CAPE TOWN, Western Cape — A groundbreaking UCT study has dismantled the alcohol industry’s assertion that rising excise taxes are pushing South African consumers toward the illicit alcohol market. According to Professor Corné van Walbeek, director of the UCT School of Economics, new data shows that tax-paid alcohol consumption actually surged by 24.2% between 2017 and 2024, even as the nation’s overall wealth declined.
The findings present a stark economic paradox. Over this seven-year period, South Africa’s per capita GDP contracted by nearly 5%, and household disposable incomes fell by approximately 1.5%. Professor van Walbeek argues that if high taxes were truly driving consumers to the black market, legal alcohol sales would be shrinking. Instead, the robust growth in legal consumption leaves no statistical room for the massive illicit market expansion claimed by industry lobbyists.
The Flawed 55% Illicit Trade Narrative
The alcohol industry, including entities like the Drinks Federation of South Africa, has frequently cited reports suggesting a 55% surge in illicit alcohol sales to justify their stance against tax hikes. Professor van Walbeek highlights a critical logical flaw in this argument by comparing it to the tobacco sector.
In the cigarette market, illicit trade genuinely accounts for at least 55% of total sales. Historically, as the illicit cigarette market expanded over the last 15 years, the legal market proportionally decreased. This inverse relationship is absent in the alcohol sector. Furthermore, evidence from the 2020 alcohol sales bans supports the UCT findings. Once restrictions were lifted, consumers overwhelmingly returned to licensed liquor stores, driving legal alcohol consumption to levels substantially higher than pre-2020 figures.
Logistics and Quality Deter Illicit Alcohol
When asked why alcohol does not mirror the illicit substitution patterns of tobacco, Professor van Walbeek pointed to basic economic logistics. A legally taxed pack of cigarettes retails for 40 to 50 rands, offering a high value-to-weight ratio that makes smuggling highly lucrative. Conversely, beverages like beer and wine are physically heavy and carry a much lower value per unit, rendering illicit distribution economically unviable.
Additionally, consumer preference plays a role. While illicitly manufactured cigarettes can sometimes mimic the quality of legal brands, illicit alcohol is typically of distinguishably inferior quality, deterring sustained consumer demand.
Treasury Reforms and Industry Pushback
The timing of the industry’s “illicit trade” campaign is closely tied to regulatory pressures. In November 2024, the National Treasury released a discussion document proposing a reevaluation of excise taxes specifically on beer and wine, while largely leaving spirits untouched.
Professor van Walbeek noted that the industry’s aggressive promotion of the illicit market narrative is a strategic defense mechanism. By exploiting public intuition that higher taxes fuel black markets, the industry aims to protect its profit margins and derail the Treasury’s proposed reforms.
Household Trade-Offs and the True Social Cost
Beyond market dynamics, the research highlights concerning shifts in household budgeting. The share of total consumer spending dedicated to alcoholic products has been steadily increasing. Because household budgets are finite, Professor van Walbeek warned that money redirected toward alcohol and cigarettes inevitably displaces essential purchases. Drawing on parallel research in tobacco spending, he noted that vital household goods, such as children’s nutrition (e.g., milk) and education, are often sacrificed to fund these habits.
The societal burden of this consumption is immense. While the National Treasury currently collects over 50 billion rands annually in alcohol excise revenue, the social costs are staggering. These include acute issues like traffic accidents and gender-based violence, as well as chronic health conditions. The Medical Research Council estimates that at least 30,000 people die annually in South Africa due to alcohol-related causes.
The alcohol industry frequently attempts to deflect responsibility by attributing these fatalities to illicit brews. Professor van Walbeek firmly rejected this deflection, emphasizing that alcohol abuse is inherently dangerous and causes social harm regardless of its legal status. To underscore this point, he noted that even the contested Euromonitor report relied upon by the industry concedes that 82% of all alcohol consumed in South Africa in 2024 was legal, with only 18% allegedly ascribable to illicit sources.
Ultimately, the UCT study concludes that addressing the profound social costs of alcohol requires evidence-based policy from the National Treasury, rather than regulatory capture driven by industry misinformation.
