One of South Africa’s oldest multinational manufacturers, British American Tobacco South Africa (BATSA), has announced it will shut down its only cigarette manufacturing plant in the country, citing the explosive growth of illicit tobacco trade that has made local production commercially unviable.
The company confirmed on Thursday that it will end all local production of factory-made cigarettes and close its Heidelberg facility in Gauteng by the end of 2026, a decision that could place around 230 jobs at risk.
BATSA, which is backed by global institutional investors including BlackRock, Vanguard and Capital Research and produces brands such as Dunhill and Peter Stuyvesant, said the dominance of illegal cigarettes in the domestic market has fundamentally undermined the economics of lawful manufacturing.
“With approximately 75% of the South African cigarette market now estimated to be illicit, continued local manufacturing has become unviable,” said Johnny Moloto, Head of Corporate & Regulatory Affairs at BAT Sub-Saharan Africa.
Factory operating far below capacity
The Heidelberg plant, which has operated for more than 50 years, is currently running at just 35% of capacity, reflecting the sharp collapse in legal cigarette volumes. BATSA says it will continue to sell cigarettes in South Africa after the closure, but production will be supplied entirely through imports.
“This is an incredibly difficult day for BATSA and for the approximately 230 employees and families who may be affected,” the company said in a statement. “These are skilled, dedicated people who are unfortunately paying the price for an illicit market that operates outside the regulatory net.”
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The company has initiated a formal consultation process with workers and trade unions in line with South Africa’s Labour Relations Act. Discussions are expected to conclude by March 2026, ahead of the full shutdown scheduled for the end of the year.
COVID-19 ban entrenched illegal networks
Industry experts trace the current crisis back to South Africa’s COVID-19 tobacco sales ban, which suspended legal cigarette sales during lockdowns. While intended as a public health measure, the ban created fertile ground for illegal operators, allowing black-market networks to expand rapidly and become deeply entrenched.
Researchers from the University of Cape Town, cited by local media, say the illicit cigarette market is no longer informal or marginal. Instead, it operates through sophisticated, profit-driven supply chains that have proven difficult for authorities to dismantle.
Estimates suggest that illegal cigarettes now account for between 60% and 75% of total consumption, resulting in tax losses of between $2.7 billion and $4.4 billion over the past five years, with a $2.1 billion revenue gap recorded since the pandemic.
Over the last decade, South Africa is believed to have lost tens of billions of rands in excise duties and VAT, placing further strain on public finances.
Wider implications for formal industries
BATSA warned that the tobacco sector is not an isolated case. According to the company, illicit trade is increasingly reshaping multiple formal industries across Africa, including alcohol, pharmaceuticals, cosmetics, food, clothing and toys.
“All indicators are that illicit trade is becoming a significant issue across multiple sectors,” Moloto said. “If this can happen to a facility that’s been operating for 50 years, it can happen to anyone.”
The closure of the Heidelberg plant underscores growing concerns among investors and policymakers that weak enforcement and regulatory gaps are accelerating deindustrialisation, threatening jobs, tax revenues and long-term economic stability in South Africa’s formal economy.
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