By Adedeji Adegbuji
Nigeria loses $200 million yearly to illicit tobacco trade. As the world marks the yearly World No Tobacco Day (WNTD) on Sunday, May 31, with the theme ‘Stop Illicit Tobacco Trade’, stakeholders in the tobacco business are pushing for more stringent measures to halt the illegal trade and save Nigeria from financial haemorrhage caused by tax evasion, unemployment and public health. They call on anti-tobacco campaign groups to step up their game against illicit traders in the tobacco business, writes ADEDEJI ADEMIGBUJI.
Abubakar Yaya Yaro (not real names) has been in tobacco trading since the days of Nigerian Tobacco Company. This was long before the British American Tobacco Nigeria (BATN), started operations in the country.
Yaro, an indigene of Benue State, from a humble background, had his fortune turned around by the tobacco business. Despite not having access to western education, Yaro who, has four wives and 30 children, was able to have 20 of his children in various universities, polytechnics and technical educational institutions across the country. Ten others are enrolled in some of the best private secondary schools in Abuja.
Yaro is one of the key distributors of tobacco products, but last year, about 30 customs officers stormed his residence in Abuja. Eye witnesses thought the officers had come to pay homage, but the manner they drove through the streets brandishing their guns left no one in doubt that the officers were there for something serious. Yaro is believed to be connected to a network of illegal tobacco trading. Pronto, the 60-year-old man was whisked away to answer queries on alleged importation of illegal tobacco products worth $60 million and tax evasion among others.
The officers, according to a witness, acted on a tip-off from some traders of the product whose businesses are being affected by Yaro’s illegal distribution network. Besides illegal importation, Yaro’s alleged involvement in illegal labelling of approved brands is one of the reasons why customs turned the heat on him, leading to his eventual arrest.
Illegal tobacco trading is not new in Nigeria. A 2005 study by the World Health Organisation (WHO) estimated that more than 30 per cent of cigarettes smoked in Nigeria are smuggled. Amore recent (2012) publication by the World Custom Journal, however, claimed that the volume has dropped to less than 10 per cent. The BATN estimated that the economy lost a whopping $200 million yearly to illegal trade in tobacco.
Investigation by an online news portal reveals that the products are smuggled under an adopted approach whereby dealers move illicit shipments of tobacco across Nigeria’s porous land borders using car trunks. Also, few months ago, the Consumer Protection Council raised an alarm over importation of a brand of cigarettes, Esse, into the country for Nigerian consumer- considered to be illegal. Apparently Nigerians were already consuming cigarettes from the future; cigarettes in circulation in July and August 2014 had a manufacture date of September 2014.
Concerned stakeholders say the CPC circular should trigger an alarm about the illicit trade in tobacco products, which is a global business worth over $50 billion yearly. “The link is obvious. While Esse might be a brand legitimately imported into the country by Black Horse Tobacco Company, this episode with the fake date of manufactureindicates how far those who flood markets with illicit products will go. First, they manufacture under conditions which our Standards Organisation of Nigeria (SON) know nothing about and are not in a position to approve of. Next, they deliberately cheat the country of revenue by avoiding import duties and then they undercut the local manufacturers who employ thousands of Nigerians and pay their taxes reportedly in the tune of N20billion and counting,” said a concerned stakeholder, Olugbenga Olugbenga Adanikin.
According to Euromonitor, a global market intelligence publication and some health experts, illegal tobacco trading affects demand and supply of the legal tobacco companies and poses danger to the health of Nigerians as a result of consumption of illegal imported products.
“The tobacco market (particularly cigarettes, which accounts for most volume sales) saw a weaker increase in 2013 than it did in 2012, as it recovered from the fuel price crisis of 2012, when pack prices increased for the first time in five years.
