem of illicit trade and getting this essential revenue back into government coffers, SARS has the ability to act under its existing powers and it does not need, and should not accept, assistance from the tobacco industry or its front groups such as the #TakeBackTheTax campaign.

As an organisation we fully support any effort by the state and affected industry stakeholders to curb smuggling and the illicit trading in cigarettes. This is echoed by our signing of the aforementioned joint statement which was released to the press and the public at large on 15 August 2018 indicating inter alia FITA’s commitment to, together with SARS and TISA, combat the aforementioned problem. This was done whilst maintaining our position as put forward in the meeting that smuggling, although a problem, pales in comparison to the vast amounts of profits which leave our shores through aggressive tax avoidance schemes such as base erosion and profit shifting employed by some in our industry. This, in addition to other compliance risks along the value chain in the tobacco industry should, we feel, also be considered, and that compliance should never be limited to one aspect when the picture is far greater than just the illicit trade;

 We believe the time has come for all stakeholders to meaningfully deal with all the challenges facing the tobacco industry in South Africa and to ensure that the playing field is levelled for all. The old refrain of “smuggling” and “illicit manufacturing” being the primary cause of losses to the fiscus is now running thin. The fact of the matter is that billions are pilfered out of our economy annually by a handful of entities through aggressive profit-base erosion schemes. We believe it incumbent on government to put measures in place that will level the economic landscape, including giving local employers and contributors to the economy, equal hearing and platforms. We believe the days of “big business” having some sway over how the state should direct its powers, actions and resources in the tobacco industry should now come to an end.

Issued by the Fair-trade Independent Tobacco Association: 26 October 2018

For queries kindly contact Monique Vogel t: 011 044 5355; e: Monique@fita.co.za

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