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Ethiopia

MORE COUNTRIES BANNING MENTHOL, CAPSULES, FLAVOURS

The ball is rolling internationally as more countries ban menthol cigarettes, including flavour capsules, as well as other flavoured tobacco products.

The rationale to ban menthol is clear and compelling.

Menthol soothes the throat making it easier to smoke, and makes it easier for kids to experiment and get addicted.

Menthol also discourages adults from quitting.

On 31 May 2015, the Canadian province of Nova Scotia became the first place in the world to implement a menthol cigarette ban. The menthol ban applies to all tobacco products. 7 out of 10 Canadian provinces have adopted menthol bans as part of broader flavoured tobacco bans.

The Canadian government is preparing a national menthol cigarette ban.

In the European Union (EU), a menthol cigarette ban will come into force 20 May 2020 for all 28 EU countries. Turkey and Moldova will do likewise on 20 May 2020. In Africa, Ethiopia and Uganda have adopted legislation banning flavours including menthol.

In recent years, a major tobacco industry strategy has been the marketing of cigarettes with squeezable flavour capsules. Sales of capsule cigarettes are significant and growing in many countries. While menthol is the most common flavour in capsules, other flavours are also being used.

In the EU, a ban on flavoured capsules came into force at the manufacturer level on 20 May 2016. Germany and Belgium were the first countries with cigarette capsule bans, prior to the EU requirement. Canadian provincial legislation banning menthol includes a capsule ban.

There is a positive, accelerating international trend to ban menthol, capsules and flavours in tobacco products, and thus respond to industry practices to increase tobacco product attractiveness and sales.

Rob Cunningham
Canadian Cancer Society

Japan’s JT Buys 40% Stake In Ethiopian Tobacco Monopoly For A Record $510M

http://afkinsider.com/129796/129796/

Japan Tobacco Inc. (JT), the seller of Camel and Winston cigarettes outside the U.S., announced on Sunday it had won a bid to buy 40 percent of the National Tobacco Enterprise S.C. from the Ethiopian government for a record $510 million.

JT said in a press release (in Japanese) that it has signed a share purchase agreement of $510 million with the Ethiopian Government for 40% of the total shares in the country’s tobacco monopoly after submitting a successful bid last May.

“The JT Group is delighted to be entering the Ethiopian market where we currently have no presence,” said Mutsuo Iwai, executive vice president and president of the tobacco business.

“Ethiopia will be an important expansion of our geographic footprint in emerging markets. As the largest shareholder, we expect to be able to exert significant influence over the direction of the company. The country is currently experiencing double-digit economic growth, with industry volume also expected to continue to increase.” Iwai added.

The more than half a billion dollar bid by the publicly listed Japanese company was the highest offer ever made for any Ethiopian state-owned enterprise, Addis Fortune reported.

It was more than double its closest rival British American Tobacco – maker of brands such as Rothmans and Dunhill, which offered $230 million for the same stake, Bloomberg reported in May.

Other companies that were involved in the bid included Phillip Morris International, known for Marlboro and a Chinese company—China Logistics Company Ltd. They were among the five bidders, including an unnamed individual from Niger.

The National Tobacco Enterprise S.C., a company established in 1942 as the Imperial Ethiopian Tobacco Monopoly, is one of the four public companies the Ethiopian government said it will privatize in 2016.

The country’s Ministry of Enterprises said in March it plans to sell some of governments shareholding in Bahir Dar Textile S.C., Kombolcha Textile S.C., National Tobacco Enterprise S.C. and Ethiopian Crown Cork and Can Manufacturing Industry S.C.

National Tobacco Enterprise S.C. was first privatized in 2008 when 22 percent of its shares were sold to a Yemeni company, Sheba Ethiopia Investment Plc, for $35 million.

Sheba’s bid to beef up its share by 20 percent was however disqualified after its representatives arrived late for the bid opening meeting in May, Addis Fortune reported.

With JT’s purchase Sheba’s stake in the Ethiopian company is now valued at $255 million, seven times the amount they paid in 2008.

In 2012, Ethiopia offered to sell over 40 public enterprises, including several large farms, a winery and a big hotel, over the next three years, Reuters reported.

While it managed to sell some firms, several other still remain unsold due to lack of interest from foreign investors.

Ethiopia: Smoke Screen – Companies Secretively Scramble for Tobacco Monopoly

http://allafrica.com/stories/201605180909.html

By Dawit Endeshaw and Solina Alemayehus

Philip Morris, British American, Japan International and Sheba will all put forward bids this week.

International tobacco firms are gearing up for some hefty competition, as the auction of 40pc of the National Tobacco Enterprise’s (NTE) shares is scheduled for May 19, 2016.

Three of the largest international players in the 500 billion pound tobacco industry – a group that controls roughly a third of the global market share – have their legal teams in Addis, to ready their bids.

Ethiopia, as a gateway to East Africa, represents a growing, youthful population, with increasing disposable income, is an attractive proposition,” explained a local industry veteran. This is not lost on the competitors.

The NTE has been having countless meetings and receiving visits from representatives of Philip Morris International Inc (PMI), British American Tobacco (BAT) and Japan Tobacco International (JTI). The Enterprise imports and packages BAT’s Rothmans and PMI’s Marlboro for the Ethiopian market.

