The first thorough, analytically rigorous estimate of the destructive scope of South Africa's illicit economy was provided by an ECMX research...
Image supplied
The ECMX study showed illicit trade – conservatively estimated to be worth R280bn across 12 sectors – is not an isolated problem within a limited set of industries, but affects the entire economy by crushing legal businesses, eating into tax revenue, displacing jobs, exposing consumers to unsafe products and fuelling organised crime.
A total of more than 87,000 direct jobs in legal industry are displaced, meaning formal jobs that would otherwise have been created do not exist as a result of illicit trade. South Africa’s GDP is R126bn smaller within the regulated economy, and compliant businesses forfeit R193bn in formal production.
Factories, jobs and local economic activity have vanished or failed to materialise – as demonstrated by the loss of the BAT factory in Heidelberg - as a result of the illicit trade.
South Africa loses out on at least R68bn a year in tax revenue due to illicit trade, holding back the government's ability to fund infrastructure, healthcare, education, policing, housing, social protection and industrial development, while increasing pressure on borrowing and debt-service costs.
The threat to national security
“In several sectors, illicit trade is closely linked to organised criminal networks involved in customs fraud, smuggling, counterfeiting, money laundering and corruption. These networks frequently operate across multiple industries, adapting their methods in response to enforcement activity and exploiting weaknesses in border management, regulatory systems and supply chains,” said Ilse Fieldgate, head of Economic Consulting at ECMX.
“As a result, illicit trade represents not only an economic challenge but also a governance and national security concern.”
Commissioned by the Consumer Goods Council of South Africa (CGCSA) as part of a multi-industry initiative to address illicit trade, the ECMX report provides the first holistic assessment of the economic, fiscal and employment impacts of illicit trade across 12 priority sectors of the South African economy.
The report covers alcohol, clothing, textiles, footwear and leather, food, automotive fuel, gambling, mining, non-alcoholic beverages, pharmaceutical products, tobacco, cosmetics and personal care, chemicals and toys and games.
While each sector exhibits unique market characteristics and illicit trade mechanisms, together they illustrate the broader economic consequences of illicit activity across South Africa's productive economy.
SA’s future in the balance
The findings demonstrate that illicit trade is not simply a law-enforcement issue - it is fundamentally an economic development issue.
“Ultimately, the choice is not simply between tolerating or combating illicit trade. It is a choice between allowing scarce economic resources to continue flowing into the shadow economy, or redirecting them towards productive investment, sustainable employment, stronger public finances and inclusive economic development,” said CGCSA CEO Zinhle Tyikwe.
“The findings of this report demonstrate that tackling illicit trade is not merely an enforcement priority - it is an economic imperative for South Africa's long-term prosperity.
“While the announcement of Operation Ukubusa to disrupt the illicit economy is a welcome step in the right direction, South Africa’s future is being held to ransom by the criminal enterprises behind the illicit trade. Every day they remain free to continue ransacking the economy pushes the country closer to a tipping point where the shadow economy takes over.
“We will know we are turning the corner when we see arrests and successful prosecutions of the kingpins behind illicit trade,” Tyikwe said.
Impact on workers
“The effects of illicit trade extend well beyond displaced jobs,” said Fieldgate.
By diverting demand away from compliant firms, illicit trade suppresses formal production, wholesale activity, logistics, retail, distribution and related business services. Lower formal-sector activity constrains job creation, reduces wage income and limits opportunities for skills development and career progression.
“When employment shifts into illicit or informal supply chains, workers are often excluded from many of the protections available within the formal economy, including compliance with labour legislation, minimum wages, collective bargaining arrangements, occupational health and safety standards, unemployment insurance, pension benefits and formal training opportunities.
“Consequently, illicit trade not only reduces the number of formal jobs but also contributes to poorer working conditions, greater labour-market informality and increased worker vulnerability. Across several sectors examined in this report, employment displacement falls disproportionately on low- and semi-skilled workers,” Fieldgate said.
Methodology
Measuring illicit trade is inherently difficult because illicit markets are largely hidden from official statistics. The report therefore adopts a triangulation approach, combining Statistics South Africa Supply and Use Tables (SUT), National Accounts and Non-Observed Economy (NOE) estimates with customs and mirror-trade analysis, SARS seizure data, industry and regulatory information, and sector-specific research.
For sectors with established illicit-trade research, such as tobacco and alcohol, existing studies provide an important reference point. Where comparable sector-specific estimates are unavailable, bespoke illicit-penetration estimates were developed by triangulating available indicators of illicit activity.
These estimates represent evidence-informed modelling assumptions rather than directly observed measures of the illicit market. Lower-bound, central and sensitivity estimates were used where appropriate to reflect the uncertainty associated with measuring hidden markets.
The resulting sector-specific illicit-market estimates provided the starting point for estimating the economic activity displaced by illicit trade.
“By quantifying these impacts across twelve sectors, the report demonstrates that reducing illicit trade is not simply about increasing tax collections,” said Tyikwe.
“It is about strengthening economic growth, protecting legitimate businesses, improving employment outcomes, enhancing consumer safety and expanding South Africa's long-term development capacity.”
Download the full study.
