British American Tobacco: Protecting a national institution

In recent months, labour issues have been a constant source of news headline, often for the wrong reasons. However, a shining ray of light recently arrived in the form of news that British American Tobacco South Africa has been certified as one of South Africa’s Best Employers for 2012/13.

800px-british_american_tobacco_logo_svgIndependent research into their employee offerings showed that the company has outstanding working conditions. British American Tobacco South Africa is a part of the British American Tobacco Group of companies, which operates in more than 180 countries worldwide.

In South Africa, the business in its present form came into being following the global merger of Rothmans International, partly owned by the Rembrandt Group, and London-based British American Tobacco plc.

Today BAT is responsible for more than 20 brands and manufactures the cigarette chosen by about nine in ten of the country’s six-and-a-half million adult smokers, including: Dunhill, Kent, Peter Stuyvesant and Rothmans. As such, BAT South Africa is the leading tobacco manufacturer in the country and can boast a market share in excess of 85 per cent of the legal cigarette industry.The impact of BAT in South Africa is such that the company purchases in excess of 90 per cent of the annual South African tobacco crop for both local and export production.

The company operates five trade marketing regions across South Africa, with its head office based in Stellenbosch and employs in excess of 2,500 people. The company’s Heidelberg factory produces approximately 27 billion sticks each year, for the local market and for export.

Last year The SA-Mag spoke to Dirk Eloff, new Head of Operations for the South African Area, who put the site into context:

“Our Heidelberg Factory is one of the big hubs within the EEMEA region of BAT and globally this is an important production facility. We therefore aim to set operational benchmarks here that can be reciprocated across the EEMEA region and by BAT facilities elsewhere in the world.

“It doesn’t matter what you are manufacturing, the principles remain the same: to make a quality product, when the customer wants it, to optimise prices and to do so in a safe and efficient environment. If I look at our Heidelberg plant there are some aspects where we are very competitive and other areas where we have a bit of work to do.”

Whilst the tobacco industry has been besieged with negative headlines and health connotations, in recent times, perhaps as big a threat has been posed by the emergence of the illicit tobacco trade.

In January the Minister of Health signed the Framework Convention on Tobacco Control’s (FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products.

At the time, BAT’s Leslie Rance Head of Corporate and Regulatory Affairs stated: “We see this as a firm commitment by the Department of Health and the South African Government to adopt and implement more effective measures to regulate the supply chain of illicit tobacco products which continue to erode the socio-economic gains being made by both government and legitimate businesses.”

The issue of illicit trade in tobacco is a global challenge and a growing problem, with Africa very much part of the global community working together to fight this practice. Independent research shows that illicit trade in cigarettes now accounts for 30 per cent of the total cigarette market in South Africa, with 60 per cent of illegal tobacco products reaching South Africa from Zimbabwe, while a sizeable portion is manufactured locally and the rest originating from Middle Eastern countries. Of course, for a company with market share like BAT South Africa’s, such figures are hugely damaging.

“The key attraction for illegal operators is that they avoid the 52 per cent excise duty on tobacco products, giving them significant unfair advantage over legal operators, whilst making illegal cigarettes widely available cheaply to the public. This deprives the government of much needed revenue and threatens the sustainability of the legal tobacco industry,” Rance added.

In an official statement BAT South Africa outlined that it supports the efforts of the Tobacco Institute of Southern Africa (TISA) in working closely with law enforcement authorities to combat the illicit trade in tobacco products.

Issues such as the tracking and tracing of tobacco products throughout the supply chain, faster prosecutions, stiffer sentences and more effective administrative processes at South Africa’s borders continue to take centre stage in the industry’s engagement with authorities.

The illicit market for tobacco not only affects tax revenues and margins for legitimate business of course, it also poses a health risk to those smoking such products, as Rance explained:

“The illegal trade in cigarettes undermines the Department of Health’s efforts to regulate tobacco products, as these products often do not meet the standards prescribed by the Tobacco Products Control Act, such as the maximum tar and nicotine ceilings, requirements for health warnings as well as the recently introduced Reduced Ignition Propensity regulations. We trust that the signing of the Protocol will lead to greater compliance with the regulations governing tobacco products.”

It has been reported that last year over a billion illegal cigarettes were seized through the efforts of Customs Officials from the South African Revenue Service as well as members of the South African Police Service.

Media reports suggest that approximately 1000 (one thousand) arrests in conjunction with illegal cigarette smuggling and trading were also made during 2012.

“BAT South Africa trusts that the Protocol to Eliminate Illicit Trade in Tobacco Products will result in more rapid and effective measures to bolster the authorities current efforts and especially to bring to book those who are involved in the supply, distribution and sale of illegal tobacco products. BAT South Africa, together with the industry, is committed to a legal, open and fair competitive trading environment and to working with all affected stakeholders, including the Department of Health, in combating illicit trade,” Rance continued.

Another type of battle that BAT South Africa is well aware of locally is the need to enhance impoverished and disadvantaged sections of society.

The company has made a long-standing commitment to making a difference in communities across the country has resulted in many lives being changed for the better over the last decade.

Over time the manner of help has been adapted as the company realised that in order to make a real difference, a hand up is always better than a hand out.

BAT South Africa’s approach to giving back is centred around four focus areas: Empowerment, Civic Life, HIV/AIDS and Sustainable Agriculture.

BAT aims to help communities to become self- sustaining through creating various initiatives for individuals and groups to access the formal economy.

BAT South Africa has been a feature of the South African economy for well over 100 years now. With its continued operational excellence and its approach both to international collaboration on illicit tobacco  and to corporate social responsibility, the company looks set for many more years of positive contribution.