“Nevertheless, the volume growth in 2013 was actually slightly weaker than the growth over the review period, as demand for cigarettes has largely stabilised. The steady increase in demand was due to a decrease in illicit trade and a mild increase in consumption, primarily due to the increasing population, urbanisation and Westernisation. Smokers are also increasingly choosing higher-priced cigarette brands, helping to drive relatively strong growth in value terms. The proposed National Tobacco Control Bill is expected to have a small impact on sales, particularly through a restriction on the sale of single sticks. However, if prices are raised due to an increase in taxation, this will inevitably fuel another large rise in illicit trade given Nigeria’s porous borders,” Euromonitor stated.
On the consumption of illegal imported tobacco products, a research by Nicotine & Tobacco Research, described illicit tobacco trade as a critical public health issue because lower prices enable greater consumption and more damage to health and simultaneously decrease the money available for state-funded health care.
“The public health significance of increased consumption of a substance with known health hazards is unarguable, but almost nothing is known about the relative health risks of smoking tobacco obtained illicitly. Illicit tobacco can be adulterated by producers and sellers to increase weight and therefore profits, grown using techniques that elevate concentrations of heavy metals and other toxic substances, or simply mishandled in ways that increase the potential for damage to consumers’ health. Furthermore, the perceptions of illicit tobacco consumers seem to be in direct opposition to these health harms,” the research stated.
Also, SON underscores the dangers of illicit tobacco trading to the Nigerian economy, public health among others. According to the agency, “illicit tobacco trading is a threat to local industries, drains national income through evasion of taxes, duties; drain on foreign exchange (used in smuggling). Proceeds are a threat to national security and combating illicit trade in tobacco products and destruction of seized products can be a very costly process that creates considerable waste to regulators. Also, consumers have little recourse as illicit products mostly do not offer warranties and money back guarantees,” SON said.
SON said further that the negative impact of illicit marketing of tobacco products could be devastating as it promotes social vices negative social values via deployment of proceeds and promotes unemployment, adding that such products are a threat to safety of lives and property “Most times they do not meet quality and safety requirements, pose health and safety risk. Life-threatening and destruction of seized products pose serious environmental risk to society,” said SON.
Meanwhile, the Head of Regulatory Affairs, grim West Africa, Mr. Sola Dosumu, painted a bigger picture of the economic impact of smuggling on manufacturing industries, governments and distributors when he said the tobacco sector across the globe loses a total of £17 billion yearly to smuggling, while Nigeria loses $200 million yearly to illicit tobacco trade.
He gave the breakdown as follows: “Governments lose £12 billion yearly in terms of revenue, tobacco manufacturers lose £3 billion annually and other stakeholders in the trade lose £2 billion yearly to smuggling across the world.” He noted that illicit cigarettes worth approximately $10 million were seized and destroyed by regulatory agencies in Nigeria between 2008 and 2013. He added that the major reason illicit trade exists is the economic opportunity it offers for the smuggler and illicit vendor to make money and also for the consumer to save money.
BATN said further that as a legal operator illicit trade means different things especially as it undermines brand value of approved brands if it is counterfeited. “A counterfeit (imitation) of a genuine brand of a product. It is apparent that the intention is to defraud both the consumers, government and brand owners of their money/revenue/return on investment. Locally produced and consumed goods for which no excise duty (tax on tobacco products) is paid.
Products intended for duty free sales, but which end up in local markets. Genuine products brought into the country and declared for personal use but which are in excess of the custom allowance.
“Illicit trade is attractive because it provides cheaper alternatives to genuinely priced products. Illicit operators can afford to offer their fake products at well below market prices because they are evading applicable taxes, are not investing in research and development for safer products, neither are they affected by the huge costs of running a genuine business. Most times, they have no addresses, it’s almost impossible to track and trace the product source in the event of a manufacturing defect. If not tackled, illicit trade has the ability to take over the legal industry impacted by its activities,” said BATN.
As a result of the dangers posed by illicit trade, the world marks world tobacco day on May 31 and the tobacco industry is prepared to address the challenges of illicit trade while the anti-tobacco groups are expected to look beyond fighting against legal tobacco business concerns and focus on the more pressing issues of illegal trade.
