eBusiness Weekly
Kudzanai Sharara
Zimbabwe Stock Exchange- listed entity British American Tobacco, will have to up its game if it is to maintain its dominance of the country’s cigarettes market, which has seen a new player China Tobacco Shaanxi Industrial Corporation come on board.
The Chinese company will partner local manufacturer Pacific Cigarette Company (PCC) in a deal that will see a new brand, Acacia Series cigarettes, being produced locally. Pacific Cigarette Company already has its own brand, Pacific cigarettes.
The new cigarette brand is expected to use Zimbabwean tobacco and Chinese flavours particularly to target the large Chinese community resident in Zimbabwe, but one can obviously not rule out local consumption.
While the deal, the first to be signed between an African cigarette manufacturer and a state-owned Chinese tobacco company, it would help increase tobacco production as well as bring in export earnings, amid plans to penetrate the regional markets.
It will result in increased competition for BAT Zimbabwe, which dominates the local market enjoying a 70 percent market share.
In what could be called a double whammy, BAT Zimbabwe will also have to deal with increased excise duty announced by Finance and Economic Development Minister Mthuli Ncube in his 2018 National Budget Statement.
Presenting his 2019 National Budget Statement, Prof Ncube increased excise duty on cigarettes to $25 from $20 per 1000 sticks, a move that will put pressure on BAT to either put up prices or absorb the costs.
Despite mounting inflationary pressures, BAT Zimbabwe has been keeping prices stable and continued to lobby Government to maintain the excise duty on cigarettes at $20 per 1 000 sticks, according to managing director Clara Mlambo.
Mlambo is on record saying duty should have been kept steady at $20 per 1 000 sticks, as this “allows pricing stability and volume recovery”.
But duty could not be kept steady for longer and the company will now have to find ways of defending its market share in a market where many other players had already not been paying duty even before the latest increase.
According to Mlambo at an analysts briefing held in February 2017, there has been growth in cigarettes that do not pay duty, which eats into legitimate industry volume and “less revenue for the government because the players are not paying taxes”.
Within Zimbabwe’s tobacco sector, BAT Zimbabwe is the largest payer of excise tax in Zimbabwe and contributed 82 percent in 2017. Threat, however, remains from products being sold at prices below the excise duty (implying tax evasion), something that will continue to impact BAT and China Tobacco Shaanxi Industrial Corporation’s volumes as consumers shift to these affordable options.
