Experts say new rules for tobacco industry will not hit sales soon

Money Markets

Smoking kills six million people annually around the world. Out of these, more than five million are users or ex-users. FILE 

By BRIAN NGUGI bnjoroge@ke.nationmedia.com

In Summary

• Tobacco companies were opposed to the rules but the High Court declared the regulations valid in a victory by anti-tobacco use campaigners and the Health ministry.
• Health ministry said in a public notice all Kenyans and tobacco firms are bound by the new rules and those flouting them would be sanctioned.

The new tough regulations on the manufacture, buying and selling of cigarettes are not expected to have major impact on the earnings of tobacco companies in the medium term according to industry observers.

Economist Michael Chege of 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. The rules come into force this September.

“Higher taxation instead, which drives up pricing and impacts consumer’s ability to purchase the cigarettes, is what impacts on usage,” said Prof Chege.

“The graphic imagery on packing for instance has proved not to be a deterrent.”

The Kenyan tobacco industry suffered a setback in March on losing a High Court battle against the regulations that, for instance, call for standardised packaging displaying graphic health warnings on cigarette packs.

Wholesalers and traders are also expected to put up prominent signage warning of the dangers of tobacco use at points of sale.

Tobacco companies were opposed to the rules but the High Court declared the regulations valid in a victory by anti-tobacco use campaigners and the Health ministry.

Sterling Capital investment analyst John Kirimi 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.

READ: New rules set to transform tobacco industry

On Tuesday, the Health ministry said in a public notice all Kenyans and tobacco firms are bound by the new rules and those flouting them would be sanctioned.

“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,” said Cabinet secretary Cleopa Mailu in the notice. The new rules encourage smokers to quit and discourage others from taking up the habit.

According to market research firm 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 per cent retail volume share of cigarettes as of 2015.

Mastermind Tobacco (Kenya) Ltd takes second position with a retail share of 18 per cent. BAT posted a Sh2.15 billion profit after tax in the six months ended June 30 compared to Sh1.94 billion a year ago.