British American Tobacco PLC $BATS (+0.35%) announced this week that it plans to close its plant in South Africa after about five decades, citing illicit cigarettes, Business Day reported.
The London-based maker of cigarettes and nicotine products has decided to import cigarettes to serve the South African market.
The South African plant employs at least 1,500 people in South Africa.
On Wednesday, BAT informed the political leadership of the Lesedi municipality, where the Heidelberg plant is located, that it would shut down the plant by the end of this year, blaming illegal cigarettes.
The company stated that the illegal trade in cigarettes now accounts for 75% of the domestic market.
Johnny Moloto, head of corporate and regulatory affairs at BAT Sub-Saharan Africa, confirmed the closure in a statement after Business Day first reported the development.
"Our production plant in Heidelberg is currently operating at only 35% of its total capacity, making the operation unprofitable. The company's decision to close the plant is final," the company said in a letter to the mayor of the community, Nelson Nkosi.
"However, this does not mean that BAT is withdrawing from the South African market. The company will retain its secondary listing on the JSE and will continue to supply its customers through an import model," the company explained.
The Heidelberg plant is BAT's eighth largest plant globally and accounts for a significant proportion of total production for both domestic consumption and export to the entire Southern African region.
The decision to close the plant follows shortly after the company's decision to cease operations in Mozambique.