In January, British American Tobacco South Africa (BATSA) announced the closure of its Heidelberg factory, a facility that has anchored Lesedi Local Municipality’s economy since 1975, citing declining viability largely driven by rampant illicit tobacco trade in the country. Public commentary quickly attributed the closure to familiar factors: falling tobacco consumption, shifting market trends, and corporate restructuring. Yet this narrative is misleading. The Heidelberg plant is not shutting down because cigarettes are obsolete; it is closing due to weakening state capacity. The closure represents more than a business decision; it is a governance stress test, exposing declining enforcement effectiveness, limited regulatory reach, and the state’s diminishing ability to safeguard legitimate industry from illicit competition. In doing so, it reveals the structural forces accelerating South Africa’s broader deindustrialisation.
For decades, BATSA’s Heidelberg factory functioned as an industrial anchor embedded within a broader local production system. In 2022 alone, it contributed R3.2 billion to Lesedi’s GDP and supported nearly 3 900 jobs across the district. Nationally, BATSA added R11.7 billion to the GDP and sustained tens of thousands of livelihoods. The impending loss of 230 direct jobs signals not merely a corporate exit, but the destabilisation of an entire local industrial ecosystem. Suppliers, transporters, small retailers, and municipal finances will all feel the shock. This is the anatomy of small-town industrial collapse, unfolding not from sudden economic shocks, but from institutional weakening.
BATSA has been explicit that this outcome is not inevitable. If the illicit cigarette market were to be reduced from an estimated 75% to at least 25%, the Heidelberg plant could again operate viably. At present, it runs at just 35% of capacity; not because demand has collapsed, but because illegal cigarettes dominate the market, largely through informal retail channels. This shifts the closure decisively from corporate strategy into the realm of state capacity. The critical question is no longer whether BATSA wants to stay, but whether the state can marshal the enforcement, coordination, and institutional authority required to uphold the rule of law. The mooted government intervention that will be led by the Ministers of Finance; and Trade, Industry and Competition should be bold and go straight at the heart of the criminal elements that are benefitting from illicit trade at the expense of government revenues and the economy. It also goes beyond lost revenues, illicit trade has also entrenched lawlessness and corruption and because it has been left unaddressed for years, government has a mammoth task ahead of it.
Illicit trade in South Africa has moved from the margins to the mainstream. An opinion piece by SARS Commissioner, published in the Business Day on 27 January, painted a grim picture of the impact of illicit trade in South Africa. According to Kieswetter, illicit activity globally accounts for up to 5% of GDP, whereas in South Africa that number is as high as 12-15%. The result has been declining government revenue, increased corruption, social erosion, and job losses.
When it comes to tobacco, BATSA’s 2025 Ipsos-commissioned study found that 76.7% of retailers nationwide sell cigarettes below the minimum tax threshold, up from 27.4% in 2022. This is not a market correction; it reflects progressive enforcement erosion. Illicit cigarette penetration has risen steadily since the early 2010s, accelerating sharply during the 2020 COVID-19 tobacco sales ban, which rendered the entire market illegal for 20 weeks. That policy shock strained already limited enforcement capacity, entrenched criminal networks, hollowed out legitimate producers, and weakened the state’s regulatory authority.
The fiscal impact has been severe. Since 2002, cumulative VAT losses linked to illicit cigarettes are estimated at R119 billion, while current annual excise losses amount to R27-R28 billion. The Minister of Finance, Enoch Godongwana, confirmed during the 2025 Medium-Term Budget Policy Statement that illicit trade has evaded at least R40 billion in taxes since 2020. The closure of the Heidelberg plant thus represents not only a loss of jobs and industrial capacity, but a sustained erosion of the state’s revenue base; a feedback loop in which weakening capacity further constrains fiscal and institutional recovery.
South Africa has seen this pattern repeatedly. Lichtenburg’s economy contracted sharply after Clover South Africa relocated its dairy factory to KwaZulu-Natal. Komati was hollowed out following Eskom’s power-station decommissioning. Newcastle, anchored by ArcelorMittal South Africa, continues to face retrenchments that threaten its viability. In each case, the loss of a single anchor firm triggered cascading effects: unemployment, informalisation, outmigration, municipal fiscal stress, and social fragmentation. Heidelberg now stands on the same fault line, not because of a lack of opportunity, but because institutional capacity has not kept pace with structural change.
