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Global compass

Steady growth for Ethiopian tobacco sector

02 Jan 2013. The tobacco market in Ethiopia is set for significant growth over the coming years, due to rising incomes and a range of measures designed to reduce the volume of contraband cigarettes being consumed in the country.

At around 85 million, Ethiopia has Africa's second largest population, and although it remains among the world's poorest countries, its GDP has been expanding 7 per cent annually over recent years with levels of disposable income growing as a result.

 

Official smoking prevalence in the country is at present among the lowest in the world, with a smoking population of just 1.5 million – 1.7 per cent of the total population – in 2012 (there is no defined legal smoking age in the country), according to National Tobacco Enterprise (Ethiopia) S. Co (NTE).

 

An NTE spokesperson said that in addition to the country still being one of the poorest of the world (with gross national income per head in 2011 at USD 400 (EUR 306), such a low smoking prevalence might be explained by the fact that because it is a largely government-owned organisation NTE does no advertising whatsoever, and that smoking is seen as a bad habit, even a taboo by many people in the country. In addition, khat is legal in Ethiopia, and is a popular alternative in several parts of the country.

 

The NTE monopoly

 

The NTE has a monopoly on all the manufacturing and importing of tobacco products in the country, as well as owning the only four tobacco farms in the country. A spokesman for the company, 78 per cent of which is owned by the Ethiopian government, and 22 per cent by private foreign investors, told Tobacco Journal International that around 7 per cent of males, and 1 per cent of females in the country smoke, adding that most smokers are men between the ages of 15 and 49.

 

Gizachew Hagos, the NTE managing director, said that the company was on course to sell 3.9 billion cigarette sticks in 2012, up 5 per cent on 2011, representing similar annual growth as for the last five years. However, Hagos said that it expects the number of cigarette sticks sold in 2013 to increase by 13.3 per cent to 4.5 billion sticks, and for sales to reach 5.9 billion sticks in 2016, which would represent a CAGR [combined annual growth rate] between 2012 and 2016 of 8.5 per cent.

 

Hagos said that its forecast for the coming years is based primarily on its plans to ensure a rapidly growing number of consumers shift from purchasing illegal to legal cigarettes. NTE estimates that around 1.9 billion illicit sticks would be consumed in 2012 across Ethiopia – 33 per cent of the total cigarettes purchased – although Hagos added that this is down from 38 per cent in 2003.

 

“The volume of illicit cigarettes in Ethiopia keeps increasing, then decreasing, then increasing again, and no one knows where they are produced,” said Hagos.

 

Tackling illicit product

 

Hagos said that NTE has made some progress in tackling the problem over the past year. In 2011 NTE established a tobacco product inspection division, which has been working closely with Ethiopia’s ministry of trade, the federal police, the Ethiopian Revenues and Customs Authority, and the Food, Medicine and Healthcare Administration and Control Authority of Ethiopia.

 

NTE has also implemented an awareness programme for government officials and cigarette retailers, and has already seen some improvements, Hagos said: “Up until a year ago, you could find illicit tobacco products quite simply in every shop in Ethiopia, with legal and illegal products next to each other. People couldn't identify the difference, but that's starting to change now.” NTE is also working with government officials to control and tighten Ethiopia's borders.

 

He added that its efforts to tackle contraband will be intensified further over the coming years, and will be the main focus of NTE's strategic plan for 2013–2017. Much of the work will be focused on eastern Ethiopia, where contraband cigarettes are the most prominent. He said that this is because it has easily the highest smoking prevalence in the country, at 25 per cent, and because legal cigarette products are not as well-known or distributed in eastern Ethiopia as elsewhere in the country. NTE is working with regional authority officials in Dire Dawa and Harer, two of the biggest cities in eastern Ethiopia, to encourage retailers to dump illicit products and move towards a market where only legal tobacco products are sold, Hagos said.

 

He added that as NTE's efforts to reduce illicit cigarettes intensify, sales of legal hard pack cigarettes should increase in particular, with most contraband cigarettes being hard pack and many consumers, especially in eastern Ethiopia, accustomed to such products.

 

Meanwhile, NTE manufactures five different cigarettes. In the value-for-money (VFM) sector, NTE's leading product is Nyala, which accounts for around 85 per cent of the total market, according to the company. Other VFM products include Elleni, and Gisilla, which is made of lower grade tobacco.

 

In the premium sector, NTE offers Nyala Premium and Delight, which Hagos said are “very similar cigarettes, but with slightly different recipes”. He said that while Nyala Premium is 100 per cent full flavour, Delight contains full flavour tobacco but also Burley, Oriental and reconstituted tobacco.

 

Nyala Premium, launched in 2010, was the last new product introduced by NTE, although Hagos said that it has plans to launch some new products over the next few years including menthol and slim cigarettes. 

 

Ethiopian tobacco to increase

 

Hagos said that NTE sources tobacco from its own farms, with the company also importing filler from India, and full flavour tobacco from Brazil. He added that the ratio of locally produced versus imported tobacco varies from year to year, and due in particular to the impact of droughts and other bad weather can be as low as 30:70, but said that the company is working hard to change this ratio to 50:50 on a consistent basis by expanding its farms, opening new farms and encouraging local investment in the sector.

 

NTE also imports Rothmans cigarettes from British American Tobacco (BAT), and Marlboro from Philip Morris International. However, its volume of imported cigarettes has decreased dramatically over recent years, with sales revenue from imported products decreasing by 67.2 per cent between 2006 and 2010 to Ethiopian Birr ETB30.4 million (EUR 1.28 million, USD1.67 million), according to NTE, although it claimed there were signs imports had started to increase again in the last two years.

 

Hagos said that the prices of NTE products have increased twice over the past three years due to increases in product costs, with the retail price of a Nyala 20 pack currently between ETB9 (EUR 0.37, USD 0.49) and ETB10 (EUR 0.41, USD 0.54). Hagos added that the majority of cigarettes in Ethiopia are sold as single sticks, with most consumers purchasing two or three sticks at a time.

 

A new law was introduced prohibiting all advertising of tobacco products in Ethiopia in 2011, though Hagos said that this has not affected NTE as it does not advertise anyway. “Our main focus is on social responsibility, rather than profit,” he said, adding that he doesn't anticipate any significant policy changes affecting tobacco products in the country following the death in August of Meles Zenawi, who was Ethiopian Prime Minister for 20 years.

 

Jonathan Dyson