• Despite an 88% excise duty increase in 2025, BAT Zambia's total tax contributions to government declined by 5%, as illicit cigarettes more than doubled their market
• BAT Zambia grew profit before tax by 9% to ZMW311 million only through aggressive cost cutting, masking an 11% net revenue decline that reveals a formal market shrinking
• The Zambian crisis is part of a regional collapse, BAT has now exited Mozambique and announced the closure of its South African manufacturing plant
• This leaves Zimbabwe and Zambia as the last standing formal production markets in southern Africa

Harare- - BAT Zambia, the country's only listed tobacco manufacturer and the dominant player in Zambia's formal cigarette market, has reported a year in which profit grew but the business shrank, a paradox that sits at the heart of one of the most consequential policy failures in the region's economic history.

For the year ended 31 December 2025, profit before tax rose 9% to ZMW311 million, earnings per share climbed from ZMW0.92 to ZMW1.02, and the board proposed a total dividend of ZMW0.80 per share, up from ZMW0.72 in 2024.

On the surface, these are the numbers of a company performing well. Beneath them is a business in structural retreat.

Gross revenue fell from ZMW1.32 billion to ZMW1.20 billion. Net revenue dropped 11% to ZMW793 million. The company achieved its profit growth only by cutting total cost of operations by 22%, a reflection not of efficiency gains but of falling sales volumes across a market that is being consumed, pack by pack, by an illegal trade that pays no duty, attracts no VAT, and contributes nothing to the Zambian fiscus.

Profit grew because costs were slashed faster than revenue fell. That is not a growth story. It is a managed contraction.

The most consequential line in the entire results announcement, however, is not about revenue or profit. It concerns the government's own balance sheet. Despite implementing a cumulative 88% excise duty increase on cigarettes over the course of 2025, 13% in January followed by a further 66% in August, total tax contributions comprising excise duty and VAT declined by 5% year on year.

The government taxed harder and collected less. That outcome, unadulterated as it is, follows a logic that was entirely predictable from the moment the August increase was announced.

When excise duty rises 88% in twelve months against a backdrop of weakened consumer purchasing power, smokers do not quit. They migrate. They move to cheaper, untaxed alternatives that carry no duty, attract no VAT, and generate no revenue for the state.

BAT Zambia estimates that illicit cigarettes now account for approximately 30% of the Zambian market, up dramatically from 12% in 2024. That 18-percentage-point surge in a single year is the direct arithmetic consequence of a tax policy that outpaced what the formal economy could absorb, without the enforcement infrastructure required to defend the legal market those tax rates depended upon.

The regional context transforms this from a Zambian story into a southern African crisis. What is happening in Zambia is the same structural collapse that has already claimed BAT's South African manufacturing operation. In January 2026, BAT South Africa announced the closure of its Heidelberg plant by the end of the year, ending more than 70 years of local cigarette production.

The facility, once the eighth-largest in BAT's global portfolio, was operating at just 35% of capacity, with approximately 75% of the South African cigarette market now estimated to be illicit. South Africa's Finance Minister Enoch Godongwana confirmed in his 2025 Medium Term Budget Policy Statement that the state had lost R40 billion in excise revenue since 2020 as a direct result of the black market's expansion.

The closure puts approximately 35,000 jobs at risk across the broader value chain, from factory floor workers to tobacco growers who have supplied BAT for over a century.

Before South Africa, there was Mozambique. BAT exited that market entirely in December 2025, walking away from a country where it once held over 90% market share.

The two exits, Mozambique in December, the Heidelberg closure announcement in January,  form a pattern that the Zambian results now extend,  BAT is rationalising its southern African manufacturing footprint, concentrating production only where the formal market remains viable, and retreating everywhere else.

Zimbabwe's position within this picture carries its own particular complexity. The country's cigarette manufacturing capacity has been rising sharply even as domestic consumption has remained broadly flat, estimated at around 2.5 billion sticks annually. BAT Zimbabwe and Pacific Cigarette Company together already hold the capacity to oversupply the local market, making additional domestic-focused expansion difficult to justify on its own terms.

What connects Zambia, Zimbabwe, South Africa, and Mozambique is a failure of regional policy coordination that has allowed illicit networks to operate with an effectiveness that no individual government's enforcement regime has been able to match. Each country has adjusted its own excise schedule, deployed its own enforcement agencies, and processed its own tobacco legislation.

But the networks moving untaxed cigarettes across those borders are not nationally organised. They are sophisticated cross-border operations with established logistics, retail distribution reach, and a cost structure built entirely on paying nothing to any government. When Zambia widened the price gap between legal and illegal product by 88% in a single year, it did not weaken those networks. It made them more profitable.

Enforcement, the Zambian experience demonstrates, is not a policy instrument that can be deployed after the excise decision has been made. It is a precondition for the excise decision to produce the intended outcome at all. A high-excise tobacco regime without credible enforcement does not raise revenue.

It transfers market share from regulated businesses to unregulated ones, shrinks the tax base it was designed to expand, and accelerates the destruction of the legal industry it was designed to tax. Zambia raised excise by 88% and collected less money. That is not a paradox. It is the arithmetic of what happens when the price signal is sent without the enforcement signal to back it.

BAT Zambia survived 2025 through cost discipline and pricing management, and the dividend increase signals a board that retains confidence in the business model's resilience. But cost cutting has a floor. If the illicit share continues to grow at the pace recorded in 2025, the financial floor approaches faster than the current numbers suggest.

The lesson for Zimbabwe, where the Tobacco Control Bill is in development and excise pressure is an ongoing feature of fiscal policy conversations,  is that the sequencing of tax policy and enforcement capacity is not a procedural detail. It is the difference between a tobacco industry that sustains government revenue and one that finances criminal networks instead.

Zambia has just published the results of getting that sequencing wrong. The question now is whether anyone in the region is reading them.

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