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August 27th, 2016:

Tobacco, alcohol and weaponry – here’s where some of the state’s investment has been flowing

The majority of the money is tied to Ireland’s sovereign-wealth fund.

ALMOST €35 MILLION in taxpayers’ funds is invested in the alcohol, tobacco, aerospace and defence industries through the state’s sovereign-wealth pools.

But new figures for the National Treasury Management Agency (NTMA), which oversees the nation’s investments, show the share of funds put into the sectors has been falling – declining from €45 million at the end of 2014.

The organisation, which manages the Irish Strategic Investment Fund (ISIF), had a total exposure to the industries of €34.5 million as of June this year, according to new figures provided to Fora.

The bulk of the NTMA’s equity investments in the alcohol, tobacco and defence industries relate to the ISIF, which was set up with the remainder of the National Pension Reserve Fund after its predecessor was raided to keep the banks afloat during the financial crisis.

The ISIF has a mandate to make investments on a commercial basis, with one of its stated aims to “support economic activity and employment in Ireland”.

Its total portfolio was worth €21.3 billion at the end of June, with €355 million committed to support SMEs and another €447 million going towards venture funds.

Tobacco and alcohol

According to the NTMA’s recently published annual report, the state held more than €7.2 million in both quoted equity and debt instruments for Philip Morris, British American Tobacco and other major tobacco firms.

The state also has small equity investments in international companies involved in the development of armaments, such as Canadian group Bombardier, French firms Thales and Boeing, and the US’s Airbus Group and United Technologies.

The NTMA’s investments in the companies are made through fund managers, rather than the organisation actively selecting the firms or industries.

The report said the organisation’s largest single investment last year was in Irish Water, with a €450 million loan facility provided to the semi-state company – €300 million of which was drawn down by the end of 2015.

Ethical investment

Earlier this year, NTMA chief executive Conor O’Kelly told the Dáil’s Public Accounts Committee that armaments is the organisation’s only restricted investment category.

The ISIF’s ethical investment policy for armaments is mainly influenced by its commitment to the UN Principles for Responsible Investment, but this policy does not stop its funds going into the sector altogether.

Under the UN guidelines, the ISIF is required to carry out investments on an ‘active-ownership basis’, which means it does not have to rule out any companies as long as it works to improve their environmental, social and governance policies.

In response to a parliamentary question last year, however, Finance Minister Michael Noonan revealed that the NTMA has excluded 14 companies from its list of possible investments – although he did not list the banned firms.

These exclusions were made to ensure the state complied with Irish legislation prohibiting the support of companies that developed cluster munitions and anti-personnel mines.

Meanwhile in April, the ISIF said it was committed to putting more money into medium-sized Irish companies over the next four years. The fund has made direct investments in mobile analytics firm Swrve and life sciences investment outfit Malin, among others.

ISIF director Eugene O’Callaghan revealed the sovereign wealth fund expected to pledge in excess of €750 million to Irish businesses and funds over the course of 2016.

This would bring increase its total commitments to almost €3 billion.

Written by Killian Woods and posted on

Cigarettes & Tobacco in Indonesia: A New Roadmap Needed

The Indonesian government is advised to make a new roadmap for the cigarette (and tobacco-related products) industry that includes targets for the short, middle and long-term. Moreover, the roadmap should involve strategies that aim to find a middle way between reducing cigarette consumption (protecting citizens’ health) in Indonesia while at the same time optimizing lucrative state revenue from this industry (as well as safeguarding the jobs of the nearly six million of Indonesians who are working in the cigarette supply chain).

The government of Indonesia is still discussing whether to raise the excise tax for cigarettes. This hike would help the government to reduce its looming tax and budget shortfall in 2016, while discouraging people from consuming the notorious “death sticks”. Last week it was reported that the government might even raise the price of a package of cigarettes from around IDR 20,000 to IDR 50,000 per pack. However, this is most likely a false rumor as such a drastic hike would in fact jeopardize state revenue, jobs in the tobacco-related sectors and would also give rise to a blossoming illegal cigarette market. In 2015 cigarette prices had already risen by an average of 11 percent.

Balancing between the safeguarding of high state income (from the tobacco excise) and protecting people’s health is key for the government. This year the government targets to gain IDR 140 trillion (approx. USD $10.6 billion) from the cigarette excise. As such, cigarettes account for about 95 percent of total excise income for the Indonesian government in 2016. This illustrates the importance of the cigarette industry in terms of state revenue. In 2017 the government targets to raise IDR 150 trillion worth of cigarette excise.

On the other hand, having a big population that is addicted to cigarettes also gives rise to economic costs for the government, particularly now it is serious to expand its universal healthcare program. Smoking-related physical illnesses (such as heart diseases) cause costs that need to be carried by the government and society. Meanwhile, having many ill people also implies that Indonesia does not make optimal use of its human resource potential.

To protect the millions and millions of passive smokers in Indonesia, authorities should undertake more efforts to encourage smoke-free areas in buildings and public facilities (both indoor and outdoor). On the other hand, the domestic tobacco industry should be able to boost production of cigarettes for export purposes. Falling domestic cigarette consumption but boosting cigarette exports (trying to become the cigarette production hub of the Asia Pacific) would be a win-win solution for Southeast Asia’s largest economy.

The tobacco industry is one of the largest industries in Indonesia, reflected by the fact that two cigarette manufacturing companies are positioned within the top ten of largest Indonesian companies (in terms of market capitalization) listed on the Indonesia Stock Exchange. The main reason is that there exists a huge market in Indonesia, while the government has not been eager to implement measures that aim at curtailing tobacco consumption in society. For example, Indonesia is one of the few Asian countries that is yet to ratify the World Health Organization (WHO)’s Framework Convention on Tobacco Control (FCTC).

All the above-mentioned matters need to be considered when creating a new roadmap for Indonesia’s tobacco industry.

Facts about Smoking in Indonesia

There are about 91 million (active) smokers in Indonesia (roughly 36 percent of the population)

About 70 percent of Indonesian smokers are part of the poorer segments of Indonesian society.

These poor families spend about 12 percent of their disposable income on cigarettes (making these death stick the second-most popular item for low-income families, after rice). A price hike would discourage the men in these families to purchase cigarettes

Every day an average of 1,172 people die because of smoking-related illnesses

Some IDR 7 trillion or approximately 30 percent of funds that are available to Indonesia’s National Health Insurance (Jaminan Kesehatan Nasional, or JKN) program are spent to combat tobacco-related diseases

In Indonesia the cigarette excise is still relatively low at a maximum of 57 percent; abroad this maximum is 80 percent. Therefore, Indonesian cigarettes remain among the cheapest worldwide and thus tempting for consumers