As Europe and the United States slap higher taxes on tobacco products and ban smoking in public places, the Arab World keeps on sparking up, boasting some of the highest per capita tobacco consumption rates in the world.
Tobacco manufacturers and advertising companies are only too happy to keep this multi-billion dollar business from being stubbed out, with international players focusing increasingly on the developing world due to declines in smoking incidence in the West and the barrage of court settlements the industry has had to pay out in recent years, particularly in the US.
Indeed, of the 1.1 billion smokers in the world, 800 million live in developing countries, with the World Health Organization (WHO) predicting that by the mid-2020s 85% of all smokers will come from the world’s poorer countries.
And while smoking declines in the developed nations, there is not a corresponding drop off in the global production of cigarettes or the number of smokers. According to the Food and Agricultural Organization (FAO) of the UN, world tobacco production is projected to reach over 7.1 million tons of tobacco leaf by 2010, up from 5.9 million tons in 1999. The number of smokers is expected to grow from the current 1.1 billion to around 1.3 billion in 2010, according to the report. This is an increase of about 1.5% annually.
Such growth is reflected in the Middle East, where the majority of national tobacco markets record between 1-3% annual growth rates. According to the WHO, tobacco consumption in the Middle East grew by 24.3% between 1990 and 1997, whereas consumption in Africa over the same period grew some 3.6%.
“The industry is focusing on this region as it is an emerging one. If you ask someone at Proctor and Gamble, they will say the same,” said a former marketing manager for a leading international tobacco company, who wished to remain anonymous.
The main markets the industry is concentrating on are Egypt, the region’s most populated country, Algeria, Saudi Arabia and Iraq.
“Iraq is a huge emerging market. Companies are dumping cigarettes there left, right and center,” said the source. “It’s now on CEOs’ lists for top brand sales.”
International firms also have their eyes on the Middle East for its booming population, with some 50% of the region under 25 years old. Although international firms do not deliberately market to minors, it is nonetheless a positive indicator for the industry of future market growth.
Regulations on the horizon
Despite the region still puffing away, regulations on advertising and smoking are coming to the Middle East, via countries signing up to the WHO’s Framework Convention on Tobacco Control (FCTC), established in 1995. The FCTC provides guidelines for countries to “impose restrictions on tobacco advertising, sponsorship and promotion; establish new packaging and labeling of tobacco products; establish clean indoor air controls; and strengthen legislation to clamp down on tobacco smuggling.”
Western governments have been at the forefront of implementing FCTC guidelines, but as countries sign up, controls are likely to gradually be implemented globally.
Incidence of smoking and annual growth
“The tobacco industry has changed dramatically in the past decade,” said Nadine Antun, corporate affairs executive for Philip Morris International’s (PMI) Lebanon branch. “The legislation in the US and UK will cascade down to everywhere else, it will just take time and will be to varying degrees.”
Varying degrees of implementation seems to be the region’s current catch phrase. Despite all Arab countries (bar Iraq) being signatories to the FCTC, there is minimal standardization across the region — few countries have health warnings on packets, advertising is still allowed (with the exception of certain ‘black’ markets, such as Jordan and Syria) and there is negligible public awareness about the hazards of smoking.
Even in countries that have banned smoking in public places and sales to minors, such as in Jordan, there is minimal enforcement.
“Sellers could be fined, but who is going to fine them?” queried Samer Fakhouri, vice chairman and general manager of Jordan’s International Tobacco and Cigarettes Company (ITC). Cracking down on violators of the ban on advertising and promotion is equally problematic. “The laws are still far more strict than implementation. For instance, smoking is not allowed in public areas but is in fact widespread,” he added.
Such problems are not limited to the Levant. The Emirates are now having a second go at banning smoking in public, after an attempt in 2005 fizzled out. This time the government has imposed the ban gradually, starting off in shopping malls, then fining people after an initial 90-day grace period and eventually, prohibiting smoking in all work places, schools, and food courts.
even in countries that have
banned smoking in public places and sales to minors, such as in jordan, there is minimal
enforcement
Other countries still have a long way to go. In Syria, where the tobacco market is controlled by a state monopoly, the General Organization of Tobacco (GOT), tobacco advertising has been banned for the past five years, but only international brands, which make up a tenth of the market, are required to have health warnings on packets.
In Lebanon, no tobacco regulations are in place, although a draft law to implement FCTC guidelines was drawn up last year. But due to no parliamentary sessions being held because of the current political standoff, the law has yet to be passed. Once inked, the law would restrict sales to minors, ban advertising and implement restrictions on smoking in public places.
“We support any limits or bans, the only thing we believe is right to maintain is communication to consumers at point of sale. It is a product that causes harm and should have a health warning,” said Antun.
“But a law has to be implemented and controlled, or what’s the point? It’s up to the government to enforce, and we will comply,” she added.
Such regulatory changes are forcing cigarette companies to alter their marketing strategies. “The type of adverts will change, but advertising budgets haven’t been slashed,” said the former tobacco company employee. “Compared to six or seven years ago, the budgets have gone from, say, sports to direct marketing, which is the future of most advertising.”
As if to protect their backs years down the line from massive payouts to chronically ill ex-smokers, as has happened in the US, major players have placed self-imposed restrictions on advertising.
“Philip Morris is allowed to advertise on TV here, but we don’t,” said Antun. “We make sure that for magazines the readership is 75% adult, and adverts are restricted to inside the publication.”
Nonetheless, the majors might not get away scot-free in the future. Earlier this year Saudi Arabia’s Ministry of Health opened a lawsuit against the representatives of 14 tobacco-producing companies that operate in the kingdom. The ministry is demanding compensation of $2.6 billion for financial losses incurred treating smokers in the past, and wants a further $133 million a year from tobacco companies for medical treatment. The outcome of the case, which is still pending, could set a benchmark for the region.
A smoldering market
To what degree imposed or self-imposed restrictions impact on cigarette sales is hard to tell, say insiders. “If tomorrow we don’t have billboards outside, I don’t know how much it would affect sales. It might, but if it does, so be it,” said Antun.
Nevertheless, hikes in taxation are actively discouraged by tobacco companies as a means of curbing smoking. “By increasing taxes you are not undercutting smokers but losing revenues and affecting producers as smuggling will increase,” said Fakhouri. Equally, countries like Syria are unwilling to raise the cost of tobacco. “We have no intention to increase the price, otherwise we would pay in profits,” said Faisal Sammak, director of GOT.
Tobacco companies’ market share
Counterfeit and smuggled cigarettes are a major problem for the industry, not so much in Lebanon, but particularly in Jordan, Syria, Iran and the Emirates. Countries that neighbor Iraq are particularly affected due to rampant smuggling, while British American Tobacco (BAT) estimates that the illegal market grows some 40% a year in the Emirates.
The unnamed source said some companies are actively encouraging smuggling to boost sales, naming French-Spanish tobacco company Altadis as involved in the illicit trade, shipping excess quantities to Jordan and Iraq that are then sold on elsewhere.
“We have no intention to increase the price, otherwise we would pay in profits”
“Some companies will do anything to get their sales, but BAT, PMI and Japan Tobacco International (JTI) are at the forefront of doing business in a responsible manner,” he added.
Ultimately, smoking incidence is likely to decrease in the region as health awareness improves and regulations are implemented. But this still doesn’t mean the end for the tobacco industry. “If fewer people smoke in five years, you can still compete between companies and still expand. That’s where competition comes in,” said PMI’s Antun.
