Worldwide more than 1 billion people consume tobacco and each year about 6 million people die prematurely from tobacco-related illnesses. These are primarily because of heart attacks, strokes, lung diseases and a range of cancers.
This number is expected to increase to 8 million by 2030, if current trends continue.
And low- and middle-income countries are increasingly bearing the brunt of this tragic and unnecessary human and economic loss.
In developed countries strong tobacco control policies have eroded markets. There, major multinational tobacco companies have been faced with an increasingly difficult business environment and falling demand for their products. As a result they have fiercely expanded sales in emerging and developing markets in Africa, Asia, Latin America and Eastern Europe.
This, together with the rapid economic growth and relatively lax regulatory environment in many low and middle income countries, has attracted the multinational tobacco companies to these new markets.
In response the World Health Organisation has been calling on governments to adopt effective policies that reduce tobacco use.
In many countries – both developed and developing – the most effective tool for reducing tobacco use is to increase the excise tax. An excise tax rise is usually followed by an increase in the retail price of tobacco, and despite nicotine addiction, hundreds of studies worldwide have shown that people reduce consumption in response to higher prices.
Studies show that a 10% increase in the real (inflation-adjusted) price of cigarettes reduces consumption by between 4% and 8%, holding all other factors constant.
South Africa is no different.
While consumption dropped during the period that government was taking action to reduce smoking, consumption levels decreased less as interventions declined. In the last two years the smoking rate has plateaued at 20% of the adult population.
South Africa has roughly the same smoking patterns as other African countries such as Senegal, Gabon and Namibia. Algeria, Libya, Egypt and Tunisia have more smokers.
THE SOUTH AFRICAN EXAMPLE
South Africa was one of the first developing countries to use rapid increases in the excise tax on cigarettes as a public health strategy. Its success led to it becoming a model for using tax as a public health tool.
Between 1994, when the government announced that it would increase excise tax on cigarette tax to 50% of its retail price, and 2004 the real (inflation-adjusted) excise tax on cigarettes in South Africa increased by 250%. Combined with price increases imposed by the tobacco industry the real retail price of cigarettes more than doubled in this period. Aggregate cigarette consumption fell a third and smoking prevalence declined by 7 percentage points from 31% to 24% of the adult population. At the same time, real government revenue from tobacco taxation increased by 110%. It was a win for both public health and the fiscus.
In addition to hikes in taxes, tobacco advertising was banned in 2001 and smoking was restricted in enclosed public and work places. These measures contributed to an environment in which smoking was no longer seen as “normal”.
Important as these interventions were, evidence indicates that price increases are more effective and a more sustainable policy. This is because they can be implemented more than once.
Since 2004 South Africa’s tobacco control strategy has largely fizzled out. The 1990s passion of using excise tax as a means to reduce smoking has disappeared.
Smoking prevalence has decreased modestly by only 4 percentage points from 24% in 2004 to about 20% in 2014. The absolute number of smokers has remained broadly the same at 7.5 million because of population increases.
One challenge is the illicit trade of tobacco. If the tobacco industry is to be believed, any intervention – from increases in the excise tax, to health warnings and plain/standardised packaging – leads to an increase in illicit trade.
While illicit trade is indeed a threat, the tobacco industry has a strong incentive to exaggerate the problem. There is proven evidence that the tobacco industry in South Africa has greatly exaggerated the size of the illicit market. For example, in 2008 the Tobacco Institute claimed that the illicit market comprised 20% of the market. Now they indicate that it was only 8% in that year.
The Tobacco Institute of Southern Africa regularly argues that excise duties increase the flow of illicit trade. But international evidence shows that illicit trade has less to do with high excise taxes than with general levels of corruption, lack of enforcement as well as tobacco industry actions.
And in other countries there is evidence of the tobacco industry being linked to smuggling. For example, in Canada the tobacco industry was fined nearly Canadian $2 billion for aiding and abetting smuggling. Similarly, in Europe, well-known international tobacco companies have been found guilty of similar crimes.
GPS-based track and tracing technology is being used to reduce the illicit trade in tobacco, and other products, in a number of countries. Kenya has successfully implemented this technology and has been able to substantially reduce illicit trade and increase its revenues as a result. Canada and the UK, despite having some of the highest excise taxes in the world, have been able to substantially reduce illicit trade in the past two decades.
Countries that have successfully decreased illicit trade have typically used a combination of political will and technology. If Kenya can successfully reduce illicit trade, so can South Africa. It requires political will, but it can be done.
PICKING UP THE PACE
The human and economic cost of smoking in South Africa is too high not to act to discourage its use. Most smokers wish that they had never started. For some people an increase in the price is the necessary incentive to quit.
For many youngsters high cigarette prices are sufficient reason not to start an addictive, dangerous and impoverishing habit. This is why the South African government needs to pick up the momentum and regain its position as a leading country in tobacco tax policies.
Corné van Walbeek is professor at the School of Economics and principal investigator of the Economics of Tobacco Control Project, University of Cape Town.