On 'World No Tobacco Day' Egypt's cigarette black-market booming

Deya Abaza, Friday 31 May 2013

Tax hikes and soaring prices force cash-strapped Egyptians to resort to toxic contraband for their nicotine fix as smuggled cigarettes flood market through unsecured borders and weak internal law enforcement

Sale of contraband cigarettes booming on the streets of the capital (Photo: Deya Abaza)

A fatal combination of soaring cigarette prices and lax border and internal security following the Egyptian Revolution has led to an explosion of smuggled cigarettes in Egypt since January 2011.

Increasingly, Egypt's estimated 25 million smokers are turning to illegally imported and counterfeit cigarettes for their daily nicotine fix to the detriment of tobacco companies and the government’s coffers but most gravely, their own health.

Bootlegged cigarettes, purportedly legally and illegally manufactured in places including Southeast Asia, China, Greece, Jordan and the United Arab Emirates, have flooded the local market in the past two and a half years, according to analysts and industry insiders.

The market share of smuggled cigarettes in Egypt leaped from 0.3 per cent at the end of 2010, according to an industry study, to an alarming 20 per cent.

The die was cast when cigarette prices soared following the introduction of a new tax system in July 2010 and another tax hike on cigarettes by a cash-strapped transitional government a year later.

The official retail price of a pack of Cleopatra Golden King, the cheapest and most popular available local brand manufactured and sold by Eastern Tobacco Company, rose from LE 4.25 in June 2010 to reach LE5.75 in May 2012, as the sales tax component jumped from LE2.95 to LE4.1, according to Ingy El-Diwany, senior analyst at CI Capital.

Though the company has yet to increase the price to coincide with planned government sales tax increases in the coming months, kiosks and small grocers are already selling at close to LE7 a pack.

“The price increases, especially on the cheapest brands, gave smugglers an unprecedented opportunity to position their prices below Eastern Company’s at a time when border security completely broke down following the revolution,” explains a source from one of the tobacco companies in Egypt, whose sales are were also hit.

Indeed, prices of these black market cigarettes can be extremely low.

A pack of Macbeths, allegedly manufactured in Brazil, costs LE2.50. While a counterfeit pack of Cleopatra Box, Eastern Company’s second bestselling brand, costs LE4.5, compared to the official current price of nearly LE7.

There are currently 40 to 50 different brands of illicit cigarettes in Egypt, estimates Sahar Labib, head of the health ministry’s Tobacco Control Department.

According to an industry insider, two thirds of these are “illicit whites,” cigarettes that are legitimately manufactured abroad, though under questionable standards, but illegally smuggled into Egypt, evading custom duties and sales taxes.

The remaining third are counterfeits of known brands, such as Philip Morris and even Eastern Company which, El-Diwany says, recently sued infringing companies in Jordan and Turkey for allegedly counterfeiting its brands.

This has dealt a serious blow to the government’s coffers, which the industry source claims is sustaining LE4 billion losses in tax revenues annually.

Moreover, experts maintain that the smuggled cigarettes, which evade all regulation by the Egyptian health ministry, pose an even more serious threat to public health than locally manufactured products.

A 2012 study sampling "illicit whites" commissioned by Egypt's National Research Centre in collaboration with Eastern Tobacco concluded that these cigarettes contained substances that were more highly carcinogenic and damaging to the nervous system than legitimate local brands.

“Of course they are more harmful, you don’t need a study to tell you that,” says Labib. “Tobacco leaf prices are known worldwide. For cigarettes to be sold at these prices for a profit they must contain very little pure leaf, and a whole lot of questionable substances.”

The segments most at risk are the low-end consumers and the youth, according to Atef Yaacoub, head of Egypt’s Consumer Protection Agency.

“Working class smokers simply cannot afford to keep up with the rise in prices of the cheapest legal brands, and school children and university students are price-conscious but like to show off the foreign-looking pack of cigarettes."

Yaacoub explains that people believe the cigarettes are simply cheaper because they are smuggled into the country evading taxes. "They are not aware of the additional health risks.”

“How much worse can it be? They do taste different but at the end of the day, all cigarettes are bad for you, except these cost me half as much,” says Ahmed, a 30-year-old low-level employee at a pharmaceutical company, while buying a pack of “Ashfords” at a stand in downtown Cairo’s Ataba area for LE4.

He used to smoke Viceroys, sold by British American Tobacco in Egypt. “But when the price hit LE9, I just couldn’t justify shouldering the extra cost, I had to think of my wife and daughter.”

Quitting smoking altogether, he adds with an apologetic smile, was out of the question.

In 2007, Egypt passed a smoking ban, which applied in mainly government-owned public places, hospitals, schools and universities, as well as public transport. Aside from a short-lived test run in Alexandria, the law has remained largely unimplemented.

According to El-Diwany, enforcing the ban would reduce annual cigarette consumption by 10 billion cigarettes, based on government estimates.

“Given the state of law enforcement since the revolution, I don’t see how this law can be implemented,” admits Labib. “It will take time.”

The crux of the issue, officials agree, seems to be the collapse in law enforcement following the January 2011 revolution.

“In the current security environment, it is impossible to enforce the law and crackdown on the clandestine street vendors which sell most of these products. The police force is weary, and when it has tried to intervene, the result has been an uncontrollable riot,” laments Yaacoub.

Experts unanimously pin the blame on lax border security and Egypt’s porous borders. A particular problem is neighboring Libya, which experienced its own security breakdown during an uprising that closely followed Egypt’s.

Tobacco companies have signed protocols with Egyptian Customs to more effectively tackle smuggling.

In March, Philip Morris International in Egypt announced it was teaming up with the authorities to train Customs teams in the most advanced techniques in fighting cigarette smuggling.

Historically, Egyptian Customs have not been exposed to large scale smuggling, instead dealing with "ant" smuggling.

"Most of what we dealt with were individuals flying in from Kuwait and other Gulf countries bringing in suitcases packed with cigarettes but these were small quantities," recalls Salah Soufi, former head of the Customs Authority, who retired in 2007.

But Egypt also lacks sufficient legal deterrents for tobacco smugglers, according to the industry source.

Sayed El-Maghrabi, a senior Customs Authority official in Egypt’s coastal city of Port Said in the Suez governorate, says that in cases where offenders are caught and prosecuted, the penalty is usually a two-year prison sentence plus a compensation fine worth twice the custom duty on the smuggled products.

Even then, says the tobacco industry insider, judges have tended to be lenient on tobacco smugglers, ordering one penalty but not the other.

“Tobacco smuggling on this scale is a new phenomenon in Egypt; judges do not yet understand its gravity.”

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