DI RECT I NVES TM ENT & P RI VAT I ZATI ON OF S TATE- OWNED

TOBACCO ENTERP RI S ES

Ayda A. Yurekli Coordinator, Tobacco Control Economics

Tobacco Free Initiative WHO

World Conference on Tobacco or Health Singapore, March 23, 2012

D I R E C T I N V E S T M E N T & P R I VAT I Z AT I O N

Opening of markets resulted in increased openness to

direct investment

• Investment in new production facilities • By far the most widespread

• Privatization of former government owned/operated tobacco companies

• Joint ventures between local monopoly and multinational tobacco companies For example, PMI , BAT and Vietnam, Cambodia, Laos

2 Source, Yurekli, Shin &Chaloupka, in press

State-Owned Tobacco Monopolies or Significant State Ownership in Tobacco Enterprises, by Region, 2010

Region Countries Europe Belarus, Bosnia-Herzegovina, Bulgaria, Moldova , and Tajikistan Western Pacific Cambodia , China, the Democratic Republic of Korea, Japan , Laos, Myanmar, Taiwan ,

Thailand , and Vietnam Eastern Mediterranean Algeria, Egypt, Iran , Iraq, Jordan , Lebanon , Libya, Syria, Tunisia, and Yemen Americas Bolivia and Cuba Southeast Asia None Africa None

Source, Yurekli, Shin &Chaloupka, in press

GLOBAL TOBACCO INDUSTRY

STRUCTURE

4

S HARE DI S TRI BU TI ON OF THE GL OBAL TOBACCO M ARKET, 2 0 1 1

Source: Euromonitor 2012

D I R E C T I N V E S T M E N T & P R I VAT I Z AT I O N

Public health concerns about Foreign Direct Investment

(FDI) and privatization

• government won’t adopt higher taxes, strong tobacco control policies

• widespread use of sophisticated marketing practices • Tobacco use will be higher than it would be otherwise

Public health benefits of privatization

• Eliminates conflict of interest between revenues generated from production/sale of tobacco and health/economic benefits of tobacco control

6 Source: Yurekli, Shin & Chaloupka, in press

Can be good or bad for public health –

depends on

how it’s done

&

how committed the governments are for tobacco control

7 Source, Yurekli, Shin &Chaloupka, in press

DIRECT INVESTMENT & PRIVATIZATION

PER CAPITA CONSUMPTION IN SELECT COUNTRIES OF FORMER SOVIET UNION 1990-2008

Source: ERC 2009 and authors' calculation

PER CAPITA CONSUMPTION IN COUNTRIES WITH STATE-OWNED TOBACCO ENTERPRISES 1990-2008

Source: ERC 2009 and authors' calculation

P e r C a p i t a C o n s u m p t i o n i n c o u n t r i e s w i t h s t a t e - o w n e d e n t e r p r i s e s 1 9 9 0 – 2 0 0 8

Source: ERC 2009 and authors' calculation

CI GARETTE CONS U M P TI ON I N P RI VATI ZED COU NTRI ES

Source: ERC 2009 and authors' calculation

C A S E S T U DY - U K R A I N E

P R I VA T I Z A T I O N O F D O M E S T I C M O N O P O L Y A F T E R T H E T H E C O L L A P S E O F T H E S OV I E T U N I O N

12

Cigarette Consumption in Ukraine

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Millio

n P

ieces

Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008

DI RECT I NVES TM ENT & P RI VATI ZATI ON

13

Nominal & Real Retail Price of Branded (Marlboro) Cigarettes in UAH

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2000 2001 2002 2003 2004 2005 2006

UAH

Nominal Retail Price

Real Retail Price

Cigarette Prices, Ukraine, 2000-2006

Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008

D I R E C T I N V E S T M E N T & P R I VAT I Z AT I O N

Cigarette Prices, Ukraine, 2000-2006

14 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008

D I R E C T I N V E S T M E N T & P R I VAT I Z AT I O N

Cigarette Prices, Ukraine, 2000-2006

15 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008

TURNING AROUND GOVERNMENT'S COMMITMENT

Jan. 2008

Sept 2008

Feb 2009

May 2009

Jan 2010

June 2010

Jan 2011

rate of growth 2010 to

2008 Filter cigarette

Specific tax, $/ 1000

cig.

1.8 3.8 4.7 7.5 8.7 11.3 12.1 687%

Ad valorem, %

12.5 16 16 20 20 25 25 200%

Minimum tax $/ 1000

cig.

