friday, 26 june of 2020

Trade

BAT court bid to overturn South Africa tobacco ban hit by delay

Efforts by British American Tobacco to overturn South Africa’s pandemic-related ban on cigarette sales has hit a wall, with its high court hearing being pushed back another five weeks.

South Africa’s strict lockdown in late March included a rare ban on the sale of alcohol, tobacco and vaping products. Restrictions on beverages were eased on June 1 but President Cyril Ramaphosa’s government has maintained the tobacco ban, dragging it into its third month.

BAT’s South African subsidiary, which controls four-fifths of the country’s legal cigarette market, had planned to challenge the forced suspension of its operations in court next week. It now faces a wait until August 5 after a new court date was set at the last minute on Friday.

The company warned that the "inexplicable" delay "meant another six weeks without business that would cost South Africa more than R1.4bn and thousands of Jobs", and spur the country’s already large illegal cigarette market.

The South African government has argued that its intervention on smoking has improved public health in the midst of the respiratory medical crisis.

Nkosazana Dlamini-Zuma, the minister responsible for overseeing South Africa’s pandemic state of disaster, has justified the tobacco prohibition on the basis of evidence suggesting that Covid-19 has more severe effects on smokers at a time when the country is trying to conserve scarce resources in hospitals.

Mr Ramaphosa told South African lawmakers this month that "at this stage, it is difficult to determine" when the ban may be lifted, and that it will depend on the state of the health system.

The links between smoking and coronavirus have attracted much attention, partially after a French study in April suggested that nicotine could help lessen the impact of Covid infections. The World Health Organization has, however, disputed the significance of the research, saying that "available evidence suggests that smoking is associated with increased severity of disease and death in hospitalised Covid-19 patients".

BAT, which is supported in its case by several co-applicants including Japan Tobacco International, has questioned whether the ban has led people to stop smoking. The group has pointed to a study by the University of Cape Town, which indicated that up to 90 per cent of South African smokers had bought illegal non-taxed cigarettes during the moratorium.

"[The ban] allows all underground sellers and places that were already cheating on taxes to flourish," said Hana Ross, an economist at the University of Cape Town, whose team has estimated that up to 40 per cent of cigarettes smoked in South Africa before the prohibition were sold illegally.

It means that once the ban is lifted, BAT could face a price war with illegal vendors. "Cigarette prices are much higher tan before the ban so someone’s making a killing, especially as they’re not paying taxes," Ms Ross said.

Tobacco groups have already warned investors that the looming recession is likely to push smokers to buy cheaper brands, a concern for BAT in South Africa as it sells pricier cigarettes such as Dunhill and Peter Stuyvesant.

The BAT lawsuit is the second facing South Africa over its tobacco ban. A group of smaller producers called the Fair-Trade Independent Tobacco Association has already appeared in court but its case was dismissed by a judge on Friday.

South Africa, which this month became the first African country to record more than 100,000 coronavirus cases, is now the only country in Africa to maintain a ban on tobacco sales in lockdown, after neighbouring Botswana flagged it would lift a similar prohibition.


(Published by Financial Times, June 26, 2020)
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