The invasion of Iraq opened a Pandora’s box of troubles that have been felt far beyond the country’s borders. One less noted consequence of the invasion has been the emergence of Iraq as a regional hub for smuggled cigarettes, exacerbating a regional problem and further denting the coffers of finance ministries from Amman to Tehran.
“Illicit trade is an issue in the region. Everybody has some brand affected,” said Emile Moukarzel, Philip Morris International’s (PMI) area manager for Lebanon, Jordan and Syria.
Smuggling cigarettes nothing new
The smuggling of cigarettes is nothing new, with the global trade in contraband cigarettes equivalent to 6% of yearly sales, or 355 billion puff sticks according to Tobacco Control. But in a region where the smoking incidence is among the highest in the world—over 50% of the Lebanese and Syrian adult populations are smokers—and wages are low, there is a ready market for contraband cigarettes.
Nasser Qudah, British American Tobacco’s (BAT) Corporate Regulatory Affairs Director for the Levant and Yemen in Amman, said that over the past few years Iraq has become the region’s smuggling hub with over 300 brands of cigarettes available in the beleaguered country, including eight different packets of BAT’s Kent brand manufactured in various locations around the world.
The problem stemming from Iraq is not so much counterfeit cigarettes but smuggling, as taxes are low enough to make Iraq a favorable export market, said Paul Oakley, BAT’s Beirut-based head of demand chain for the Levant and Yemen.
With one truck container carrying 900 master cases—equivalent to 9 million sticks—selling for as much as $1 million, smuggling is a lucrative business.
BAT estimates that contraband cigarettes account for between 5% to 6% of Jordan’s $500 million cigarette market, with 10% of all smuggled cigarettes BAT brands and the highest illicit brands PMI followed by Altadis.
Contraband cigarettes enter Jordan via Syria or directly from Iraq, with some cigarettes returning to where they landed in the Middle East.
“Some products go to Aqaba, are smuggled into Jordan, then sold in Iraq, and then smuggled back into Jordan,” said Samer Fakhouri, vice chairman and general manager of Jordan’s International Tobacco and Cigarettes Company.
There are no estimates on how rife counterfeit and smuggled cigarettes are in neighboring Syria, but observers think the figure is high due to minimal government legislation and enforcement, particularly in regard to street vendors.
“We have a big problem with illegal imports and counterfeit brands from Iraq,” said Dr. Faisal Sammak, director of Syria’s tobacco monopoly, the General Organization of Tobacco.
Bucking assumptions that counterfeit cigarettes are mainly imported brands, the Syrian press reported cases last year of counterfeit Al Hamraa cigarettes, the country’s most popular brand but also one of the cheapest.
Syria and Jordan’s struggle to combat smuggling pales in comparison to Iran’s battle, with the government admitting last year that the cigarette black market accounts for a staggering 70% of all cigarettes consumed, amounting to over $1 billion in illegal trade and hundreds of millions of dollars in lost tax revenue. Iran is also pointing the finger at Iraq as the primary source of its smuggling problems. To limit cigarettes smuggled to Iraq, companies have cut down on the number of cigarettes sold to the Aqaba Special Economic Zone, a duty-free haven, and increased local production.
Flooding the market?
BAT said it has increased the price of its Viceroy brand in Iraq to the same as in Syria to discourage smuggling. Companies have also started brand protection groups (BPG) to increase public awareness about the dangers of counterfeit products, legal trade and loss of revenue to governments.
However, there are claims that tobacco companies are deliberately shipping in extra quantities of cigarettes to Aqaba and other regional ports to spur sales. By encouraging smuggling, observers say, tobacco companies are also able to pressure governments not to raise tobacco taxes, arguing that lower taxation curbs illicit sales.
Major tobacco companies have been investigated for involvement in cigarette smuggling in the past decade in Europe, North America, Colombia and Honduras.
