Are local manufacturers afraid to compete with quality products?

Sep 07 - 13, 1996

Until about three months back there was no such word as 'imported cigarettes' in the dictionary of our national exchequers because all the cigarettes in the market were 'supposed' to have been manufactured locally and therefore there was no record of any imports as far as cigarettes were concerned.

But all that changed when a world renowned tobacco giant stepped in to have a feel of the local market by importing some of its famous brands. There has since been a lot of hue and cry that if the government allowed foreign cigarettes to be imported, the local industry would surely be killed. However, it is interesting to note that the same foreign cigarettes have been burning to consume about ten per cent of the total cigarette market in this country within the last six years while no eyebrows were raised. The reason: the very people manufacturing the local varieties are alleged to have been bringing in the foreign ones from the backdoor.

According to sources in the cigarette industry, the local cigarette market has always been monopolised by the local industry, as it is categorised as a non-essential item, and therefore import has never been given any thought.

During the night of Thursday August 29, a foreign airline flight landing at Karachi's QAI Airport brought Khalid, (name changed to protect his real identity) from Dubai. He brought twelve boxes which contained 240,000 sticks of different foreign cigarettes which no duty was paid because he is one of the 'khepias' employed by the powerful 'behind-the-scene' people to smuggle these items into the country through this airport. Also, a number of them are on the same assignment and come in by road daily.

Name a foreign brand of cigarettes and it is available in our local market but how it got there no one ever cares to find out. According to sources the very people who are supposed to take action are themselves said to be smokers of foreign brands, not 'cheap local stuff'. The question is, where from do they get the cigarettes they smoke? To find the answer, PAGE conducted an on-the-spot survey asking smokers from different segments of the society whether they smoke a local brand or a foreign one. About 75% of those who could be categorised as 'upper class', i.e. those including managing directors, ministers, federal and provincial secretaries, businessmen and those on the upper rungs of the ladder in financial institutions. Even a manufacturers cigarette in the city himself admitted to smoking foreign cigarettes for various reasons including the fact that the foreign varieties were better, quality wise than the local ones and they had become 'status symbols'. Asked about more popular brands in the market, some of those cited were Benson & Hedges, Malboro, Dunhill, Dunhill Lights, More, Mild Seven, Silk Cut and 555.

And when they were asked about the source of these cigarettes, 80% of those queried said they purchased them from open market outlets ranging from the 'panwalla's cabin' to supermarkets while the remaining 20% said that they preferred to bring them from abroad or ask their friends to do so.

Had they ever thought that these cigarettes were smuggled? Fifty per cent of those surveyed said it was the government's problem to import products and collect revenue, while 30% expressed concern but said they could not help it. The remaining 20% gave different answers such as 'we don't care', 'the local manufacturers should improve their products', etc.

The main objective of banning the import of cigarettes was to boost the local industry. However, the ban proved to be killing for the local industry, because instead of having a rather controlled situation through legal imports, all sorts of brands started flooding the country through the air, sea and land routes. Sources in the market said that under the umbrella of Afghan Transit Trade, thousands of boxes of American-cigarettes meant for Afghanistan kept flooding the market almost everyday and the situation got worse when the facility was withdrawn by Pakistan because Iran promptly extended the same facility to Afghanistan. The first elected administration in Pakistan had no choice but to change the policy in 1993.

But between 1993 when the government allowed imports of cigarettes, till the beginning of this year, no one came forward to register as an importer. Importers of consumer items in Jodia Bazar alleged that the main reason why no one dared venture into imports of cigarettes was that the manufacturers were the ones controlling the market of both foreign and local varieties. The director general of Pakistan Coast Guards, Brigadier Ikramul Hasan couldn't have been more explicit than when he said recently at a function on anti-smuggling measures that "smuggling of an item is usually done by people who belong to the trade".

When Khalid was confronted by this correspondent at the airport about his smuggled cigarettes, he was quick to warn that if the correspondent chose to act funny, he would regret if for the rest of his life because the cigarettes belonged to people who were "very powerful"!

Interestingly, all efforts of Pakistan and Gulf Economist to get a word from any of the local manufacturers including their association were unsuccessful as it was clear that they were trying to avoid talking to the press.

The main question now is whether the legally imported cigarettes will have any impact on the local industry. At present there is only one company which has started importing cigarettes since last month -- R.J. Reynolds Private limited which is here to market five of its international brands while the Pakistan Tobacco Company, a local manufacturer with more than 45% of the market share started marketing the legally imported Benson & Hedges brand.

According to analysts, the argument that the legally imported cigarettes will kill the local market is not valid enough, because at present the smuggled varieties share less than 10% of the total market while the legally imported cigarettes are here to compete within that 10%.

Secondly, argument like the local industry is paying more taxes than importers of foreign brands may also not be very weighty because one may ask why the very same industry did not raise its voice against the parallel market all these years? Or, are they afraid to compete with legally imported foreign products?