Nigeria losing billions of dollars to illicit tobacco trade —BATN MD

 

The Managing Director, British American Tobacco Nigeria and West Africa, Chris McAllister, in this interview with ANNA OKON, discusses sundry issues surrounding the tobacco industry

The British American Tobacco Foundation has been making inroads into agriculture in Nigeria, creating projects to help smallholder farmers; what informed this decision?

In 2001, we signed a Memorandum of Understanding with the Federal Government and one of our commitments was to establish an independent charity organisation, which was the BATN Foundation in 2002. Initially, there was a broad scope of community projects – potable water supply, agricultural development, vocational skills development and sustainable environmental protection. However, in 2012, we repositioned the foundation to focus on one area – agricultural development that concentrates on smallholder farmers and supports the government’s agricultural agenda to guarantee food security, while encouraging entrepreneurial models of farming.

What has been the overall impact on food production in the targetted states and lives of farmers?

A lot of non-governmental organisations fall into the trap of commencing a project and leaving it after the inauguration. This is not a sustainable model. In our case, to ensure the project is sustainable, we conduct a needs assessment in the selected locations; select the right farmers group that meet the criteria; monitor closely through the lifecycle of the project and conduct impact assessments after a few years. So far, with our intervention, the benefitting farmers have increased their capabilities and technical expertise, which is transferred to other crops. It has led to increased output per hectare of crop production, and improved market access as we provide market linkages and increased income and access to cash.

Also, social statuses have been elevated with improved living conditions, improved transportation and others.

What are some of the challenges you have encountered while embarking on these various projects?

Not all projects are successful but we ensure we view our challenges as opportunities to deliver the desired result at the end of each project. A few key challenges we deal with include adoption by farmers of the new way of working; a lot of farmers want to see a demonstration before they adopt the best practice.  Another one is the governance on the projects which require cohesiveness within the farmers’ groups and the community. There are others such as infrastructure, market access, and getting produce to the market.

What are the gains to BAT as a company?

We have been here for a long time – over 100 years – and we believe in investing in our business and the society for the future. The foundation is our commitment to the government. We are here as a company that is just not transactional but focused on real investment and value in the economy. It demonstrates that although we are in a controversial industry, it is important to continually demonstrate that we are a responsible and principled player; we value integrity.

Why the focus on agriculture and not more viable sectors like oil and gas and telecommunications?

There is no doubt that these sectors are lucrative and receive a lot of attention from foreign and local investors. However, agriculture requires a bigger focus as it plays a huge role in the development of countries. It is especially important at this time as Nigeria seeks to diversify the economy. Our decision was based on a need to support a sector that requires investments and needs the resources. Agriculture was the option we agreed upon and we are very proud we took the right decision.

Policies of government like import substitution and fertiliser subsidy scheme have not been effective because of activities of saboteurs,; what in your opinion should be done to track down the perpetrators and also make such policies work?

I am not an agricultural expert and our main business remains tobacco. The government has started to nurture the agricultural sector. For agricultural companies to be successful locally, they need to be protected. The sector is a young one but has huge competitive advantage, which if harnessed properly will provide a lot of opportunities. For example, local rice production in states such as Benue, Ebonyi and Niger has increased the demand for processing industries. Smuggling remains a challenge and government’s continued enforcement will definitely support the local agricultural sector.  Gradual ban on importation of some foods that can be produced locally should be adopted to stimulate local production to a point where it can meet the total national demand for the commodity.

The nation’s food import bill is rising despite the investment in agriculture.  What accounts for this and how can we address it?

Despite not being an expert on agriculture, the local agricultural sector needs to be supported in order to increase local food production and support food security.

Some have argued that the problems of farmers go beyond funding; they say the right attitude is what will bring the change, and there is a suggestion that in order to benefit from incentives, farmers should be asked to create demand. What is your view on these?

In the past a lot of young people migrated from the rural to the urban areas as the oil industry boomed and that became more attractive in comparison to agriculture. For agriculture to be made attractive again to youths, mechanisation and an established enterprise model will be critical to achieving this. Funding is an issue but improving technical capabilities, ensuring that local produce reach the market, ready market access and market linkages are also challenges that need to be overcome. There is an available market if you consider produce such as rice but to ensure demand can be met, the quality of seeds, quality of produce, provision of input and ease of getting the produce to the market as well as infrastructure to support it must also be available. These will not be solved overnight and quickly, but a gradual plan to address it will be the right approach.

