Eastern Company, Egypt’s state-owned tobacco producer, this week hiked the price of its products by 12.5-20 per cent. The increase came a few days after Egypt’s parliament passed an amendment to the 2016 VAT law to impose a tax of LE0.5 on tobacco products distributed in the local market.
This is the second hike the company, which enjoys a 70 per cent share of the market in local cigarettes and tobacco products, has introduced after it increased prices in March.
Accordingly, the price of the company’s most popular and affordable brand, Cleopatra, was raised to LE27 per 20-cigarette pack, up from LE24. Prices of all the company’s local brands increased with its most expensive, Pall Mall, surging from LE35 to LE42.
Additionally, the cost of hookah tobacco rose to LE50 and LE85 for 250-gram and 500-gram packs of the in-demand muassel saloum brand.
Phillip Morris, which manufactures its famous brands of Merit, Marlboro, and LM in Egypt at the factories of the UAE-owned United Tobacco Company, also raised the price of its cigarette products by LE10.
Accordingly, the price of a pack of Marlboro rose to LE69, Marlboro Crafted to LE59, LM to LE50, and Merit to LE74.
The applied VAT increase aims at increasing revenues from cigarettes by LE1.7 billion during the current FY 2023-24, to reach LE88.17 billion amid the challenging economic situation the country is facing due to the repercussions of the war in Ukraine.
The price increases come amid a shortage of cigarettes in the market since May 2023, leading them to be sold at double the price in the parallel market.
In response, smokers have had to purchase unknown, adulterated, or smuggled cigarettes.
In September, Eastern Company increased its production by 40 per cent to meet the increasing demand in the local market, and contain soaring prices of tobacco products in the parallel market.
Ibrahim Imbabi, head of the Tobacco Division at the Federation of Egyptian Chambers of Commerce, stressed that the application of VAT on tobacco products will contribute to curbing the activity of the parallel market and set the balance in the cigarette market in general.
Imbabi also called on the Eastern Company to take charge of distributing tobacco products in the market instead of dealers and distributors to eliminate the parallel market and address the supply issue.
“Although Egypt has statutory provisions that bar monopoly practices, regulation and enforcement — chiefly the province of the Ministry of Supply and the Consumer Protection Authority — are lax,” according to a recent study published by the Alternative Policy Solutions research entity of the American University in Cairo.
“The consumer protection law requires merchants to place the official price on the product and provides for severe penalties for violators. Although the authorities have carried out some inspections and seized large quantities of black market cigarettes, regulatory actions remain limited, raising questions about the government’s failure to control sales and distribution, rein in monopolists, and end the worsening crisis.”
“The recent rise is tackling the issue of rising costs of production inputs mainly because of the devaluation of the Egyptian pound against the US dollar,” Eastern Chairman Hani Aman told Al-Ahram Weekly.
Aman said the company’s production volume was steady and that the crisis came as a result of the “greed and the unfair practices of cigarette merchants and dealers”.
Since the onset of the war in Ukraine, Egypt has devalued the local currency three times, during which the Egyptian pound lost over 65 per cent of its value, performing at the lowest level in 19 months.
The market is also expecting a fourth wave of the local currency devaluation, as adopting a flexible exchange rate is a key requirement under the $3 billion loan programme with the International Monetary Fund.
“Despite official action to contain the crisis, authorities should coordinate to ensure more effective, stricter regulation in the short term to protect consumers and collect tobacco tax revenues, while adjusting tobacco tax policy to improve public health in the longer term,” the Alternative Policy Solution’s report stressed.
According to the report, which cited the CAPMAS data, 18 million Egyptians are smokers, accounting for almost 17 per cent of the country’s total population for the 35-44 age group, with 40 per cent of Egyptian families having at least one smoker.
In 2023, the cigarette market in Egypt generated revenues of $6.3 billion, and is projected to grow by 9.65 per cent on an annual basis between 2023-28, according to Statista, a global data and business intelligence platform.
Relevant to the total population, revenue in Egypt’s cigarette market recorded $71.38 per person in 2023, and the number of cigarettes sold is expected to reach 107.1 billion by 2028.
Moreover, the volume is predicted to grow by 2.1 per cent in 2024.
“Egypt’s cigarette market continues to thrive, with a strong demand for local brands and a cultural acceptance of smoking,” according to Statista.
* A version of this article appears in print in the 16 November, 2023 edition of Al-Ahram Weekly
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