The illicit economy has become too big to ignore, and South Africa can no longer afford to treat illicit trade as a peripheral problem for the police, customs officials or individual industries to deal with.
A comprehensive study by Econometrix commissioned by the Consumer Goods Council of South Africa makes clear that illicit trade has become a structural threat to the economy, draining billions of rand from the fiscus while undermining legitimate businesses, destroying formal employment and strengthening organised criminal networks.
The report examines 12 sectors, from tobacco and alcohol to food, clothing, toys, fuel, pharmaceuticals and gambling.
It found that the illicit market is worth an estimated R280bn. An estimated R68bn in government revenue is lost every year to illicit activity across these sectors. That is money that could otherwise support public services and investment. The figure is equivalent to about 2.9% of consolidated government spending, nearly 20% of annual debt-service costs and more than 20% of the budget deficit.
Those comparisons are deliberately illustrative rather than a suggestion that the government could simply recover R68bn and spend it elsewhere. But they expose the scale of the opportunity cost.
The report estimates that the lost revenue is theoretically equivalent to the cost of employing about 145,000 additional teachers, 123,000 professional healthcare workers or 171,000 police officers. It could also theoretically finance about 259,000 subsidised houses, more than 615,000 tertiary education bursaries or 2.6-million annual old-age grants.
There is also a legitimate policy debate about whether excessive taxes and regulatory burdens can create incentives for illicit markets. That debate should happen. But it cannot become an excuse for allowing criminal operators to flourish.
The study itself warns that the full amount cannot realistically be recovered immediately. But the message is clear: while the government struggles to find money for basic services and infrastructure, billions are leaking out of the formal economy.
The damage also extends well beyond the tax bill.
Illicit operators have a built-in competitive advantage because they can avoid taxes, duties, regulatory requirements and product standards. That allows them to undercut compliant businesses, weakening profitability and investment and making it harder for legitimate companies to create and retain jobs. The impact is particularly damaging in a country where unemployment is already unacceptably high.
The consequences can be seen across individual industries. In alcohol, for example, illicit trade is estimated to displace about R23.4bn in direct GDP annually, while the associated direct tax loss is about R16.9bn. The report estimates that more than 6,000 direct jobs are displaced in the sector.
The problem is not simply consumers buying cheap cigarettes, alcohol, clothing or other goods. Illicit markets increasingly operate through sophisticated supply chains involving smuggling, counterfeiting, customs fraud, illegal manufacturing and money laundering. In several sectors, they are closely connected to organised criminal networks.
This requires a different response from government.
Enforcement cannot be applied intermittently, fragmented or concentrated on seizures that generate headlines but fail to dismantle the networks behind the trade. The report points instead to the need for stronger coordination between Sars, border authorities, police, regulators and other institutions, backed by intelligence, better risk profiling and effective prosecution.
There is also a legitimate policy debate about whether excessive taxes and regulatory burdens can create incentives for illicit markets. That debate should happen. But it cannot become an excuse for allowing criminal operators to flourish.
South Africa needs economic growth, more formal jobs and greater fiscal capacity. It makes little sense to pursue these goals while allowing a parallel economy to siphon demand, investment, employment and tax revenue away from the formal economy.
Fighting illicit trade is therefore not merely about protecting businesses or collecting taxes. It is about protecting the country’s capacity to build a functioning economy.
The R68bn question remains: how much longer can South Africa afford to allow the shadow economy to grow while the formal economy and the public purse carry the cost?
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.