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Egypt loses LE 4 bln to illicit cigarette trade - Daily News Egypt

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Egypt loses LE 4 bln to illicit cigarette trade

By Reem Abdellatif CAIRO: Egypt is losing LE 4 billion (about $662 million) annually due to a “shocking surge” in the trade of illicit cigarettes with a rapidly increasing number of low-cost brands, according to a study by British American Tobacco. Fueled by increasing cigarette prices, more than 100 low-cost brands flooded the local market in …


By Reem Abdellatif

CAIRO: Egypt is losing LE 4 billion (about $662 million) annually due to a “shocking surge” in the trade of illicit cigarettes with a rapidly increasing number of low-cost brands, according to a study by British American Tobacco.

Fueled by increasing cigarette prices, more than 100 low-cost brands flooded the local market in the past year, equaling losses that represent about 3 percent of Egypt’s current budget deficit, the report added.

The smuggled tobacco products, which now represent at least 20 percent of the 84 billion cigarette market, are extremely health hazardous because they adhere to “no local standards or specifications,” selling for about LE 1 ($0.16).

“I’m a man who has been smoking for the past 10 years,” said Ibrahim Hassan, a kiosk owner in Cairo who sells tobacco products. “I tried one of these no-name brand cigarettes; but it was so disgusting, I could not even finish it.”

However, Hassan said he knows several vendors who sell these cigarettes because they have become increasingly popular, seen as an alternative to expensive brand names.

Since July 2010, the Egyptian government has been increasing taxes on tobacco products in an effort to collect more revenues. The most recent hike in mid-2011 upped the cigarette tax to more than 70 percent.

“In tandem with a faltering economy, [this has] resulted in consumers of legitimate products spending almost 25 percent of their disposable income on cigarettes,” the report said.

According to Business Today Egypt, in July 2010, there was an 84 percent tax increase that led to a 48 percent increase in prices. In July 2011, taxes were raised by another 37 percent, pushing prices up 21 percent. The price of cigarettes has gone up nearly 80 percent in less than a year.

“The budget for the 2011/12 fiscal year shows that tax from tobacco and cigarettes will amount to LE 18 billion, which is the second-highest source of tax revenue,” the monthly magazine reported.

As prices increase, the cheaper alternatives have become increasingly sought after, despite the compounded health hazards they represent.

According to the BAT study, “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.”

“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.”

According to the report, those who purchase these illicit brands are 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.”

Several kiosks and tobacco vendors around downtown Cairo told Daily News Egypt that they have indeed witnessed a surge in smuggled cigarettes, allegedly coming from China.

Ibrahim Farag, an owner of a kiosk who has been selling tobacco products in downtown Cairo for the past five years, said that he first noticed the trend after the security vacuum Egypt witnessed during the January 25 uprising.

“It has been extremely easy lately to see these smuggled cigarettes since there is no security really monitoring the situation,” he said.

While Farag said he no longer sells these brands after finding out that they are smuggled, he saw them sell even faster than Egypt’s “cheapest” locally produced cigarette brand, Cleopatra, which sells for as low as LE 3, or $0.49.

“People prefer to buy the smuggled cigarettes because they are in a better looking box and are even cheaper than Cleopatra, for example,” he said.

“As for the expensive brands, the kinds of customers that buy Merit or Marlboro continue to buy them because they do not mind paying a few extra pounds.”

In 2010, for example, Merit cigarettes, which are seen as a bigger brand name, used to sell for about LE 8, about $1.3. However, now they can sell for almost double the price.

Currently, there are no signs of the illicit-trade phenomena slowing down, according to the study.

Many of these products have been flooding the market from transit points at the Egyptian-Libyan borders, the United Arab Emirates, Jordan, China and even Duty Free and Border shops, according to the report.

Farag, along with several vendors, told DNE that they speculate many of these cigarettes are coming in from China, as they are often “mimics” of top name brands like Merit, Marlboro, or Rothman’s.

Hassan said some of the low-cost brands include Rozeman (copying the British Rothman’s), Manchester, as well as Royal.

“We don’t sell them here,” said Sherif El-Bahnasawy, a young man working at a kiosk near central Cairo.

When asked why by DNE, he said that he heard they can be very harmful to people’s health, even more so than other tobacco products.

Unlike Farag, however, El-Bahnasawy said his shop has witnessed slight losses in revenue due to the increase in tobacco taxes.

But Egypt’s sluggish economy doesn’t need any more losses. The current Cabinet has repeatedly said it needs at least $11 billion to get out of the economic slump.

Negotiations on a $3.2 billion loan from the International Monetary Fund (IMF) are underway. Although the loan has not yet been approved, according to the study, the LE 4 billion losses in tobacco revenues account for about 20 percent of the potential IMF loan.

Topics: smuggling

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https://www.dailynewsegypt.com/2012/03/21/egypt-loses-le-4-bln-to-illicit-cigarette-trade/
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