BAT Kenya to manufacture in Egypt

August 3, 2010
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, NAIROBI, Kenya, Aug 3 – British American Tobacco (BAT) Kenya is set to start the commercial export of semi-processed tobacco to Egypt for manufacturing into cigarettes this month.

BAT Finance Director of East Africa Lawrence Kimathi told an investor briefing that they will ship about 50 containers of the roughly chopped commonly referred to as cut rag to the North African country every month, in the project in which they have invested Sh350 million.

“We are talking about a 70 percent increase in our throughput in our factory and many containers leaving our factory every month which is really huge from a traffic and return point of view,” the director said.

Egypt has been touted as one of the few African countries that boasts a low production cost environment, and this will enhance the company’s efficiency and competitiveness.

The cigarette manufacturer said it expected that the investment – which significantly pushed up its financing costs by up to 177 percent in the first half of the year – to be recouped in about three years.

In the first half from January to June, domestic sales grew by six percent while pre-tax profit rose from Sh1.22 billion in the corresponding period last year to Sh1.46 billion. The performance was supported by a decline in manufacturing costs which should see the tobacco firm save nearly Sh180 million by the end of the year.

Mr Kimathi also disclosed that they are lobbying the East African Community (EAC) Secretariat to harmonise the excise tax reforms to enable them benefit from the recently implemented Common Market Protocol.

While expressing doubts that the firm would be impacted positively by the regional integration process in the short term, the director underscored the need to first unify the tax structure of the member states and ensure there is no influx of cheaper products in one country which will see some competitors in the region benefit at the other’s expense.

Even though Kenya, Uganda, Rwanda and Burundi did not raise the excise tax on the product in their June 2010 budgets, the Tanzanian market was slapped with an eight percent increase.

“There is a lot of disparity between where the tax incidences of the four main countries are. What we are lobbying for is to try and get harmonisation of the excise so that there is no leakage (of the cigarettes from one country to another),” Mr Kimathi added.

The excise tax regime on tobacco products in Kenya has been a thorny issue with the government constantly accused of arbitrarily increasing the rates on cigarettes, a move industry players say is counterproductive as it also leads to a rise in illicit trade as people turn to smuggling, counterfeit products and tax evasion.

The opening up of the region without aligning the necessary pieces of legislation compounds the problem because for instance, if one country has a higher excise system, it means that the prices will be higher and this then encourages the flooding of cheaper cigarettes which can be detrimental to a company’s profits margin.

Illegal trade, BAT said, has continued to be a major concern for them but expressed satisfaction with the government’s efforts through the Kenya Revenue Authority to clamp down the vice.

Mr Kimathi said such measures coupled with Kenya’s continued economic recovery and regional integration, spelt good tidings for BAT in the second half of the year.

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