The Marshallian industrial district theory helps explain why these collapses are so destabilising. Industrial anchors are not isolated employers; they sit within dense networks of suppliers, skills, institutions, and tacit knowledge. When one node weakens or exits, the entire district becomes vulnerable. The erosion of these industrial commons is inseparable from declining local governance capacity. This insight is reinforced by the Tripartite Social Resilience Framework, which emphasises that economic resilience depends on the interaction between productive systems, social institutions, and governance legitimacy. Where state capacity weakens, firms disengage; where firms disengage, skills decay; and where skills decay, communities lose the ability to coordinate recovery, entering a self-reinforcing peripheralisation loop.
The District Development Model (DDM) was intended to interrupt this cycle by aligning planning, budgeting, and implementation across spheres of government. Yet a persistent gap remains between national industrial frameworks, such as the Department of Trade, Industry and Competition’s Sector Master Plans, and municipal realities. National policy frameworks often assume infrastructure reliability, administrative depth, and fiscal stability. Towns such as Lichtenburg and Heidelberg operate amid deteriorating infrastructure, hollowed-out administrations, and severe fiscal stress. Bridging this gap requires reimagining industrial policy through a place-based lens, strengthening resilience from the ground up rather than relying solely on top-down coordination.
Resilience itself cannot be reduced to economic indicators alone. It must include social adaptation: the capacity to absorb shocks, adapt under constraint, and ultimately transform. In Lichtenburg, Komati, and Newcastle, emergent forms of self-organisation (informal enterprise, cooperative farming, and solidarity networks) reveal latent social capacity. Yet these initiatives remain largely survivalist. Transformative resilience requires a deliberate shift from coping to renewal: rebuilding industrial commons, reinvesting in human capital, and restoring institutional legitimacy at the local level.
This is where a futures-driven, foresight-grounded regeneration model becomes essential. The intervention must move beyond managing decline toward designing a preferred long-term future. This reframes Heidelberg not as a town in distress, but as a locality whose industrial and social future must be intentionally shaped within South Africa’s spatial, institutional, and economic realities.
Applied to Heidelberg and similar towns, this futures-oriented model integrates six mutually reinforcing pillars: industrial renewal anchored in competitive value chains; infrastructure upgrading for reliability and productivity; skills and innovation ecosystem-building through revitalised TVET colleges and firm-linked training; energy resilience and green transition pathways; local finance and blended-capital mobilisation; and governance reform guided by the DDM, translating coordination into execution at the local scale.
Heidelberg’s predicament is therefore also an opportunity. The 2025 Transnational Alliance to Combat Illicit Trade (TRACIT) report identifies illicit trade as a direct threat to fiscal sustainability and industrial resilience, calling for public–private partnerships to strengthen enforcement and supply-chain integrity. At the Deindustrialisation Symposium held in Heidelberg on 15 October 2025, convened by Frontline Africa Advisory, a rare consensus emerged across government, business, labour, and civil society: reactive crisis management is no longer sufficient. Anticipatory, foresight-led governance must take its place.
Sedibeng District Municipality, under which Lesedi falls, has begun laying the groundwork by rehabilitating industrial road corridors, streamlining investment approvals, and piloting an Industrial Revitalisation Forum aligning firms, TVET institutions, and civil society. Gauteng’s Growing Gauteng Together 2030 strategy reinforces this corridor-based, place-driven approach. Yet municipal initiative alone cannot compensate for weakened national enforcement and coordination capacity.
If South Africa is serious about halting the hollowing-out of its towns, national government must treat illicit trade as a strategic governance challenge, capacitate SARS and border-control capacity, align industrial policy with municipal realities, and invest in skills and diversification before exits occur. This is not about defending a single company or sector. It is about restoring the state’s capacity to govern a modern, productive economy.
Heidelberg’s closure is not inevitable. It is a decision point. If state capacity is restored and coordinated action follows, Heidelberg could yet become a demonstration case; proof that South Africa can renew industrial districts and design a viable long-term future for its towns. If not, Heidelberg will join the growing list of communities hollowed out by deindustrialisation. The choice is stark: managed renewal or unmanaged decline.
