BAT Questions South Africa’s New Bill: Lack of Distinction Between Cigarettes and E-Cigarettes, Excessive Powers Pose Governance Risks

BATSA’s Key Concerns:

• Lack of regulatory differentiation: The draft does not distinguish between the risk levels of traditional cigarettes and reduced-risk products such as e-cigarettes.
• Illicit market not prioritized: With an illicit cigarette trade rate as high as 75% in South Africa, the regulations will be difficult to enforce without addressing illegal trade first.
• Concerns over plain packaging and display bans: Such measures could undermine the competitiveness of legitimate brands while benefiting illicit products.
• Excessive powers with insufficient oversight: The draft grants the minister extensive authority without adequate checks and balances, raising risks of enforcement abuse.
• Ambiguous e-cigarette regulation: Currently there is no clear regulatory framework or market assessment for e-cigarettes; more foundational research is needed before advancing policy.

According to Business Day, the bill under review by the South African Parliament seeks to impose stricter controls on cigarettes and nicotine products such as e-cigarettes.

On August 17, Johnny Moloto, Head of Corporate and Regulatory Affairs at BATSA, gave a television interview with Business Day outlining his concerns over the bill. He argued that if passed in its current form, the draft would not achieve public health objectives but instead undermine the viability of the legal market and further stimulate illicit trade.

2Firsts compiled the key points from his interview:

Host: Welcome back. The South African Parliament is currently hosting public hearings for the tobacco products and electronic delivery systems control bill which aims to tighten regulations on cigarettes and nicotine containing products like vapes. British American Tobacco believes the bill will collapse the industry and heighten the illicit market. Joining me to provide further insights is Johnny Moloto, head of corporate and regulatory affairs at BATSA. Thank you for your time.

Host: Johnny, BAT has always operated under a tough and constantly evolving regulatory landscape. With the introduction of a new category of smoking alternatives, did BAT prepare the business for the regulatory scrutiny that would come?

Moloto: 

Thank you for the question and the opportunity to share our thoughts. In 2020 we adopted a new group purpose: to build a better tomorrow. Two years ago we set out our vision of building a smokeless world. This means reducing the impact of our business at different levels. For consumers, it is about encouraging a switch from cigarettes to smokeless alternatives that still provide enjoyment but with fewer harms than traditional combustible cigarettes.

For society, it is about reducing health and environmental impacts by introducing more circularity, ensuring products are recyclable and eliminating industry waste. These are the commitments we adopted, but we feel the bill does not address them even though this is the direction the world is moving in.

Host: On a regulatory level, the tobacco products and electronic delivery systems control bill is under consideration with public hearings taking place. Under the draft legislation, what are the main sticking points BAT disagrees with?

Moloto: 

As an industry we recognize that new products provide opportunities to contribute to government’s goal of reducing smoking prevalence. Our concern is that the bill does not ensure regulatory differentiation. Differentiation means recognizing that combustible cigarettes are on the higher risk side of the spectrum, while new categories offer reduced-risk opportunities. Differentiation allows government to reduce prevalence and help smokers who struggle to quit by offering reduced-risk products. Without it, the full spectrum of products cannot be regulated according to their risk profile.

 

Another concern is the illicit market. Around 75% of the market is illicit, leaving government to regulate only 25% of the compliant market. Regulations are intended for the entire market, so government must first tackle illicit trade. Beyond that, we are concerned about plain packaging, which can fuel illicit trade, as non-compliant players continue as before while the legal market must use unbranded packs. Retail display bans are also problematic in South Africa’s predominantly informal market, placing a burden on informal traders and limiting consumer choice. Finally, the bill grants extensive powers to the minister. We believe this is ministerial overreach and recall how dangerous that was in 2020 without checks and balances. We call on parliament to assert its authority and maintain oversight.

Host: You mentioned some elements of the bill could lead to more illicit trade. On the cigarette side it is already a big problem, but what about smoking alternatives such as vapes? Are you seeing evidence of illicit trade there, and what does that landscape look like?

Moloto: 

At this stage we cannot say there is an illicit problem in vaping because they are currently unregulated, except for excise tax which we all now pay. We do not know the level of non-compliance, as these are new products not yet fully brought into regulation. With regulation and excise compliance, a clearer picture will emerge. What we do see is many products not compliant with standards approved by SAPS last year. Effective regulation requires a socioeconomic impact assessment to understand what is happening in the market. Most importantly, government must first decide on differentiation and then conduct proper studies to understand the market. There are still many gaps, and we are far from best practice.

Host: This is a business news channel, so we also want to get to the money and capital allocation. Since this is a growth category for BAT and has shown contributions to revenues and profit, if the bill becomes legislation as is, would there be shifts in investment decisions in this category in South Africa?

Moloto: 

Looking at the business as a whole, cigarettes are still the dominant part of the industry. The industry is about 37 billion rand about (2.1 billion US Dollars), but around 27 billion (about 1.535 billion US Dollars) is non-compliant or lost through under-declarations and underpayments of excise. That is a significant loss to the fiscus and a benefit to illicit players. Closing that gap is essential. New categories currently contribute only a small portion of the nicotine market in South Africa. It is still a growing market but nowhere near the level of cigarettes. That is why this is the right opportunity to introduce differentiated regulation and bring these categories into the overall regulatory framework.

Host: We have to wrap up the conversation. Thank you very much for that insightful discussion, Johnny.