DIRECT INVESTMENT & PRIVATIZATION OF STATE- OWNED TOBACCO ENTERPRISES Ayda A. Yurekli Coordinator, Tobacco Control Economics Tobacco Free Initiative WHO World Conference on Tobacco or Health Singapore, March 23, 2012
DIRECT INVESTMENT & PRIVATIZATION 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 Source, Yurekli, Shin &Chaloupka, in press 2
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
Source: Euromonitor 2012 SHARE DISTRIBUTION OF THE GLOBAL TOBACCO MARKET, 2011
DIRECT INVESTMENT & PRIVATIZATION 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 Source: Yurekli, Shin & Chaloupka, in press 6
DIRECT INVESTMENT & PRIVATIZATION Can be good or bad for public health depends on how it s done & how committed the governments are for tobacco control Source, Yurekli, Shin &Chaloupka, in press 7
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
Per Capita Consumption in countries with state- owned enterprises 1990 2008 Source: ERC 2009 and authors' calculation
CIGARETTE CONSUMPTION IN PRIVATIZED COUNTRIES Source: ERC 2009 and authors' calculation
CASE STUDY - UKRAINE PRIVATIZATION OF DOMESTIC MONOPOLY AFTER THE THE COLLAPSE OF THE SOVIET UNION 120,000 Cigarette Consumption in Ukraine 100,000 Million Pieces 80,000 60,000 40,000 20,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008 12
6.00 5.00 DIRECT INVESTMENT & PRIVATIZATION Cigarette Prices, Ukraine, 2000-2006 Nominal & Real Retail Price of Branded (Marlboro) Cigarettes in UAH Nominal Retail Price Real Retail Price 4.00 UAH 3.00 2.00 1.00 0.00 2000 2001 2002 2003 2004 2005 2006 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008 13
DIRECT INVESTMENT & PRIVATIZATION Cigarette Prices, Ukraine, 2000-2006 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008 14
DIRECT INVESTMENT & PRIVATIZATION Cigarette Prices, Ukraine, 2000-2006 Source: BI Economics of tobacco control Ukraine by Ross et et.al., 2008 15
TURNING AROUND GOVERNMENT'S COMMITMENT
Dynamics of changes in rates of excise tax on tobacco 2008-2011 UKRAINE EXCISE TAX POLICY Jan. 2008 Filter cigarette Specific tax, $/ 1000 cig. Sept 2008 Feb 2009 May 2009 Jan 2010 June 2010 Jan 2011 rate of growth 2010 to 2008 1.8 3.8 4.7 7.5 8.7 11.3 12.1 687% Ad valorem, % Minimum tax $/ 1000 cig. Ave.Price/ pack, $ 12.5 16 16 20 20 25 25 200% 2.3 5.0 5.9 12.5 14.4 18.8 20.1 891% 0.3 0.4 0.5 0.7 0.8 0.9 1.0 311% Source: Krasovsky 2012
Dynamics of changes in rates of excise tax on tobacco 2008-2011 UKRAINE EXCISE TAX POLICY January 2008 Sept 2008 Feb 2009 May 2009 Non-filter cigarette Jan 2010 June 2010 Jan 2011 rate of growth 2010 to 2008 Specific $/1000 cig. Ad valorem, % Minimum tax $/ 1000 cig. Ave.Price / pack, $ 0.6 1.6 2.0 4.4 5.1 5.1 5.4 861% 12.5 16 16 20 20 20 20 160% 1.0 2.3 3.1 6.3 7.2 7.2 7.7 768% 0.1 0.1 0.2 0.4 0.5 0.5 0.5 449% Source: Krasovsky 2012
DYNAMICS OF EXCISE TAX CHANGES IN UKRAINE 2008-2011 Source: Krasovsky 2012
Source: Krasovsky 2012 UKRAINE
MAXIMUM RETAIL PRICES OF CIGARETTES IN UKRAINE 2008-2011 Price, $ Source: Krasovsky 2012
UKRAINE AND ITS NEIGHBORS' TAXES 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
Source: Yurekli et al 2011, ERC 2009 SUCCESS STORIES AFTER PRIVATIZATION
TOBACCO TAXES IN TURKEY, 2002-2011 TAX INCREASES IN TURKEY 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 - 56.3% 15.25 % 71.6 % 1.00 YTL 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
NO CLEAR RELATIONSHIP BETWEEN CONSUMPTION AND THE PRIVATIZATION OF TOBACCO INDUSTRIES 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 Source: Yurekli, Shin & Chaloupka, in press 26