Assessing the Illicit Cigarette Market in Ethiopia
In 2018, the Campaign for Tobacco Free Kids engaged Hana Ross to help quantify the illicit cigarette market in Ethiopia. This was done by collecting empty packs from both retailers and off the streets of 10 cities in Ethiopia, including the capital Addis Ababa. The preliminary results show that the illicit market share is about 19%, substantially less than claimed by the tobacco industry. The majority of illegal packs were found in the Eastern region close to the border with Somalia and Djibouti, where about 60% of the collected cigarette packs were classified as illegal. Addis Ababa, the capital of Ethiopia, reported only a 5% illicit cigarette market share.
These results were presented by CoRDe Consulting, the local research group, to policy makers as they were debating the tobacco tax increase. The independent research evidence played a critical role in the decision to raise the tobacco tax in Ethiopia.
Even though Ethiopia still has a relatively low smoking prevalence of 4%, the country’s very large population (of about 100 million people) means that the tobacco products market is quite large, with about 3.7 million tobacco users and 2.9 million cigarette smokers.
The National Tobacco Enterprise Ethiopia S.C. (NTE), owned by the government, had monopoly power in this market until 2015, when the government allowed Japan Tobacco Group to acquire a 40 percent equity share for USD 510 million. In 2018 JTI acquired another 40% of NTE, and the remaining 20% was purchased by a company from Yemen. This signalled the end of the government-run tobacco monopoly in Ethiopia.
There used to be a limited number of brands, but the situation is changing with the new ownership, as JTI is introducing new ones. The most popular brand is still Nyala that occupied almost 90% of the market. As of 2018, its dominance dropped to 70% of the market. Other NTE brands are Elleni, Gisilla, Delight, and the newly introduced JTI brand Winston, produced domestically. NTE also imports a limited number of Rothmans cigarettes from BAT and Marlboro from PMI.
The taxes collected on cigarettes are minimal and not compliant with WHO FCTC recommendations. The excise tax rates has been fixed at 75% of the ex-factory price (or 75% of CIF in the case of imports) since 2002, or about 14% of the retail price.
This changed in Feb 14, 2020 when the purely ad valorem tax system converted into a mixed system. The new excise tax rate was set at 30% ad valorem on ex-factory price + 8 Birr (USD 0.24) per pack even though the original proposal called for 30% ad valorem on ex-factory price + 5 Birr per pack. Local advocacy effort managed to get the tax up by 3 Birr per pack.
Before the tax increase, the NTE ran a vigorous anti-tax campaign claiming a tax increase would exacerbate the tax loss due to the huge presence of illicit cigarettes on the market. Their estimate, supported by the Euromonitor figures, suggested that at least 30% of the cigarette market in Ethiopia is illicit.
The work by CoRDe Consulting, supported by Hana, was able to shine a light of scientific rigour on the illicit trade issue, and indicated that illicit trade was substantially less than claimed by the tobacco industry, and was not widespread, but was focused primarily in the Eastern parts of the country.