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JTI’s manufacturingfacilities in CentralAsia are testament tothe company’scommitment to theregion.
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Traditional cigarettes remain the most consumed tobaccoproduct in Central Asia.
By Eugene Gerden
The tobacco markets of Central Asia — which consists of the former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan — steadily grow amid the ever-growing demand and consumption of tobacco products among the local customers, according to recent statements made by representatives of global tobacco majors operating in the local market and local media reports.
Despite the pandemic and the ongoing tightening of anti-tobacco legislation in the majority of this region’s countries, the demand for tobacco products among the local customers remains stable. Most of the global majors operating in the market consider this very promising for their further growth. This is mainly due to the number of potential customers living in this region (where the overall population exceeds 74 million people) and the ever-growing popularity of some non-tobacco alternatives.
In the meantime, the ever-growing importance of the region for their business is confirmed by representatives of some leading global tobacco companies.
A British American Tobacco (BAT) spokesperson said in an exclusive interview that Central Asia remains an important region for further development of the company, while the biggest hopes of BAT lie with its new categories of products, particularly vapor, tobacco heating, and modern oral products. Some of them have already launched in the market.
“They are already available in more than 50 countries across the globe, including our tobacco heating product glo in Kazakhstan and modern oral product Velo in Uzbekistan,” said the BAT spokesperson.
In addition to BAT, the Central Asian region is also within the sphere of interest of another global tobacco major - JTI.
An official spokesperson for the company also confirmed in an exclusive interview the ever growing importance of Central Asia for the company’s business.
“Central Asia markets are important for the Japan Tobacco group, and the fact we have invested to install manufacturing facilities in some of these markets is testament to our commitment,” said the JTI spokesperson. “In addition, we hold strong commercial positions in most markets. […] we are the leading tobacco company in volume and value share in Kazakhstan, and growing. Although we do not expect the industry volume to increase in the years to come, we do intend to continue strengthening the equity of our brands to build our presence.”
According to JTI’s spokesperson, like in other markets around the world, the Covid-19 pandemic impacted the company’s business in Central Asia. This is in part due to consumers adjusting their consumption behavior relative to tobacco products during lockdowns and an increase in economic uncertainties. While the recent news about potential vaccines becoming widely available in the near future are encouraging, it is still too early to confirm a recovery in the first half of 2021 as the consequences from the Covid-19 pandemic might extend beyond 2021.
In regard to Philip Morris, the company has operated in the region since 1993 with the acquisition of shares of the Almaty Tobacco Company JSC, a local tobacco producer based in Kazakhstan, the most economically developed state of the region.
Currently, the company operates a factory located in the Almaty region which specializes on the production of its branded products, which are supplied both to the local Kazakh market and for exports to other countries of Central Asia.
Despite the pandemic, tobacco production in the majority of countries of the region this year demonstrated a significant growth, compared to 2019.
For example, in the case of Kazakhstan, the volume of production of tobacco products in the country during the period of January-November 2020 amounted to 14.57 billion items, a 9.9% increase compared to 2019. In value terms, production reached KZT131.6 billion (US$462 million).
Currently, the volume of tobacco production in Kazakhstan continues to grow, despite a significant tightening of the country’s anti-tobacco legislation earlier this year. An example of this is the recent introduction of mandatory labeling of tobacco products [which will need to include a Data Matrix code unique identifier containing information such as the product’s serial number and manufacturer’s name] in the country. The introduction of such practice means that the sale of tobacco products in the Kazakh market will be possible only with the use of a 2D scanner to read the necessary data and transfer it to fiscal data operators.
Kazakh authorities hope the introduction of mandatory labeling will ensure the transparency of the market and protect it from the influx of counterfeit products. In recent years, counterfeit products have become one of the most pressing problems for the entire Central Asian tobacco market, preventing its more active growth and development.
According to Azamat Arapbayev, a member of parliament of Kyrgyzstan, in recent years Central Asia became a transit center for counterfeit tobacco products which come from the Middle East, Southeast Asia, and other regions. Most of these products are then re-exported to the former Soviet states and the EU region, he added.
According to some local analysts, despite the efforts taken by regional governments to deal with counterfeit in recent years, the share of illegal tobacco products in the region continues to grow. That leads to serious losses for legal producers and low profits for local budgets.
The current situation remains complex, which is reflected by statistics of the Eurasian Economic Union, according to which the share of counterfeit tobacco products in the Central Asian region varies in the range of 50-70%, depending on the country.
Despite this, most producers and analysts see big prospects in the market for further growth in years to come. In addition to Kazakhstan, producers have hopes for other countries in the region, such as Tajikistan. Several years ago representatives of JTI visited Tajikistan, where they considered some opportunities for investing in the local tobacco market. However, due to the tightening of tobacco legislations in this country in 2017 in the form of the adoption of a new anti-tobacco law, these plans were never implemented.
Most analysts expect the tobacco market in Uzbekistan could provide another driver for growth for the entire Central Asian region in years to come. At present the volume of the market is estimated at 10 billion sticks, or about US$500 million in value terms annually, with a growth rate of 10-12% per year.
Overall, the daily consumption of tobacco products in the Central Asian region variers in the range of 10-17 sticks, depending on the country (with the highest figures being observed for Kazakhstan – 18 sticks). In the overall structure of consumption, most of consumed products accounted for are traditional cigarettes.
At the same time, the consumption of tobacco alternatives in the region remains low, which, according to some local analysts, provides an opportunity for growth for tobacco majors.
The market is almost equally divided between the low-priced and mid-priced segments. The premium segment occupies less than 3% of the market.