30 December 2017

Ethiopia: Govt Gives Up Tobacco Monopoly for U.S.$434 Million

Photo: Addis Fortune
A bid meeting for a stake in the Imperial Ethiopian Tobacco Monopoly (file photo).

Amidst the forex crisis in the country, Japan Tobacco International (JTI) paid 434 million dollars, in full, to buy the remaining shares owned by the government at the National Tobacco Enterprise, raising its stake to almost a billion dollars.

Recently, the nation drafted stringent laws to reduce the number of smokers, raising excise tax and preparing a new proclamation obliging the Enterprise to print graphic warning labels depicting tobacco-related health risks on its products.

Girma Amente, minister of Public Enterprise (MoPE) and Christopher Nocke, Global HR manager of JTI, signed the pact on December 21, 2017, at the premises of the Ministry where the government agreed to transfer its 31pc shares to the Japanese giant.

"We have received the full payment via swift transfer," said Wondafirash Assefa, public relations director at the Ministry.

Based on the new accord, the Japanese tobacco producer, with the Japanese government as its major shareholder, will have five seats in the board of directors, whereas the remaining two are held by Sheba- which owns 29pc of the Enterprise.

"The action of the government is not acceptable at all. It will push more people into addiction," said an expert who has done a study on tobacco products in Ethiopia. "Now, even with the applicability of the new law, it is difficult to control the Company."

"Health warnings must be printed in colour on all tobacco products' packaging and labelling," said Yehulu Denekew, director of Food, Medicine and Health Care Administration & Control Authority (FMHACA). "Additionally, all tobacco-related laws will be organised and included in the new proclamation, unlike the existing trend."

The bill is drafted based on the World Health Organisation (WHO) framework convention on tobacco control, ratified by the government almost four years ago, to curb the spread of tobacco-caused non-communicable diseases by lowering demand and supply.

Furthermore, the Ministry of Finance & Economic Cooperation (MoFEC), along with WHO and FMHACA, conducted a study to bump up the excise tax by 10 percentage points to around 24pc, pushing the government's earnings from it to almost 800 million Br.

Gizachew Hagos, the chief executive officer (CEO) of NTE, doubts the effectiveness of the reforms in reducing the number of smokers in the country.

"The strictness of tobacco-related laws will instead expand the illicit market," said Gizachew, who has been heading the Company for 11 years.

JTI, with a global market share of around eight percent, entered the Ethiopian market a year ago with an offer of half a billion dollars- a record high in the history of privatisation in Ethiopia- to buy out NTE's 40pc shares.

It managed to secure the deal after vying with its competitors, Philip Morris International Inc. (PMI) and British American Tobacco (BAT), the leading tobacco producer in the world.

Being a significant shareholder of NTE, JTI will have a monopoly on import and export of tobacco products up until 2025, according to its contractual agreement. It will also have the same rights on production, harvesting, retailing and wholesale of tobacco products.

"We have a plan to replace BAT's Rothmans and PMI's Marlboro cigarettes with our brand cigarettes," said Gizachew.

Such contraband products control close to half of the tobacco market in the country.

To reduce the share of these products, NTE, whose net profit stood at 18.5 million dollars last year, plans to double its market stake in three years through local sourcing and construction of a new plant at Qality on a 6.6ha plot.

JTI's deal with the government is facilitated by the Embassy of Japan, according to sources. It enabled the Japanese producer to have a significant stake in the Company whose assets are valued at 45 million dollars, and annual production capacity stands at four billion cigarettes.

Founded 117 years ago, JTI is amongst companies sued by millions of individuals for hiding the risk of tobacco on health in Canada, two years ago. A Canadian court ordered the Company, along with Imperial Tobacco Canada and Philip Morris, to pay 15.5 billion dollar compensations to the people, according to BBC.

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