Illicit trading in cigarettes is costing the Egyptian government approximately EGP4 billion ($663 million) annually, or three per cent of the current budget deficit, said a report.
More than 100 low-cost illicit brands, adhering to no local standards or specifications and selling for as low as EGP1 ($0.16), represent at least 20 per cent of the 84 billion cigarette market, added the recent study conducted by British American Tobacco Egypt.
This phenomenon continues to grow unimpeded, rising from 0.03 per cent at the end of 2010 to 10 per cent in 2011 and 20 per cent as of March 2012, according to the report.
Fueled by aggressive taxation of the industry, the illicit cigarette market has also been significantly bolstered by the lack of enforcement and a security vacuum.
Attractive trade margins, at more than seven times the profit incurred through selling legitimate products for retailers and more than 16 times for wholesalers, have led some to deal only in illicit products, which due to their lack of adherence to local specifications pose far greater health risks to consumers than legitimate brands, the report said.
At a time when the government is sorely pressed financially, this loss of revenue is particularly devastating. For example, the EGP4 billion, apart from representing 3 per cent of the budget deficit, also accounts for approximately 20 per cent of the potential $3.2 billion International Monetary Fund loan.
Currently, there are no signs of the phenomenon slowing down, with products flooding the market from transit points at the Egyptian-Libyan borders as well as from Jordan, the United Arab Emirates, China and Duty Free and Border shops.
Two consecutive excise increases in 2010 and 2011, in tandem with a faltering economy, have resulted in consumers of legitimate products spending almost 25 per cent of their disposable income on cigarettes, while those purchasing illicit brands do so unaware that they are non-compliant in terms of limiting tar and nicotine quantities as well as the featuring of appropriate graphic health warnings, source of manufacture, cigarette quantities and age restrictions on the pack, the report said.
With the illicit trade in cigarettes continuing to grow in the Egyptian market, it is incumbent upon all parties – private sector, government and non-governmental alike – to join forces in a bid to eliminate this dangerous phenomenon, according to the report.