Published in Tobacco Journal International 2014 edition
The market liberalisation of Burma is enticing global tobacco companies such as British American Tobacco (BAT) to sell and manufacture cigarettes in Myanmar – however rampant smuggling of duty-free cigarettes into the country and the dominance of low-end local brands pose a challenge to legitimate business ventures.
BAT returned to Myanmar this year following a decade’s absence. The British government requested BAT to leave Myanmar in 2003 following an investigation by Burma Campaign UK establishing that it had links to the military-backed Union of Myanmar Economic Holdings (UMEHL).
The editor-in-chief of Myanma Freedom Daily, Thiha Saw, who is also deputy chief of the Myanmar Journalists Association, said that the introduction of political reforms in Myanmar over the past two years has provided opportunities for new players to emerge in the tobacco industry.
He said, “Before 2010 it wasn’t possible to manufacture cigarettes without having links to the military, because there were two military owned companies that had a monopoly over beer and tobacco. That’s changed now, but there’s still a huge black market in smuggling duty-free cigarettes.”
A Yangon tobacco retailer, who spoke on condition of anonymity, said that he buys duty-free cigarettes from pilots and cabin crew. He said the practice is widespread and also involves major supermarkets.
The retailer said that major cigarette brands such as Marlboro Light – the most popular in terms of sales – are brought in from Vietnam, Thailand, Singapore and Indonesia, but that Myanmar people prefer those imported from Singapore because “People don’t want to buy a packet with a graphic warning about the effects of smoking.”
He also said that Chinese tobacco companies are keen to enter the market but are unlikely to succeed due to widespread concerns about the quality of Chinese products.
Fighting back against illicit trade
The government of Myanmar has stepped up efforts to counter illicit trade in a bid to attract more foreign investment. In late October, a team from the Ministry of Commerce raided a warehouse owned by one of Myanmar’s leading food and beverage distributors, Quarto Products. Quarto has since been shut down because it was unable to produce import declaration documentation, government officials said.
Rehan Baig, BAT’s managing director in Myanmar told Tobacco Journal International, “BAT is willing to work closely with the government and industry stakeholders… to counter illicit trade by raising awareness and providing information as well as experience in this area. At our own end, we take steps to ensure product stewardship, such as using track and trace technology to monitor the movement of our products within the supply chain.”
BAT has implemented the technology in Russia, Poland, Ukraine and Belarus and is aiming to cover 42 international markets by the end of 2016.
BAT now has a majority stake in a joint venture with local partner IMU enterprise, which is a unit of Sein Wut Hmon Group. BAT will invest US$50 million over five years in a production factory in Shwe Than Lwin Industrial Zone in Yangon to produce its London brand of cigarettes, which were extremely popular in Myanmar but have since been overtaken by the similarly priced local brand Red Ruby.
Advertising ban and penetration rates
Local tobacco companies attempt to circumvent the ban on the advertising of tobacco products by providing tea shops and pubs with branded, complimentary napkin holders, ashtrays and sometimes even handing out free lighters and cigarettes to patrons. When asked whether BAT will use such tactics to regain consumer loyalty, Rehan Baig said, “We are a legitimate company selling a legal product and we conduct our business in a responsible way – abiding by the laws in all the countries we operate in. Furthermore, we also have voluntary international marketing principles in place, some of which are stricter than local laws.”
He added that BAT will “cater to any requests or requirements such as [providing] lighters and ashtrays from our trade partners by providing unbranded material where deemed necessary.”
Myanmar Survey Research conducted a survey of smoking penetration rates in Myanmar’s biggest cities, Yangon and Mandalay in December 2012. The survey found that 30 percent of urban males are occasional or regular smokers, while 1-2 percent of women are in the same category. Another 15 percent of urban males smoke hand-rolled cheroots [traditional cigars] and 1-2 percent of urban females also smoke cheroots on a regular basis.
Marita Schimpl, head of marketing research at MSR said, “In rural areas, which are where 70 percent of Myanmar’s population resides, betel-chewing is more widespread than conventional cigarettes. Due to being cheaper, cheroots are also more popular than cigarettes in rural areas.”
She added that penetration rates of factory made cigarettes in Myanmar is relatively low. Therefore, in theory at least, there is a large amount of room for growth in Myanmar’s tobacco industry.