CAPE TOWN, Western Cape — A comprehensive new UCT study is challenging long-standing industry claims that high tax rates are driving South African consumers toward the illicit alcohol market. According to Professor Corné van Walbeek, director of the UCT School of Economics and the economics of excisable products research unit, data reveals that despite declining household disposable income, tax-paid alcohol consumption actually rose by 24.2% between 2017 and 2024.
The findings directly counter narratives pushed by the alcohol industry, which has relied on reports suggesting a massive surge in illicit alcohol sales. Professor van Walbeek noted that while per capita GDP decreased by nearly 5% and disposable incomes fell by approximately 1.5% over the same seven-year period, the simultaneous increase in legal alcohol consumption leaves little logical space for a parallel explosion in the illicit market.
The Cigarette Market Comparison
To illustrate the flaw in the industry’s argument, Professor van Walbeek drew a direct comparison to the cigarette market, where illicit trade genuinely accounts for at least 55% of the market. In the tobacco sector, as the illicit market expanded over the past 10 to 15 years, the legal market correspondingly decreased—a predictable economic outcome.
However, this substitution pattern is absent in the alcohol sector. Professor van Walbeek pointed to the 2020 alcohol sales bans as a natural experiment. Once the bans were lifted, consumers returned to licensed liquor stores, and legal alcohol consumption surged to levels substantially higher than pre-2020 figures.
Economic Viability of Illicit Trade
When questioned why the alcohol market did not follow the illicit substitution pattern seen in tobacco, Professor van Walbeek highlighted the value-to-weight ratio of the products. A legally taxed pack of cigarettes trades at around 40 to 50 rands, creating a high financial incentive for illicit trade. In contrast, products like beer and wine are relatively heavy and have a much lower value per unit, making illicit distribution less economically viable. Furthermore, the quality of illicitly produced alcohol is typically distinguishably worse than its legal counterpart, deterring consumer preference.
Treasury Proposals and Industry Pushback
The debate over illicit trade has intensified following a November 2024 National Treasury discussion document, which proposed rethinking excise taxes specifically on beer and wine, while largely leaving spirits untouched. Professor van Walbeek explained that the alcohol industry’s aggressive promotion of the “illicit trade” narrative is a strategic defense mechanism aimed at protecting profitability and curbing the Treasury’s proposals, rather than a reflection of statistical reality.
Consumer Trade-Offs and Social Costs
Addressing the economic behavior of consumers, the research indicates that the share of total consumer spending dedicated to alcoholic products has been increasing. Professor van Walbeek warned that because money can only be spent once, increased expenditure on alcohol and cigarettes inevitably pushes out vital household purchases. Drawing on parallel cigarette research, he noted that essential 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. Beyond acute issues like traffic accidents and gender-based violence, chronic health conditions place a severe strain on the healthcare system. The Medical Research Council estimates that at least 30,000 people die annually in South Africa due to alcohol-related causes.
While the alcohol industry frequently attempts to attribute these fatalities to illicit alcohol, Professor van Walbeek firmly rejected this notion. He emphasized that alcohol abuse causes death and social harm regardless of its legal status. Supporting this, he pointed out that even the contested industry-aligned Euromonitor report concedes that 82% of all alcohol consumed in South Africa in 2024 was legal, with only 18% ascribable to illicit sources.
Ultimately, the National Treasury currently collects over 50 billion rands in alcohol excise tax revenue. Professor van Walbeek concluded that addressing the massive social costs imposed by alcohol on society remains a critical priority, one that requires evidence-based policy rather than industry-driven misinformation.
