In the middle of a vibrant electioneering campaign, it is likely that many people may have missed out on the implication of a recent advertorial by the Standards Organisation of Nigeria, SON. In the said advertorial, SON advised Nigerians to be wary of certain brands of flavoured cigarettes. The afore-mentioned products, the federal agency stated, did not meet the registration requirements of the Nigerian Industrial Standards therefore “are not allowed to be imported into Nigeria.”
That the said products still managed to find their way into Nigeria, despite being substandard having fallen short of the quality benchmarks set by the Standards Organization of Nigeria, speaks to the fact that the products were in all likelihood smuggled into Nigeria.
Cigarette smuggling is an ever present but highly under-estimated danger in our environment. Indeed, the imperative of curtailing if not altogether eradicating cigarette smuggling is at the root of sundry submissions that have been made to policy and regulatory authorities by a number of development institutions as well as the tobacco industry itself, over the years. In their submissions, while they have typically admitted to the essence of regulating the tobacco industry, they have at the same time, canvassed that such regulation ought to be such as would have adequately accommodated the views and insights of the various stakeholders in the tobacco industry, in order that a robust and balanced regulatory framework emerges at the end of the day.
Incidentally, some stakeholders have consistently argued that tobacco regulation should be instituted without input from the tobacco industry. The reality is that doing so is the surest pathway to penning damaging tobacco legislation. “Damaging” is used in the context that from experience from other countries, such regulation is typically too stringent to be enforceable, leading to poor implementation and worse still the emergence of far worse problems than the regulation sought to curb in the first place.
It is pertinent to raise these issues and draw the attention of policy makers and key stakeholders to them at this time especially when the tobacco control bill is still before the National Assembly. It is noteworthy that SON is battling with the issue of smuggled cigarettes even at a time when regulation is at today’s current level.
Before we proceed further, perhaps we should examine why cigarette smuggling ought to be a front burner issue. Sundry studies have revealed clearly that when tobacco control regulation becomes too stringent as to make products excessively priced or too cumbersome to access, the quickest resort of cigarette sellers and distributors is the black market, the market for smuggled cigarettes. In this shady and unregulated market, much lower prices are guaranteed. Such low prices are typically a fall-out of a number of factors, one of which is tax avoidance. Cigarette smugglers do not pay taxes of any sort to government. Extensive resort to smuggled cigarettes therefore systematically deprives government of considerable tax revenues that are ordinarily accruable from the legitimate tobacco industry.
Cigarette smugglers are primarily driven by profit and are therefore under no obligation to provide jobs or grow legitimate institutions of any sort. So while a legitimate tobacco industry in Nigeria is providing thousands of jobs to Nigerians and stimulating a value chain that impacts lives of thousands more Nigerians, an underground tobacco industry that thrives on smuggled cigarettes can only provide a livelihood for a sprinkling of people. Besides, as the advertorial from the SON implies, the legitimate tobacco industry operates in a transparent fashion such that its processes and operations are accessible to regulators in order to guarantee the quality of products being churned to Nigeria’s marketplace. On the other hand, regulators have no view and no input into the quality of smuggled cigarettes many of which are likely to be substandard anyway.
Worse still, and as evidence from across the world has shown, cigarette smuggling has since emerged as the choice means of money laundering by criminal gangs and terrorists. The reasons may not be unconnected with the fact that cigarettes are typically light weight and easy to transport across borders, while huge demand and tax avoidance combine to guarantee constant revenues and excellent profits. For instance, William Billingslea, a senior intelligence analyst at the office of Strategic Intelligence and Information, Bureau of Alcohol, Tobacco, Firearms and Explosive, Washington in a recent paper entitled Illicit cigarette trafficking and the funding of terrorism, states that cigarette traffickers can make as much as USD 60 (more than NGN 12,120) profit for every carton of cigarettes sold. “Because of the immense profits in the illicit trade as well as the potentially low penalties if caught, illicit cigarette trafficking,” he confirmed, “now rivals drug trafficking as the method of choice to fill the bank accounts of terrorists and terrorist groups.”
For a country like ours reeling from the effects of insurgency, clearly, this is one risk that we should strive to avert by every legitimate means. Incidentally, passing tobacco legislation that is not adequately balanced by having considered several contending issues is one sure way of putting Nigeria on the path to perdition by making it increasingly susceptible to cigarette smuggling.
In the run up to the public hearings that were conducted last year, by the National Assembly on the proposed tobacco control bill, one key argument that was canvassed by anti-tobacco organisations, was the need to selectively target cigarettes with increased taxation. The thinking behind this is that with heavier taxation, cigarettes become more expensive with the result that they become increasingly beyond the reach of especially first-time smokers such as young people, while regular smokers are forced to cut-down on their intake on account of cost.
The reality, unfortunately, as experience from other parts of the world has shown is that while high taxes are effective at jerking up the cost of cigarettes, they have proven ineffective at reducing the incidence of smoking. The obvious reason is that when cigarettes produced by the legitimate industry are priced out of the reach of regular consumers on account of unrealistic taxation, consumers naturally resort to smuggled cigarettes which are cheaper and readily available.
Interestingly, the Nigerian situation is such that over the last 15 years or thereabout, with the increasing entrenchment of a well regulated and functional tobacco industry, the country has witnessed a steady decline in the volumes of cigarettes smuggled into Nigeria. Unduly high taxes will disrupt this critical balance and tilt it in favour of the illicit tobacco industry. The reason is simple: If products are priced beyond the reach of consumers and they abandon the cigarettes produced by the legitimate tobacco industry in favour of smuggled imported brands, the legitimate industry will promptly collapse, alongside the consequences such as tax revenue losses to government and loss of jobs. Will this lead to reduction in the incidence of smoking in Nigeria? Not likely. An uncontrolled and unregulated industry in which smugglers and black marketers hold sway is more likely to enhance the incidence of smoking in Nigeria.
Indeed a recent report in The Economist affirms this. Cigarette smuggling, The Economist says, in its February 14, 2015 edition, “is common in New York: 58% of cigarettes smoked in New York are contraband. The reason is that tobacco taxes are high: a pack of 20 costs $13 in New York compared with $5 in Missouri, the state with the cheapest gaspers.” The paper adds that while there may be sound public health reasons for taxing tobacco, “the higher the taxes, the bigger the black market.”
As the current National Assembly approaches its twilight, it is imperative that it bears all of these issues in mind especially with regard to the draft tobacco control bill before it. While a well regulated tobacco industry is desirable and welcome by all, it is important that the regulation that seeks to achieve this is sufficiently cognisant of all contending issues such that it is balanced and does not ultimately create worse problems for society, than it seeks to achieve.
This piece is written by Akeem Ogunlade.