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Economics of Tobacco in Egypt

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					                               Economics of Tobacco in Egypt

Cigarette Consumption and Prevalence

   Egypt has the highest cigarette consumption in the Middle East and North Africa
    region (MENA). In 1999, Egypt consumed 46,600 million cigarettes, or 24% of the
    total MENA consumption, despite that Egypt only accounted for 21% of MENA’s
    total population.


                    Share of Egypt's Cigarette Consumption in MENA
                      and MENA's Consumtion in the World, 1999

                                                                             REST of MENA
                                                                                 76%
                         Rest of World
                              96%




                                            MENA as % of the
                                                World                      Egypt as % of
                                                  4%                          MENA
                                                                               24%

Note: MENA region includes Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon,
Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates (UAE) and
Yemen.
Source: USDA

   In Egypt, cigarette consumption per person aged 15 or older increased very rapidly in
    the 1970s and early 1980s. It fell a little between 1985 and 1995, and has remained
    relatively stable since 1995. In 1999, Egyptians consumed 46,600 million cigarettes,
    with consumption per adult (15 years and older) at 54 packs.
                                      Cigarette Consumption in Egypt, 1970-1999

                                    50,000                                                              80




                                                                                                             Cigarette Consumption Per
                                                                                                        70
                                    40,000
             Consumption (Million
                                                                                                        60




                                                                                                                person 15+ (packs)
              Overall Cigarette
                                    30,000                                                              50
                  Pieces)                                                                               40
                                    20,000                                                              30
                                                                                                        20
                                    10,000
                                                                                                        10
                                        0                                                               0
                                             1970 1975 1980 1985 1990 1995 1996 1997 1998 1999

                                                  Overall Cigarette Consumption (Million Pieces)
                                                  Cigarette consumption per person 15+ (packs)

Sources: USDA and The World Bank

   Despite some religious disapproval (Islam prohibits practices that harm the body) and
    growing health awareness, smoking is very popular in Egypt. It is estimated that 28%
    of Egypt’s population are smokers -- about 19 million smokers in 2000.

                                              Smoking Prevalence in Egypt

           50%
                               Males, 43.6%
           45%
                                                                                          Physicians,
           40%                                                                              34.4%
           35%
           30%
           25%
           20%
                                                            Males, 13.2%
           15%
           10%                                                                                     Nurses, Less
                                        Fem ales, 4.8%              Fem ales, 3.3%
            5%                                                                                       than 2%
            0%
                                Adults (18 Years and       Youth (14-18 Years Old),    Health Professionals, 1993
                                    Older), 1997                     1998


Source: Adult Data: Daily smoking of cigarettes, cigars and/or goza in the Fakkous region (1997 is date of
publication); Omar, S. et al. (1997). Final Report: Study of cancer cases in the East Side of Delta. Cairo:
National Cancer Institute, Cairo University. Youth Data: Current smoking measured by the Egyptian
Ministry of Education; Ahmad, O. et al. (1999). Tobacco education in Cairo, Egypt: is there an effect on
adolescent smoking?. Tobacco control, 8, 440-441. Health Professional Data: Estimated current smoking
among male physicians and female nurses in Ismailia (1993 is date of publication); information provided
by Fatma Hassan of the Suez Canal University.
Tobacco Taxes

   In 1999 in Egypt, taxes on imported cigarettes amounted to 65% of the final price.
    Meanwhile, taxes made up 61% of the total price of domestic cigarettes. The excise
    tax is 0.925 Egyptian Pound per pack for cigarettes with ex-factory price less than
    0.65 Egyptian Pound, and 1.37 Egyptian Pound per pack for cigarettes with ex-
    factory price over 0.65 Egyptian Pound. In addition, imported products are subject to
    85% import duties on c.i.f. value. In 1999, imports only accounted for 1% of
    Egyptian consumption and the overall cigarette tax incidence was 61%.


