Battle-scarred Zuma has some strong support in her Health Ministry’s latest war, reports Stefaans Brmmer
HEALTH Minister Nkosazana Zuma may have a reputation for tilting at windmills, but for once her opponent – the fabulously powerful tobacco lobby – may have met its match. Zuma is backed by a strong body of international opinion and by signs that her anti-smoking measures are paying off.
Zuma is still smarting from a recent defeat by pharmaceutical companies, who threatened court action unless she dropped plans to force the prescription of cheaper generic medicines. Zuma withdrew the “offending” parts of her draft legislation, saying they would be redrafted.
But last week she did it again, starting a small war by provoking tobacco magnate Johann Rupert to an unprecedented attack.
What Zuma did was tell the Senate that cigarette companies were flouting her Tobacco Products Control Act regulations on cigarette health warnings. Zuma named the offenders as the Rembrandt Group, of which Rupert is chair, as well as United Tobacco Company, RJ Reynolds and Imperial Tobacco – and said she was considering a complete ban on tobacco advertising.
Zuma listed the violations as the importation of cigarettes without the prescribed health warning, advertising on billboards where the health warnings were not visible at night or inadequate, and ads in the print media where the warnings were too small or did not show tar and nicotine content.
Zuma already had the tobacco lobby complaining that their “freedom of speech” was being infringed when she brought out her health warning regulations in December 1994 – warnings which anti-tobacco groups pointed out merely brought South Africa in line with many developed countries. But this time, by threatening to ban tobacco advertising altogether, she made a frontal assault on one of the most powerful interest groups in the country.
The tobacco industry is reportedly worth more than R6-billion to the South African economy and supports about 200 000 South Africans. The National Council Against Smoking (NCAS) says R150-million is spent annually on tobacco advertising. The South African Revenue Service estimates government coffers will be swelled by about R1,16-billion by excise duties on locally manufactured tobacco products alone in the current financial year.
The Rembrandt Group last year ranked eighth on the Johannesburg Stock Exchange (JSE) in terms of market capitalisation, while its Swiss-registered sibling Richemont ranked fourth on the JSE (after Anglo American, De Beers and South African Breweries). Both are controlled by the Rupert/Hertzog dynasty, headed by Rembrandt founder Anton Rupert – one of the select group of businessmen who serve on President Nelson Mandela’s “Brenthurst” advisory group. Richemont boasted a R28,7-billion capitalisation last year (Rembrandt R18,3-billion) and a pre-tax profit of R4,6-billion (Rembrandt R1,4- billion).
Stockbroking analyst Carel Oosthuyzen was quoted this week as saying Rembrandt/Richemont tobacco associate, the Rothmans Group, generated R35-billion in excise duties worldwide. “This is roughly 25% of this country’s Budget. If you were to cut this figure out of certain countries’ budgets, it could add as much as 1% to their deficit.”
So it was not surprising that Rupert went on the counter-offensive with a full-page open letter to Zuma in the Sunday press, saying: “It is ironic and a sad fact of our society that a company which dutifully pays its taxes, and goes out of its way to comply with the letter and spirit of the law, is now being accused by you of breaking the law.”
Rupert said Zuma had been warned often that cigarette smuggling would increase as a result of increased excise duties. He went on to say that in 1993, “in a law-abiding country like Canada, smuggled cigarettes increased to over 40% of the total market. As in South Africa, this was due to high levels of excise duties. The Canadian government lost tax revenues and, due to the availability of cheaper smuggled products, consumption did not decrease.”
There is, however, a considerable body of evidence which appears to contradict much of what Rupert said – and which appears to support Zuma’s argument that the best way to decrease smoking is to discourage new smokers, especially teenagers, by banning advertising and further increasing excise taxes on tobacco products.
About 22 Western countries have complete or near-complete advertising bans, in line with a May 1990 World Health Organisation resolution. And South Africa, in spite of increases in excise and import duties in recent years, still levies lower taxes than most. South Africa’s 1995 cigarette excise of 38% of retail value compares unfavourably with, for example, Zimbabwe’s 50%, the United Kingdom’s 76%, Denmark’s 85% and Brazil’s 74%.
And government statistics appear to make nonsense of Rupert’s argument that higher taxes will lead to more smuggling to the extent that state coffers will suffer and smoking will increase.
In a retaliatory open letter written this week to Rupert, the NCAS pointed out that in the first nine months of 1995, compared to the same period in 1994, wholesale cigarette sales dropped by 2,2%, while cigarette tax revenues increased by 32,5% – from about R825-million to about R1,09-billion, according to Department of Finance figures.
The NCAS says in the letter: “Yes, cigarette smuggling has increased in South Africa, as has smuggling of televisions, hi-fi sets, drugs, tyres and other products. Decreasing the excise tax on cigarettes will not end smuggling. The smugglers will simply switch from tobacco to other goods. Lowering tobacco taxes will, however, result in a loss of government revenue, and a rise in tobacco industry sales and profits.”
The British Medical Journal in May agreed that cigarette smuggling into Canada increased with increased taxes, but said total consumption (including of smuggled cigarettes) decreased by 40% between 1982 to 1991 as taxes increased. When the taxes were lowered again in February 1994 to curb smuggling, smoking increased immediately and tobacco tax revenues dropped.
Although Rupert said Rembrandt had gone “out of its way to comply with the letter and the spirit of the law”, there is little doubt that the law on health warnings in advertising is often breached. The Mail & Guardian this week photographed a Chesterfield (one of Rupert’s brands) billboard advertisement in Johannesburg where the warning is not lit up at night, while the “Chesterfield” neon lettering is clearly visible.
The Department of Health supplied the M&G with details of a number of cases which have been reported to police by individuals. These included complaints about breaches of the law on billboards, in print media and in point- of-sale advertising material. A Cape Town state prosecutor this week said she had knowledge of a number of cases where offenders had paid admission of guilt fines before it came to trial. She said offenders could also still get off with warnings, as the rules were “relatively new”.