BAT eyes Sudan as cigarette sales in Kenya stagnate

British American Tobacco Kenya (BAT) is set to venture into Southern Sudan to expand its export business as the local market Cigarettes price risecomes under increasing regulatory pressures.

The cigarette manufacturer said it was finalising talks with the Southern Sudan government to begin supplying that market by year-end, a move that is expected to grow its export business that absorbs 62 per cent of its production.

“Consumption in Kenya has been flat for about six years now,” said Gary Fagan, the BAT Kenya managing director. “We want to increase our production efficiencies to meet the growing demand from the export market.”

16 markets

BAT Kenya supplies 16 markets in the Common Market for Eastern and Southern Africa (Comesa) region and plans to deepen the external market to protect its sales from unpredictable tax regimes and increased regulation by health agencies in Kenya.

Mr Fagan said that since August last year, the firm has exported 1,000 tonnes to semi-processed tobacco products to Egypt, with plans to increase the volumes to the country by up to 8,000 tonnes by end of the year.

Weak demand from external markets last year saw export sales decline marginally to stand at Sh4.9 billion or 36.2 per cent of the Sh13.5 billion total turnover, with the firm keen on reducing its reliance on the Kenyan market.

BAT sales in the local market have been hit by the Tobacco Control Act that has in the past few years prohibited smoking in public and advertising of tobacco products as the government seeks to discourage smoking that is a major cause of lung cancer and other illnesses.

The company, which has the biggest share of the cigarette market in Kenya, has also suffered from rampant counterfeiting of its products estimated to rob it of at least 10 per cent market share.

The move to deepen the export market comes as the tobacco industry faces uncertainty in the taxation regime, with the Minister for Finance expected to announce a new system for taxing tobacco products in the upcoming budget.

Officials at Treasury, Ministry of Medical Services, and the Kenya Revenue Authority are working on plans to introduce a single tobacco taxation regime hinged on inflation, meaning that the tax rate will go up and down with the prevailing costs of common goods and services.

“If the tax is placed at the current high inflation levels then that will erode consumers’ purchasing power which in turn hurts sales,” Mr Fagan said, adding that the company supports the new tax system so long as the government reigns in inflation.

Inflation touched a 17-month high last month on the back of surging international oil prices and food shortages occasioned by the recent drought.

This has seen the costs of local pump prices and staple commodities go up by large margins, causing consumers to realign their budgets against non-essential habits like smoking.

The new tax proposal comes barely six months since Treasury changed taxes on cigarettes to rely on retail selling price from the complex system adopted in the June 2010 budget where physical characteristics of cigarette sticks and packaging were key factors determining tax levels in the industry.

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