Online shopping has been identified as a facilitator for an uptick in illicit trade in South Africa. Stubborn factors such as unemployment, unstable economy and corruption are not helping the situation.
Despite being a key trade player on the continent, it is riddled with illicit trade on multiple fronts such as alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food and apparel.
This was part of a presentation by Stefano Betti, deputy director-general at the Transnational Alliance to Combat Illicit Trade (Tracit) at the Emea illicit trade and anti-counterfeiting conference in Dubai.
“The online shopping space is a fertile ground for counterfeit products because it’s difficult to vet them over the screen. It entrenched itself as a channel during the Covid-19 pandemic.
“When you go to the shop one is able to feel, see and judge a product at close range and can kind of differentiate between fakes and authentic goods, but online you get that they misrepresent in the advertising,” said Betti.
He said that though illicit trade is not a problem unique to South Africa, its increase is made worse by high unemployment.
“The inflow of fake and smuggled goods contributes to the country’s unemployment challenge because domestic job opportunities are lost when fakes manufactured elsewhere in the world are imported and sold in South African markets.
“Higher unemployment reduces consumer purchasing power and incentivises purchases of cheaper illicit products,” Betti said.
The South African Revenue Service has estimated that illicit trade costs the South African economy a staggering R100bn every year.
Meanwhile, in terms of lost tax revenues, Business Leadership South Africa’s educated guess is that the country loses about R250m a day due to illicit trade.
According to Brig-Gen Juan Carlos Buitrago, former director-general of fiscal and customs police in Columbia, and founder and CEO of Strategos BIP, says South Africa lacks enforcement capabilities to address the high level of counterfeit and illicit tobacco products and that the Tobacco Products and Electronic Systems Control Bill will result in major incentives for illicit commerce.
“While the regulatory framework in place in South Africa should allow control of the market and address consumer protection, the poor level of implementation will result in high levels of criminality, illicit trade and presence in the market of low standard illicit products, all benefiting organised crime groups.
The primary hub for counterfeiting is found in the Johannesburg CBD and there is also significant activity in Belville, Western Cape; Marabastad, Pretoria; and Durban CBD.
— Stefano Betti, deputy director-general at the Transnational Alliance to Combat Illicit Trade (Tracit)
“Tackling illicit trade must be prioritised by the government instead of introducing draft legislation which is prohibitive and further restricts the legal tobacco industry and in turn grows the illicit and counterfeit market,” said Buitrago.
The bill has been met with disdain by the tobacco industry, especially the e-cigarette fraternity.
He said that illicit trade is neither petty nor victimless.
“It is a high-profit, low-risk crime, which serves as a funding source for transnational criminal networks. Criminal organisations, including terrorist groups, are threatening our national and international security, and they are feeding off illicit trade.”
In his view, there are provisions contained in the Tobacco Products and Electronic Delivery Systems Control Bill that are highly likely to increase illicit trade and counterfeit tobacco products.
“These provisions include the display ban, point of sale ban and the implementation of plain packaging, which are restrictive, prohibitive laws that will add to the burden of law enforcement agencies.”
Betti added that illegal mining has historically been a major source of illicit activity in South Africa.
“Illegal miners, known as zama zamas, can be highly organised and generate significant illicit financial proceeds that are usually exported. This unlawful system robs the government of significant and essential tax revenue, and it costs legitimate mining companies billions in production loss and security expenditures,” he said.
Though the trafficking of fake goods is driven by transnational syndicates, there is also extensive domestic production.
“The primary hub for counterfeiting is found in the Johannesburg CBD, and there is also significant activity in Bellville, Western Cape; Marabastad, Pretoria; and Durban CBD.
“Investigators have noticed a troubling new trend where large shipments of counterfeit goods are shipped to Mozambique, Namibia or Zimbabwe and then split into small consignments before being smuggled into South Africa.
“Once across the border, the goods are consolidated again, making them harder to detect as well as limiting the impact of individual enforcement efforts. As a result, there has been a significant decrease in the quantities of products per seizure — both in border and in market cases — over the past two to three years,” said Betti.
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