                         Prices of the Most Popular Brands and Total
                           Cigarette Tax as % of Retail Prices, 1999
            1.6                                                                                 30%
                  US$/pack                                                                50%
            1.4                                                                     67%
                                                             50%      41%     65%
            1.2
              1
                                               61%     50%
            0.8
                                     22%
            0.6           61%
                   19%
            0.4
            0.2
              0
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       Source: World Bank Estimates: Cigarette tax as % of retail price is estimated by including
       domestic and imported cigarettes. Estimation is done by dividing tax revenues from imported
       cigarettes (includes excise+VAT+import duties) and domestic cigarettes (excise+VAT taxes) to
       import and domestic cigarette expenditures.



   In Egypt, total tax revenues from cigarettes were about US$259 million in 1997,
    including excise taxes and import duties. In addition, import duties from raw tobacco
    contributed another US$60 million to government revenues. The total tax “take” from
    tobacco of US$319 million was 2.5% of total government tax revenue in 1997.
                                                                        Tobacco Taxes in Egypt, 1997

                                                   US$ Million
                                                   300.00               255
                                                   250.00
                                                   200.00
                                                   150.00
                                                   100.00                                                             60
                                                    50.00                                    4
                                                      -
                                                                 Excise tax from     Import duties from      Import duties from
                                                                   cigarettes           cigarettes             raw tobacco

Source: World Bank Estimate

Prices

   Egypt’s prices of domestic cigarettes were fixed from 1992-1998. The price of the
    most popular brand, Cleopatra king size 80mm, which accounted for 57% of the
    Egyptian cigarette market in 2000, increased slightly in 1999 to 1.6 Egyptian pound
    (it was 1.5 from 1992-1998). The real price (adjusted for inflation) decreased steadily
    during the 1990s, with a small increase of 3% in 1999.

                                                   Nominal Price, Real Prices, % Change of Real
                                                 Price Over the Previous Year for The Most Popular
                                             2.5
                                                         Local Brand in Egypt, 1992-1999
         LCU/Pack of Cleopatra (King Size)




                                              2                    -11%
                                                                               -8%
                                                                                      -14%
                                                                                                 -7%       -4%                    +3%
                                             1.5                                                                      -4%

                                              1


                                             0.5


                                              0
                                                      1992       1993         1994   1995    1996         1997     1998     1999
                                                                   Nominal Price                  Real Price (1995 Price)

Source: Eastern Tobacco Company

   Price controls on cigarettes became less stringent after 1999, when shares in the
    Egyptian tobacco monopoly, Eastern Tobacco Company were sold to the public. The
    company is now allowed to increase prices on revamped old brands and new brands.
    This may lead to price increases in future.
Health Issues

   In 1992, there were an estimated 704 deaths per 100,000 males aged over 35 from
    cancers of the trachea, lung and bronchus in Egypt. By comparison, 287 females
    100,000 over 35 died of these diseases. For all smoking related diseases, mortality
    rates for women are substantially lower than men, reflecting relatively low smoking
    prevalence among women. A large part of the gender differences in these mortality
    rates is attributable to tobacco use.


                                    Mortality from Smoking-related Diseases in Egypt,
                                           Number of Deaths per 100,000 Population, 1992

                                 8000        Males
                                                                                                  6697
                                 7000        Females
             Number of Death s




                                 6000                                              5468
                                 5000                                                     4039            3945
                                 4000
                                 3000
                                 2000
                                                                 704
                                 1000        71      38                 287
                                    0
                                        Lip, oral cavity, and Trachea, lung, and   Respiratory   Ischemic heart
                                          pharynx cancer       bronchus cancer      disease         disease

Source: World Health Organization. (1998). World Health Statistics Annual, 1996.
Geneva, Switzerland.

Tobacco Control Measures

   Since 1981, tobacco control legislation has required that health warnings be printed
    on cigarette packets along with the tar and nicotine content of the cigarettes.

   Cigarette advertising is strictly regulated in Egypt. Since 1977, there has been a
    complete ban on radio and television advertising. Advertising is allowed on
    billboards, in the press and at point-of-sale outlets, but a statutory warning must be
    displayed with the advertisement.

   Smoking is banned in enclosed public places and on public transport such as the
    Cairo metro, trams and buses. Smoking is prohibited on domestic airline flights and
    trains must have designated no-smoking cars. Smoking is also banned in cinemas and
    theatres. The ban has recently begun to be enforced in Ministry of Health buildings,
    and the intention is to extend enforcement in schools and the Ministry of Education.