This new commitment reflects on the theme for this year’s World No Tobacco Day: ‘Stop illicit trade of tobacco products’.
“Every year, on May 31, WHO and partners mark World No Tobacco Day (WNTD), highlighting the health risks associated with tobacco use and advocating for effective policies to reduce tobacco consumption. For the World No Tobacco Day, we are calling on countries to work together to end the illicit trade of tobacco products. From many angles, the illicit trade of tobacco products is a major global concern, including health, legal and economic, governance and corruption. The illicit tobacco market may account for as much as one in every 10 cigarettes consumed globally, according to studies, including information supplied by the global customs community. The European Commission estimates that illicit trade in cigarettes costs the EU and their member states over 10 billion euro yearly in lost tax and customs revenue.
“Illicit trade is not a problem just in high-income countries; almost all countries throughout the world are subject to illicit trade in some form or another. In response to the threat posed by illicit tobacco trade, the international community negotiated and adopted in November 2012 the Protocol to Eliminate Illicit Trade in Tobacco Products, the first protocol to the WHO FCTC,” WHO said.
The organisation said the goals of the WNTD campaign is to raise awareness on the harm to people’s health caused by the illicit trade in tobacco products, especially the youth and low-income groups, due to the increased accessibility and affordability of these products due to their lower costs.
Part of the goals is also to show how health care gains and programmes, tobacco control policies, like increased tax and prices, pictorial health warnings and other measures are undermined by the illicit trade in tobacco products.
“Illicit tobacco products hook young people into tobacco experimentation and use because they are more affordable. Such illicit products also mislead young tobacco users by not displaying health warnings and sometimes involving children in illegal selling activities. Illicit trade takes tax revenue away from the Government, which could have otherwise been spent on the provision of public services, instead directing such funds into the hands of criminals.
“Illicit trade strengthens corruption and weakens good governance,” WHO said.
Also, the BATN stated in an email interview with The Nation Nigeria tobacco industry is actively involved in the campaign and fight against illicit trade of tobacco products not only in Nigeria but across West Africa. “BAT made a decision to invest in Nigeria in 2000 and in 2001; a Memorandum of Understanding (MoU) was signed with the Federal Government of Nigeria with a responsibility to reduce illicit trade which had an 80 per cent share of the market at the time of signing the MoU.
“The illicit products did not meet specific standards set by the Government and contributed to loss in taxes. To ensure our responsibility is fully met, we have a dedicated unit internally focused on Anti-Illicit Trade (AIT). We also work closely in collaboration and have MoUs with government agencies to create awareness against the ills of illicit trade, provide predictive intelligence on plans to smuggle products; demonstrate how its denies governments of revenue in excess of £12billion yearly; the consumer the right to genuine products and robs brand owners who have invested a lot of money behind their brands, their identity. We also support capacity building for members of these organisations in training their staff to identify, monitor and fight illicit trade successfully. We believe that the only way to eradicate illicit trade is if we join forces with government agencies, brand owners, consumers and with our neighbouring countries to stop the influx of these fake goods,” said BATN.
On how it will deepen the global campaign in Nigeria, the company said: “In our industry, we believe that we should market and sell our products in a responsible manner and that our products should not be accessible in any way or form to children or persons under the legally acceptable age. This means that we do not sell, communicate, market or dialogue in any way with persons under the age of 18 years in Nigeria. We also campaign that all our business partners agree to these terms before they do business with us. All communication material to be used for dialogue with adult smokers should be mature in look and feel and not appeal in any way to children. We believe that in fighting illicit trade tobacco products would remain a product of choice for the adult consumer and would not be easily accessible to children. We therefore strongly believe and advocate for a robust campaign on illicit trade as it will clearly prevent youth access and ensure that legal, regulated products which can be tracked and taxed are available for the adult consumers who have made a choice to smoke.”