How do you channel resources to the rural farmers and what are the structures put in place to ensure that the resources get to the target beneficiaries?

Our independent board always asks this question to ensure the resources are used judiciously. We work with a number of NGOs, federal and state agencies with technical expertise required for our projects. We leverage on this expertise, which they provide while we support with the funding. Our foundation team focuses heavily on the governance – ensuring that the right farmers that meet the criteria are included; conducting a needs assessment before the project commences; ensuring funds are used properly, and monitoring the projects through its life cycle. We monitor projects for its success and for those that are not successful, we ensure we complete a deep dive to understand the reasons for it and apply key learning from it to future projects.

Do you think agriculture can transform the economy of Nigeria, and in what ways can this be achieved?

Before the oil industry, there was a huge domestic market for agriculture and it served local and export needs. Currently, it is still a sector with real competitive advantage. Nigeria has large fertile, arable land that can be harnessed to its full potential. Agriculture is the foundation or root for a number of economies and can support in driving down unemployment figures as there is a whole value chain that can emerge from it such as processing, packaging, exports that will support industrialisation of the sector and improve the economy.

BAT has been in Nigeria for decades; how has the journey been so far?

Our Nigerian story has been an exciting journey. When I meet people of a certain generation, they remember the impact the Nigerian Tobacco Company had on the economy. Our proudly Nigerian journey started way back in 1912 when we opened our first trading post. British American Tobacco then proceeded on a joint venture with the Nigerian government to establish NTC in 1951. By 1978, the NTC had built three factories, located in Ibadan, Port-Harcourt and Zaria, and it was one of the leading companies in Nigeria.

However, in the 1990s, the legitimate tobacco industry witnessed a sharp decline as uncontrolled illicit cigarettes flooded the market. This led to the closures of the Port-Harcourt and Ibadan factories and a downscaling of the Zaria operations.  In 1999, foreign direct investment was increased and British American Tobacco was the first multinational to make a re-entry into Nigeria.  British American Tobacco Nigeria was formally incorporated on the July 11, 2000 and it was subsequently merged with the Nigerian Tobacco Company on November 6 of the same year.

On September 24, 2001, British American Tobacco Group signed an MoU with the Federal Government for the investment of $150m to build a state-of-the-art factory in Ibadan, Oyo State. We have worked with the government to reduce illicit trade from 80 per cent to about 20 per cent, and this is as a result of having a local manufacturing operations that stimulate a whole value chain of local tobacco growers, who grow other food crops in addition to tobacco, bringing in a local packaging company, which caused an additional investment in the country, employment of Nigerians in varying capacities and our foundation, which was a commitment. In addition to all these, we committed to being an exporter and currently, we are the largest exporter of consumer goods to 14 countries across West Africa and earning foreign exchange for the country.

Counterfeiting of your products has been an issue; what measures have you adopted to combat this?

Counterfeiting is a challenge but the bigger challenge is illicit trade. Counterfeit cigarettes are illegally manufactured products that bears a trademark without the owner’s consent, while illicit trade refers to the smuggling of products or the unlawful movement of cigarettes into markets in order to avoid taxes. We have worked to reduce the illicit trade to about 20 per cent.

Recently, we noticed in Nigeria an influx of flavoured cigarettes that have been banned under the Tobacco Control Act and cigarette standards, which does not support cigarettes that appeal to children below 18, according to the law. This is growing as children below 18 find it appealing due to its smell and flavours such as chocolate and strawberry.

Upon our re-entry, we also signed an MOU with the Nigerian Customs to work as partners on driving down illicit trade. The Nigerian Customs must be highly commended as they are committed to working with us to drive down the illicit trade figures as they understand that it is a shortage in revenue to the government when the smugglers succeed in evading taxes. We also have a dedicated internal anti-illicit trade team that works with government agencies, with the aim of bringing criminals who are involved in the illegal tobacco trade to justice. We, therefore, request that all agencies keep the enforcements going so that illicit trade, which has been linked to terrorism and other criminal activities, is eliminated.

Who are the largest illicit traders and in which countries are they found?

It is a complicated trade and different parties are involved globally. Every year some 600 billion cigarettes are traded on the black market globally, robbing governments of around £30bn in taxes annually.  So, the illicit trade challenge is a global one.  Their transit routes also vary. Counterfeit cigarettes and “cheap whites” are widely produced in Asia and countries in the Far East, as well as in eastern and southern Europe.