   The Mufti, Egypt’s spiritual advisor, announced in 2000 that smoking (like drinking
    alcohol) is contrary to Islamic principles. Health education programs in schools,
    universities and women’s organizations include tobacco, and there are ongoing efforts
    to improve the curriculum and the messages targeted at children.

   The “Healthy Egypt 2010” goals include 12 specific targets for reducing and
    monitoring tobacco use and reducing related morbidity and mortality.

   There is also a new initiative to provide cessation counseling and support to TB
    patients.

   Legislation proposing increases in tobacco taxes was introduced recently in
    Parliament (but not passed).

Tobacco Production and Trade

   The Eastern Tobacco Company (ETC) is the sole manufacturer of cigarettes in Egypt.
    In 1998, ETC produced 47,500 million cigarettes (pieces). Over 95% of cigarettes
    produced were domestic brands. The remaining 5% are foreign brands manufactured
    by ETC under agreement with foreign companies.


                                     Cigarettes Production In Egypt, 1993-1998

                             50000
            Million pieces




                             40000

                             30000

                             20000

                             10000

                                0
                                       1993   1994    1995    1996    1997   1998




Source: USDA

   Overall Egypt is a net tobacco importer. Since Egypt does not grow raw tobacco, it
    imports all the raw tobacco for domestic use. Both exports and imports of cigarettes
    are small compared with raw tobacco imports. In 1997, Egypt’s net deficit from
    tobacco trade was US$163.5 million.
                                    Total Tobacco Exports, Imports and Overall
                                       Surplus/(Deficit) for Egypt, 1965-1997
                              50
                               0
              Million US$


                              -50     -17      -16
                                                       -52
                             -100
                                                                  -92                -90
                             -150
                                                                                             -142
                             -200                                                                       -174         -163
                                                                           -200
                             -250
                                    1965    1970     1975       1980     1985     1990     1995     1996           1997

                                     Tobacco Exports            Tobacco Imports            Overall Surplus/(Deficit)


Source: FAO

   Raw tobacco cultivation is prohibited in Egypt, so all tobacco leaves have to be
    imported. China was the biggest tobacco leaf exporter to Egypt in 1999, followed by
    Italy, Greece and Brazil. Between 1998 and 1999, there was a significant shift in
    import source -- the import volume from China increased by 38%, offset by declines
    from the other countries, especially Brazil.



                                     Major Raw Tobacco Exporters to Egypt,
                                                  1998-1999
                            16000                                                                              3.5
                                                                                                                      Average price (US$/Kg)

                            14000                                                                              3
                            12000                                                                              2.5
          Metric Tons




                            10000
                                                                                                               2
                            8000
                                                                                                               1.5
                            6000
                            4000                                                                               1

                            2000                                                                               0.5
                                0                                                                              0
                                       China            Italy               Greece             Brazil

                                       1998 volume                     1999 volume                1999 Price


Source: USDA
   Egypt exports some manufactured cigarettes to other Arab countries, mainly for
    consumption by Egyptian expatriate workers. It also imports some cigarettes for
    domestic consumption. However, the overall cigarette trade is small in scale. In
    1996, cigarette imports and exports each accounted for less than 0.01% of the value
    of total imports and exports.


                                              Cigarettes Trade in Egypt, 1993-1998

                             2000
            Million Pieces




                             1500

                             1000

                              500

                                0
                                       1993          1994         1995    1996         1997         1998


                                    Cigarettes Imports (Million Pieces)   Cigarettes Exports (Million Pieces)


Source: FAO

Privatization and Competition in the Tobacco Industry

   The Eastern Tobacco Company (ETC) was owned by the Egyptian government.
    Partial privatization began in June 1995, when the holding company for Mining and
    Refractories sold 20 per cent of its stake in ETC via the issue of 5 million shares
    equally divided between employees and the public. The company made another
    public offering in 1999. Currently the holding company holds 66% of ETC, and the
    other 34% is owned by the public.

   The tobacco industry is under pressure to open up to private sector competition. In
    1996, Philip Morris unsuccessfully lodged an application to set up an independent
    cigarette production plant in Egypt. ETC remains the sole producer of cigarettes in
    Egypt.

				
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