2.3 5.0 5.9 12.5 14.4 18.8 20.1 891%

Ave.Price/ pack, $

0.3 0.4 0.5 0.7 0.8 0.9 1.0 311%

Dynamics of changes in rates of excise tax on tobacco 2008-2011

U KRAI NE EXCI S E TAX P OL I CY

Source: Krasovsky 2012

January 2008

Sept 2008

Feb 2009

May 2009

Jan 2010

June 2010

Jan 2011

rate of growth 2010 to

2008 Non-filter cigarette

Specific $/1000 cig.

0.6 1.6 2.0 4.4 5.1 5.1 5.4 861%

Ad valorem,

%

12.5 16 16 20 20 20 20 160%

Minimum tax $/ 1000

cig.

1.0 2.3 3.1 6.3 7.2 7.2 7.7 768%

Ave.Price / pack, $

0.1 0.1 0.2 0.4 0.5 0.5 0.5 449%

Dynamics of changes in rates of excise tax on tobacco 2008-2011

UKRAINE EXCISE TAX POLICY

Source: Krasovsky 2012

DYNAMICS OF EXCISE TAX CHANGES IN UKRAINE 2008-2011

Source: Krasovsky 2012

U KRAI NE

Source: Krasovsky 2012

Price, $

Source: Krasovsky 2012

MAXIMUM RETAIL PRICES OF CIGARETTES IN UKRAINE 2008-2011

Ukraine 2011

Russia 2011

Russia 2012

Moldova 2011

Poland 2011

Filter cigarette: specific tax, $/ 1000

12.1 8.9 11.4 0.9 47.2

ad valorem, % 25 7 7.5 18 31.41 minimum tax $/1000 20.1 11.4 14.6 х 87.3

Non-filter cigarette: specific tax, $/1000 5.4 7.9 11.4 0.9 47.2 ad valorem, % 20 7 7.5 х 31.41 minimum tax $ /1000 7.7 9.8 14.6 х 87.3

Source: Krasovsky 2012

UKRAINE AND ITS NEIGHBORS' TAXES

S U CCES S S TORI ES AF TER P RI VATI ZATI ON

Source: Yurekli et al 2011, ERC 2009

TOBACCO TAXES IN TURKEY, 2002-2011

EXCISE TAXES Year Ad valorem Minimum

Specific/pack Total Excise

Rate on Retail Price

VAT Rate on Retail Price

Total Tax Rate on Retail Price

2002 49.5 % 49.5% 15.25 % 64.8 % 2003 55.3 % 55.3% 15.25 % 70.6 % 2004 28.0 % AND 0.35 YTL -

1.00 YTL 56.3% 15.25 % 71.6 %

2005** 58.0 % Or 1.20 YTL 60.2% 15.25 % 75.5 % 2006 58.0 % Or 1.20 YTL 59.4% 15.25 % 74.6 % 2007 58.0 % Or 1.55 YTL 58.2% 15.25 % 73.5 % 2008 58.0% Or 1.55 YTL 58.1% 15.25 % 73.3 % 2009*** 58.0% Or 2.00 YTL 58.6% 15.25% 73.9% 2010 63% Or 2.65TL 63.0% 15.25% 78.25% 2011 65% Or 2.90TL 65.25% 15.25% 80.3%

Source: Yurekli, et al., 2010, and MoF Turkey official Gazette 2011

TAX I NCREAS ES I N TU RKEY

N O C L E A R R E L A T I O N S H I P B E T W E E N C O N S U M P T I O N A N D T H E P R I VA T I Z A T I O N

O F T O BAC C O I N D U S T R I E S

Consumption has declined in some countries that have adopted strong

tobacco use prevention and control measures after privatization.

However, consumption is rising in other countries that have not adopted

such measures, particularly those in which taxes and prices have remained

low, no matter whether cigarettes are produced by Multinational Tobacco

Companies or state-owned cigarette manufacturers.

Source: Yurekli, Shin & Chaloupka, in press

DIRECT INVESTMENT & PRIVATIZATION

“Best Practices” for public health • Make no agreements with multinational tobacco companies that

would inhibit government’s ability to adopt strong tobacco control policies

• Become a Party to the WHO FCTC, adopt comprehensive tobacco control policies Regular tax increases that reduce the affordability of tobacco products Strong, comprehensive smoke-free policies Comprehensive ban on tobacco product marketing Other effective policies/programs

26 Source: Yurekli, Shin & Chaloupka, in press