presented at sun n’ sand resort, mangochi . 8 th september, 2013

INVESTING IN VALUE-ADDED TOBACCO

(as a way toward industry sustainability)

JOSHUA NTHAKOMWA, DIRECTOR INVESTMENT PROMOTIONMalawi Investment and Trade Centre (MITC)mitc@mitc.mwwww.malawi-invest.net

Revealing StatisticsGlobal Tobacco Industry generated sales of

almost US$721 billion in 2010 (Report Linker -www.reportlinker.com)

US$681 billion from cigarettes sales, which represents almost 95% of the total industry market

Cigarettes represent the leading market segment

Revealing Statistics (Continued)Currently, there are 1.3 billion smokers in the

world and figure is expected to increase by 4% annually – 52 million smokers annually

Around 12 million cigarettes are smoked every minute around the world

Around 35% of men in developed nations smoke against 50% in developing nations

Market Trends in the IndustryAbout 5.5 trillion cigarettes are produced

globally each year (Source: B.A.T)Biggest Single market is China (about 350

million smokers – 40% of global total)Four biggest international tobacco companies:

BAT, Imperial Tobacco, Japan Tobacco and Phillip Morris account for 45% of global market

Research reveals that while cigarette sales in developed countries continue to decline year after year, sustained volume growth is widely predicted in emerging markets

These are driven by population growth and increasing disposable income

Consequently, according to the report, the overall value of the tobacco market continues to growth

Statistics indicate that more tobacco companies are being pushed by regulatory factors in developed countries and are exploring investment in Africa, where the market seems to be emerging

Anticipation is that some of such investments could locate in Malawi being a locational country

Value-addition ProspectsMarket trends and investment push

factors in the developed world provides huge prospects for local value addition for export (Sub- and extra-region)

Optional strategy could be value addition (cigarette manufacturing) under sub-contractual arrangements

Market AccessEBA into European MarketSADC and COMESAAGOABilateral trade agreements with

Zimbabwe, Mozambique, China, India, Japan etc.

Government Support PoliciesTobacco being main forex earner,

government has huge interest for its value addition particularly for export market

For such value addition exclusively for export, GoM offers the EPZ status under which such export-oriented companies import their machinery/raw materials duty/tax/surtax -free

Industrial Rebate Scheme – covers manufacturing which does not qualify under EPZ – capital equipment/raw materials duty/surtax/excise exempt

Various tax allowances that will lower effective taxable income

Some can be negotiated with GoM, particularly for export-oriented ventures

Diversified InvestmentGoM encouraging tobacco companies

to also consider investment into non-traditional areas, e.g. soy-bean processing; groundnut processing etc

Also non-agricultural areas e.g. import-substituting areas in electrical accessories, production of tires (rubber sourced locally), energy generation using renewable sources etc.

Specific incentives exist for these: e.g. up to 10 years tax holiday for investment in energy and agro-processing – in addition to other incentives..

Thank you for your attention