British American Tobacco has decided to close its sole manufacturing facility in South Africa, leading to significant job losses as the company grapples with the dominance of illegal cigarettes in the market. The Heidelberg plant, located in Gauteng, will cease operations by the end of 2026, marking the end of local production after more than seven decades. According to Business Day, the facility currently runs at only 35 percent of its capacity, rendering it unsustainable due to the illicit trade that now captures 75 percent of the South African cigarette market.
The closure affects around 1,500 employees at the plant, which ranks as the eighth largest in the global British American Tobacco network and supplies both domestic and regional export needs. This decision follows a similar move in Mozambique earlier this year, where the company also withdrew operations amid challenging market conditions. The South African economy, already facing high unemployment rates of over 32 percent as per recent government figures, could see further strain in the Lesedi Municipality area dependent on the factory.
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Company representatives have emphasised that British American Tobacco remains committed to the South African market, maintaining its secondary listing on the Johannesburg Stock Exchange and shifting to an import-based supply model to continue serving customers. This transition aims to preserve market presence without local manufacturing, allowing the firm to adapt to ongoing pressures from unregulated competitors.
The company’s roots in South Africa trace back to 1904 with the formation of the United Tobacco Company, which later merged with Rothmans International in 1999, involving the Rupert family’s interests. Last year, the Rupert family divested its remaining shares in British American Tobacco for over £1.2 billion, severing an 80-year tie to the industry that began with Anton Rupert’s Voorbrand Tobacco Company in the 1940s.
Recent years have seen a 40 percent drop in sales volumes for British American Tobacco South Africa since 2020, attributed directly to the surge in illicit cigarettes, resulting in a workforce reduction of more than 30 percent. As reported by Reuters, this illicit trade has squeezed legitimate players, prompting calls for stricter enforcement to protect revenue and jobs.
A study commissioned by the company revealed that nearly eight in ten retailers now sell illegal cigarettes, a threefold increase from three years ago, with many packs priced below the minimum tax threshold of R26.22. According to IOL, the illicit market threatens the entire legitimate tobacco sector, costing the national treasury approximately R28 billion annually in lost revenue and contributing to the potential collapse of manufacturers.
In response, British American Tobacco has urged authorities to station customs officials at factories and implement a minimum retail price of R37 per pack to curb undercutting. While acknowledging recent efforts by the South African Revenue Service to address the issue, the company noted that sustained improvements in curbing illicit trade could prompt a reconsideration of local manufacturing investments. The 2023 financial results reflected a £291 million impairment on South African goodwill due to these market dynamics.