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BAT may close SA cigarette plant

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British American Tobacco said it may close South Africa’s only cigarette plant if plans to ban branded tobacco packaging are implemented.

BAT operates its eighth-largest factory globally in Heidelberg, south of Johannesburg. The proposed new rules would threaten the financial viability of the operation, Joe Heshu, BAT’s head of external affairs in Southern Africa, said in an e-mailed response to questions.

Plain packaging threatens the closure of the factory and “poses a threat to the viability of the legal tobacco industry in South Africa,” Heshu said. The move will make it harder to distinguish the cigarettes from black-market cigarettes and “the illegal market will benefit from having a cheaper product,” he said.

South Africa is cracking down on industries and products viewed as harmful to consumers, including through a planned tax on sugar-sweetened beverages, which Finance Minister Pravin Gordhan said last month will be implemented later this year. In his budget speech, Gordhan also announced higher taxes on tobacco and alcohol products.

South Africa has drafted a bill mandating plain cigarette packaging, which is expected to be made available for public comment soon, Elize Joubert, the CEO of the Cancer Association of South Africa, a lobby group, said by phone.

“You don’t want to build jobs based on people who are sick,” said Joe Maila, a spokesman for the Ministry of Health, who declined to provide a time frame for the new rules. “The process is in place and we are not apologetic about it.”

Plain packaging of tobacco products, which has been championed globally by the World Health Organisation, requires standardised designs on cigarette packs. Australia was the first to introduce legislation in 2012 and other countries including France and the UK have followed. More than 44 000 South Africans a year die from tobacco-related diseases, according to the Cancer Association.

BAT has cut 750 jobs in South Africa in two years as it grapples with an increase in illegal cigarettes, it said. The Heidelberg plant employs 1 100 people and produces more than 27 billion cigarettes a year for sale locally and for export, according to the company.

According to the Tobacco Institute of Southern Africa, the supply, distribution and sale of smuggled or counterfeit tobacco products has cost the government more than R21 billion since 2010 in lost tax revenue. South Africa ranks among the top five countries globally with the highest incidence of cigarette smuggling, according to the institute.

Bloomberg

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