The political economy of the illicit tobacco trade in South Africa

Abstract

The illicit trade in tobacco is at the centre of politics, corruption, and networks of criminality in South Africa, with tentacles spreading to other tobacco-producing countries from where the country imports, such as Zimbabwe. Mispricing, misinvoicing, and smuggling are major sources of illicit financial flows (IFFs) in tobacco trading, derailing economic development in Africa. Much of the research on IFFs has focused on extractive industries other than agriculture, yet the sector, in particular, tobacco production, contributes much to the economic development of Africa. This chapter estimates IFFs in South Africa’s tobacco production, focusing on the value chain from production to circulation. It reveals that mispricing, misinvoicing, and smuggling by multinational corporations are undermining national development beyond the agricultural sector. A comparative analysis of trading data along the value chain, among key tobacco trading companies, and documentary analysis are relied upon to reveal total losses for South Africa. The chapter estimates the economic impact on rural and urban development, job creation, the balance of payment, industrialisation and poverty eradication, and farmers’ capital accumulation potential.