The FINANCIAL — Famous cigarette brands with Georgian excise stamps were found smuggled to Turkey in bulk quantities, making up about 4-5% of the Turkish illegal tobacco market (several hundred million cigarettes taken from Georgia), according to JTI representatives in Georgia.
The smuggling of Marlboro and other famous cigarette brands from Georgia to Turkey was quite common in the early ‘90s, when Turkey opened its border with the then-young Georgian republic.
“Cigarette smuggling from Georgia to Turkey was not spotted in 2008/09, whilst this year cigarettes intended for the Georgian tobacco market have already been noticed in the illegal Turkish market,” Konstantin Fedorov, Vice President of JTI Export Markets told The FINANCIAL.
Among the reasons why the Georgian product became attractive in the Turkish tobacco market, Mr. Fedorov noted the existing price difference of cigarettes in the two countries as the price of tobacco is 3 times higher in Turkey than in Georgia. “This creates serious economic incentives for contraband and may contribute to the criminalization of society,” Fedorov said.
Mr. Fedorov noted that in 2007 JTI signed a 15-year agreement with the European Union to cooperate in the fight against contraband. “We are having dialogue with governments in many countries and one thing is very clear – neither the industry, nor a single government can separately solve contraband issue without the cooperation of all,” said Fedorov.
Giorgi Margishvili, Philip Morris Manager CA Georgia, also noted that he had heard about such cigarettes with Georgian stickers appearing in Turkey, although no specific details (places, brands, amounts, prices, etc.).
“Illicit trade globally represents a huge threat to British American Tobacco (BAT) business and commercial activities too. It undermines our brands and the investment of all legitimate manufacturers worldwide,” said Nona Mamulashvili, Head of Corporate and Regulatory Affairs, Caucasus British American Tobacco.
“BAT Group does not benefit from the smuggling of its brands. On the contrary, the aim of BAT is to have markets in which BAT companies can invest and compete without the undermining effect caused by the availability of large volumes of illicit product (whether that of BAT Group or competitor brands). BAT is committed to doing everything it reasonably can to limit the smuggling of its products,” said Mamulashvili.
“We are not aware of any issues of cross border trade or discrepancies in our in-market sales although BAT is committed to investigate further into this matter. Our in-market sales are measured through international third party market research companies that measure not only tobacco but a range of consumer products. On cross border trade, BAT globally works closely with Government enforcement agencies to prevent cross border trade,” Mamulashvili told The FINANCIAL.
According to Alexander Avazashvili, Corporate Affairs and Communications Director, JTI Export Markets, the total Georgian tobacco market size is about 6.8-7 billion cigarettes whilst the Turkish tobacco market is about 90 billion.
“Our estimations show that contraband from Georgia could reach several hundred million cigarettes in 2010,” said Avazashvili.
“All those cigarettes were intended to be sold in Georgia and not be taken outside the country as contraband as they are in Georgian packages and have Georgian excises on them,” he said.
“Our company is also presented on the Turkish market and we have separate tobacco manufacturing enterprise in Izmir, Turkey. The price difference, the question that might arise, is because of the reason that taxes on excises are far higher in Turkey than in Georgia, secondly the consumer purchasing power and salaries that people have there,” Avazashvili told The FINANCIAL.
“The contraband market has sharply fallen in Georgia since May 2006. At that time smuggled cigarettes amounted to 60% of the total Georgian tobacco market, while now it is less than 3%. A sharp decrease in contraband was a result of amendments in the tax code made in May 2006 and government efforts against inflow of contraband cigarettes, predominantly with Russian excise stamps,” said Avazashvili.
The JTI share of the market in Georgia is over 20%, according to research carried out by Nielsen, leading source of business analytics in the world.
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