KENYA
Industry observers have said that the new, tough regulations on the manufacture, buying, and selling of cigarettes that came into force this September are not expected to have major impact on the earnings of tobacco companies in the medium term.
Michael Chege, an economist at the University of Nairobi said studies in European nations where regulators have already implemented similar stringent rules had shown tobacco firms’ profits were not significantly adversely affected. It was, however, “Higher taxation instead, which drives up pricing and impacts consumer’s ability to purchase the cigarettes, is what impacts on usage” and that “the graphic imagery on packing for instance has proved not to be a deterrent.”
Losing a High Court battle in March against regulations that, for instance, call for standardized packaging displaying graphic health warnings on cigarette packs saw the Kenyan tobacco industry suffering a setback. The regulations also require wholesalers and traders to put up prominent signage warning of the dangers of tobacco use at points of sale.
The High Court declared the regulations valid in a victory by anti-tobacco use campaigners and the Health ministry.
John Kirimi, an investment analyst at Sterling Capital, said the tough rules do not sound the death knell for tobacco firms. “I do not expect the regulations to affect the earnings of the cigarette makers in the short term because there is a ready pool of consumers already addicted to the product. In the long run, however, there is certainly bound to be an impact on earnings as new users reduce,” he said.
The Kenyan Health ministry released a public notice in late August saying all Kenyans and tobacco firms are bound by the new rules and those flouting them would be sanctioned. In the notice, Cabinet secretary, Cleopa Mailu, said, “The Ministry of Health has released the digital device containing the first batch of pictorial health warnings that will run from September 26 to December 31, 2016. The second batch of pictorial health warnings that will run from January 1 and to December 31, 2017 will be dispatched to you shortly.”
According to market research by Euromonitor International, the manufacture and distribution of tobacco products in Kenya is monopolistic in nature, with British American Tobacco Kenya Ltd. controlling the market at 77% retail volume share of cigarettes, as of 2015.
Mastermind Tobacco (Kenya) Ltd takes second position with a retail share of 18%. BAT posted a Sh2.15 billion profit after tax in the six months ended June 30 compared to Sh1.94 billion a year ago.