Tobacco in South Africa

smoke-cigaretteCigarette volume sales increase in 2011 – Retail volume sales grew by 1% in 2011, following declines throughout the review period. Retail value sales grew significantly due to a general price increase to cater for taxation increases, as well as rising production costs for manufacturers.

Porous borders continue to influence the growth of illicit cigarette sales – Volume sales of illicit cigarettes continued to grow during 2011, despite efforts by the police and tobacco industry stakeholders to combat illicit trade. Porous borders have been identified as the key factor behind the rise in the amount of illegal cigarettes being smuggled into the country. The Beitbridge border post between South Africa and Zimbabwe was identified as the main point of entry for illicit cigarettes from Zimbabwe.

High import duties restrict the growth of the cigars category – The performance of the cigars category remains suppressed due to high import duties on all cigars. The unit price on most cigars increased significantly in 2011 to accommodate import duty increases. Local distributors were reluctant to import new cigar brands due to a low turnover for existing brands. Consumption of cigars declined in 2011 due to higher unit prices for leading brands, with only festive seasons seeing some respite.

Consumers continue to favour buying tobacco products from supermarkets – The supermarkets channel remains the major point of access for most tobacco products in South Africa. Supermarkets tend to sell tobacco products at relatively low profit margins when contrasted with other channels, such as tobacco specialists. With the rising cost of living, smokers still prefer to use supermarkets to buy tobacco products due to the lower prices.

Retail volume sales expected to decline over the forecast period – Slower but relatively stable growth is expected for retail plus illicit volume sales over the forecast period, however retail sales alone are expected to decline. Category performance is expected to be restricted by legislative restrictions, such as a ban on the advertising of tobacco products in any way other than at points of sale. The Government of South Africa is also considering a total ban on the display of tobacco products at points of sale. Thus, retail volumes are expected to decline, while illicit sales will continue to rise during the forecast period.

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Source: Euromonitor.com

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Traders can’t interpret Terms

incoterms2The lack of knowledge to interpret international terms of trade (INCOTERMS) is to blame for the high cost of doing businesses among importers and exporters, the secretary general of the Uganda Shippers Council. Many importers do not understand international terms of trade such as Cost and Freight, Free on Board and Cost Insurance and Freight (CIF), yet in Uganda, taxation is done based on CIF.

“This means that a Ugandan trader who is importing or exporting goods has to pay freight costs in the East African region, whose headquarters are based at Mombasa, in addition to cost of goods, insurance and freight charges for the goods,” explained Kankunda, Secretary General of the local shipper’s council..

“If a Ugandan trader is able to understand these terms, then they will be in position to secure a local shipping line and pay a slightly lower cost compared to paying from the country where the goods are coming from.”

Kankunda was speaking at a three-day workshop on INCOTERMS for importers and exporters from the East Africa region. The training was aimed educating international traders best practices in handling INCOTERMs and other international freight transactions. It is expected to contribute to reducing the cost of cargo handling and shipment along East African corridors by enabling importers and exporters to efficiently apply proper commercial terms and practices.

Kankunda said the application of inappropriate commercial terms, insurance policies and inefficient processing of various trade transactions when importing or exporting goods are some of the causes of the high cost of doing business in the region. It is estimated that transport costs make up 30% to 40% of CIF value of imported goods in East Africa, compared to about 5% to 10% in other regions. Source: AllAfrica.com

Did you know?

…in the last three years, Her Majesty’s Revenue & Customs (HMRC) have had to call on Deferment Account guarantees 365 times to cover duty/VAT debts to the tune of £15.6 million.