A recent study conducted by British American Tobacco Egypt has revealed a shocking surge in illicit trade in cigarettes, with more than 100 low-cost illicit brands representing at least 20 percent of the 84 billion cigarette market.
Adhering to no local standards or specifications and selling for as low as EGP 1 [USD 0.16], illicit products are costing the Egyptian government approximately EGP 4 billion annually, or 3 percent of the current budget deficit. This phenomenon continues to grow unimpeded, rising from 0.03 percent at the end of 2010 to 10 percent in 2011 and 20 percent as of March 2012.
Fueled by aggressive taxation of the industry, the illicit cigarette market has also been significantly bolstered by the lack of enforcement and a security vacuum. Attractive trade margins, at more than seven times the profit incurred through selling legitimate products for retailers and more than 16 times for wholesalers, have led some to deal only in illicit products, which due to their lack of adherence to local specifications pose far greater health risks to consumers than legitimate brands.
At a time when the government is sorely pressed financially, this loss of revenue is particularly devastating. For example, the EGP 4 billion, apart from representing 3 percent of the budget deficit, also accounts for approximately 20 percent of the potential USD 3.2 billion International Monetary Fund [IMF] loan. Currently, there are no signs of the phenomenon slowing down, with products flooding the market from transit points at the Egyptian-Libyan borders as well as from Jordan, the United Arab Emirates, China and Duty Free and Border shops.
Two consecutive excise increases in 2010 and 2011, in tandem with a faltering economy, have resulted in consumers of legitimate products spending almost 25 percent of their disposable income on cigarettes, while those purchasing illicit brands do so unaware that they are non-compliant in terms of limiting tar and nicotine quantities as well as the featuring of appropriate graphic health warnings, source of manufacture, cigarette quantities and age restrictions on the pack.
With the illicit trade in cigarettes continuing to grow in the Egyptian market, it is incumbent upon all parties – private sector, government and non-governmental alike – to join forces in a bid to eliminate this dangerous phenomenon.
About British American Tobacco
British American Tobacco is the world’s most international tobacco group, with quality brands sold in more than 180 markets and a responsible approach to doing business from crop to consumer.
With a portfolio currently comprised of four brands – Rothmans, Kent, Viceroy and Dunhill – British American Tobacco Egypt has seen its market share steadily increase since its entry into the market in 2001. A firm partnership with local manufacturer Eastern Company, along with manufacturing agreements for certain brands, has cemented BAT’s position within the local market.
BAT, a strong advocate of anti-underage smoking, has previously partnered with the global oil and gas company Total to launch a Youth Smoking Prevention initiative in its outlets and is looking to expand the project across Egypt.