These, as well as some locals, have been requesting information. Guna Trading Plc, one of the companies under the Endowment Fund for the Rehabilitation of Tigray (EFFORT), has also knocked on the Enterprise’s door.

British American is a multinational company that sold 158 billion cigarettes last quarter, with its revenue growing at an average annual rate of 5.4pc. Almost 30pc of this comes from Eastern Europe, the Middle East and Africa, through its affiliates in Kenya, Nigeria and South Africa.

In addition to acquiring local legal firm Kumilachew Dagnew Law Office, the company has sent its legal teams from Nairobi, West Africa and the UK. It has also acquired the services of international law firm, Addleshaw Goddard LLP, and investment consultants, Ernst & Young.

Phillip Morris owns seven of the world’s 15 top selling brands. Its quarterly sales of 209.8 billion cigarettes represented a 2.4pc decrease from the previous quarter. However, with three affiliates on the continent, in Senegal, Mali and South Africa, its African market share is showing an annual growth rate of 0.3pc.

In what some have deemed a lobbying gesture, the company recently donated half a million dollars to the Ethiopian Red Cross Society’s drought response.

The third multinational bidder, JTI, known globally for brands Winston, Camel, and Benson & Hedges, is the Japanese version of the NTE. Its total shipment volume grew by 7.1pc to 94.4 billion cigarettes in the last quarter. The company has seven affiliates in Africa, including Sudan, South Africa and Nigeria.

As interest in tobacco wanes elsewhere – in the US alone the proportion of adults who smoke has dropped from 43pc to 18pc in 50 years – Africa has become the new frontier.

“Shares in the NTE would be a way to cement their presence in the region,” the veteran commented. “And, for PMI, a way to create one.”

But the fields are not all green.

Government made a point of restricting any bidder from having majority shares. Sheba Investment Group, the only other shareholder so far, will only bid for half of the shares on offer, since it already owns 29.05pc of the Enterprise.

The government’s decision to sell only 40pc of the share is puzzling, seeing that health and environmental concerns could have been addressed by existing regulatory measures. If business is what they were after, they could have simply continued with their current holdings, the veteran opined.

Established with paid up capital of 50,000 Maria Theresa dollars during the imperial regime in 1935, the Enterprise was originally named the “Imperial Ethiopian Tobacco Monopoly”. It became a share company in 1999, following the EPRDF-led government’s expressed intention to privatise public owned enterprises.

Over the past five years, the annual turnover of the Enterprise has increased – on average by 190 million Br a year. It offers five brands – Nyala, Gissila, Elleni, Delight and Nyala Premium. Last year, the Enterprise registered 1.76 billion Br in sales, while collecting 394 million Br of profit. It now produces nine billion units of these cigarettes a year – a 50pc increase from four years ago.

BAT is known for five global brands, and had a stock price of 120.57 dollars as of May 13, 2016. PMI, with 15 international brands, is trading at 100.86 dollars per stock, While JT is going for 4,511.00 Japanese Yen on May 13, 2016.

Someone close to the process described the secrecy surrounding the bid as a smoky environment, where bidders were keen to keep a low profile. The giants, however, were too big to hide and there is some speculation about what may happen under the table.

But the bidders have major concerns.

The most obvious one is the limitation on the number of shares any single entity can own. The 40pc cap makes the potential owners of the NTE wary of the representation they will have on the board, which affects their decision-making abilities and the amount of power they will have over the Enterprise.

They are obliged to continue with the existing cigarette brands, and decisions like capital increase can only be made via consensus.

“The government did not want to be outvoted, it wanted to retain veto power,” one representative said. “But I doubt that it considered that it has also given the other members the power to veto any decision the government will try to make.”

The bidders are moving forward with the hope that there will eventually be the opportunity to transfer shares.

A source from the NTE has expressed concern that these companies may risk the fate of the 5,000 permanent and temporary staff.

The veteran disagrees.

“Since most are bidding in the hope of a future where more shares will come up for sale,” he opined. “They will most probably try to keep in the government’s good graces until then.”

Accessing growers of tobacco could prove challenging due to cultural differences, Getu Alemayehu, the public relations head at the NTE shared his concerns. The Enterprise already imports more than 50pc.

Another concern is the monopoly. The law on tobacco and the tender dictate a continuation of the monopoly for at least ten years, with no established upper limit.

“They shouldn’t worry about that,” the veteran added, “a decade is enough time to cement their market presence.”

Criticism was also directed at the NTE for being unprepared. Staff held back or did not have the necessary documentation, participants claimed, while others even gave away papers they were not supposed to.

Another concern is with the process. After the competition, the winning company is required to pay all the money up front. The parties will sign the agreements, then go to the Ministry of Trade and the Competition Authority. Both refer to the investment law, which clearly states that investment in tobacco is not for foreign investors. There is no guarantee that they will accept the merger.

The real challenge will come later, one lawyer predicted. From his observation, neither the Ministry of Trade nor the Public Enterprises legal team is fit to handle a merger of this size and complexity.

“I expect the worst during negotiations with them,” he said.