However, these illegal products are not sourced directly from these routes but from free trade zones such as Dubai into West Africa. In the West African region, Guinea Conakry serves as a key transit route and point of entry into Mali, which provides access for illicit cigarettes to Mauritania, Libya and the rest of North Africa. From Benin, Togo (Lomé, Cotonou, and Tema container ports) are also key points of entry, providing access to Cote D’Ivoire, Nigeria, Niger, Burkina and Ghana. Recently, the governments of Togo and Benin agreed on a transit law that will not permit products that do not meet the regulatory requirements such as health warnings of those countries, and these cigarettes have been seized for non-compliance. This is an approach that should be encouraged across the Economic Community of West African States region.

What has been your loss to illicit trade in monetary terms in recent times?

Directly, about 20 per cent of the market in Nigeria is being held by counterfeiters and illicit cigarette dealers. It is difficult to put a figure to it because it is trade that cannot be properly accounted for as retailers display the legal products, but sell the illegal products from behind the counter or from plastic bags hidden away from public view. An estimate is that illicit trade probably runs into tens of millions of dollars which means a huge loss in revenue to governments.

Considering the health concerns over cigarettes, is BAT creating healthier variants of cigarettes?

It is a controversial industry and it is better for the government to achieve public health goals by working with the industry through regulation of legal companies. If the market is completely overrun by illegal cigarettes, the government will find it difficult to enforce any regulation as they cannot be made accountable. However, the recently enacted TCA is an enforceable law that has been applauded as the best approach for tobacco regulation.

At British American Tobacco, we are constantly investing in various innovations such as the e-cigarettes that uses aerosols and turns nicotine into vapour, becoming the first tobacco company to have a nicotine product licensed as a medicine, following receipt of the relevant licences from the UK medicines regulator for our innovative nicotine inhaler, Voke, as well as other devices to support alternatives to cigarettes. We do this as a responsible, willing partner who provides options for adult consumers.

The cost of doing business in Nigeria is said to be higher than those in most countries; how is that affecting your cost and pricing template?

It is costly doing business in Nigeria, and this was discussed recently at the Manufacturers Association of Nigeria’s meeting. There are two big things – energy and the logistics needed to support moving goods across the country and different markets. Being an export organisation, we have to compete against other factories in these markets that do not have the same challenges. However, to manage our costs, we localise a lot of our operations – growing, packaging, manufacturing, etc. A number of our competitors who are transactional have challenges with the inflation and foreign exchange pressure. But due to our deep roots, we only see these challenges as opportunities.

If your prices have increased, how do you woo consumers?

We are in a competitive market, but we have a rich portfolio that offers premium brands that are aspirational and low-end brands for adult consumers. However, for our brands at the lower end of the spectrum, they face smugglers who mostly operate in that range and are willing to offer huge margins to retailers since they don’t pay taxes or have to manufacture locally. This is a huge challenge for us in managing our prices but we ensure the adult consumer has rich offering of quality, legally compliant products available for them.

Apart from cigarettes, what other areas are you investing in to generate revenue?

At British American Tobacco, we used to invest in different things. But about 15 years ago, we made a business decision to divest the other portfolios and focus on tobacco, which has become our mainstay business globally and in Nigeria.

What other Corporate Social Responsibility projects is BAT currently involved in apart from agriculture?

Our CSR vehicle, the BATN Foundation, is focused solely on agriculture along various aspects of its value chain. We made a decision in 2012 to be experts in agriculture and we are certain that is the best approach, especially in support of the government and the diversification of the economy into other types of revenue.

What is the future for BAT in Nigeria?

We hope to be here for another 100 years. We are very aspirational with a reputation we try to preserve. It is always a source of pride when some of our employees move on to other organisations in leadership roles. That is a legacy for us. We moved into a new building in Lagos, known as the Rising Sun, in November 2015.  With that, we are creating a lasting legacy that demonstrates and serves as a reminder of our past successes, future ambitions and complete trust in Nigeria’s unfolding adventure.  As an economic development partner, we believe that by highlighting and celebrating the values and attributes that are unique to Nigeria, the private sector can assist the government to achieve its global objectives.

What is your advice to Nigerian firms seeking to survive the economic turbulence and remain in business for as long as you have done?

Our advice is simple: Put down deep roots and plan to stay for the long term. Be a willing partner with the government seeking to collaborate positively and comply by all regulations to experience Nigeria in all its positive vigour. Patience, tenacity and entrepreneurialism are key to success in the long haul in Nigeria.