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Syrian tobacco market thriving.

THE SYRIAN tobacco market, dominated by the state-run General Organisation of Tobacco (GOT), is witnessing substantial growth on the back of rising domestic demand and export of Syrian tobacco leaf, with average annual growth of 10% to 13%, according to the GOT. "The number of people smoking is increasing year by year, because of young people taking up the habit," said Fares Beshara, a member of the GOT board of directors. The median age in Syria is 21.7 years old.

Smoking prevalence in Syria is high at 30.3% of the population, according to the World Health Organisation, while Japan Tobacco International (JTI) estimates 60% of men smoke and 24% of women smoke. Annual per capita consumption is 1.25 kilograms of tobacco, or 1,400 sticks, according to the GOT. JTI puts the number of sticks sold at 17 billion sticks in 2008, up from 15 billion sticks in 2007.

The spike in demand has been reflected in the GOT's finances, with a turnover of Syrian pounds (SYP) 25.6 billion (Euro 372 million) in 2008, and expected to reach SYP 26.9 billion (Euro 391 million) by the end of 2009, up 5.1%. Overall profits are also to rise, from SYP 5.5 billion (Euro 79.9 million) in 2008 to SYP 6.8 billion (Euro 98.8 million) in 2009, and projected to reach 8.3 billion (Euro 120.6 million) next year. According to GOT projections, turnover is to exceed SYP 29.3 billion (Euro 425.9 million) in 2010, up 8.9%.

In 2001, Syria started to open up economically, and by 2005 licences were granted to international brands to start manufacturing. As a result, market share of local brands has dropped from 66% in 2007 to 44% in 2009, according to JTI. The GOT said that locally produced cigarettes, including foreign brands manufactured under license, now accounts for 70-75% of the market.

The GOT still has the lion's share with brands Al Hamraa, Al Sham, Ebla and Orient, with between 12.5 million to 13.2 million sticks produced per year, according to the GOT, while Imperial has 30% of the market, JTI 14%, British American Tobacco (BAT) 7% and Philip Morris International (PMI) 5%, according to JTI.

Locally produced cigarettes remain popular due to the low price--average per capita income is US$4,600 per year--with Al Hamraa selling for SYP 25 (Euro 0.36), Al Hamraa Light and Sharq for SYP 20 (Euro 0.29), Al Hamraa King Size SYP 35 (Euro 0.50) and Al Hamraa King Size Light SYP 30 (Euro 0.43). Mid-range brands manufactured in Syria sell for less than imported brands, with Gitanes and Gaulois costing SYP 50 (Euro 0.72), and Lucky Strike SYP 55 (Euro 0.80), while imported brands cost SYP 60 and up, with Winston selling for SYP 60 (Euro 0.87), Merit SYP 65 (Euro 0.04) and Marlboro, Davidoff and Rothmans for SYP 75 (Euro 1.09). The GOT plans to produce 15,300 tonnes of locally branded cigarettes this year at its seven factories, and since 2007, between 670 to 800 million cigarettes a year at each of the Gitanes and Lucky Strike factories. Imperial has a permit for a second brand yet to be manufactured in Syria, while BAT is in talks to open a Kent manufacturing facility. The GOT is also in negotiations with both PMI and JTI to open factories.

"We are always improving quality and production facilities, and will increase capacity from the 15,000 tonnes if the market needs it," said Beshara. "At the same time we are looking to license products from other companies."

Sales of imported cigarettes reached SYP 8 billion (Euro 116.3 million) in 2007, a figure that is set to decline to SYP 7.3 billion (Euro 106 million) in 2010, according to the GOT. "There has been an increase of imported brands, with those not legally imported smuggled in," said Tarek Al Taweel, GOT's commercial manager. Smuggled cigarettes account for 8% of the local market, a figure the organisation claims has been reduced since establishing a "smuggling control body" to "prevent this phenomena." The GOT has also embarked on warning campaigns about the poor quality of smuggled cigarettes in the Syrian mass media.

"We have to compete with the smuggled in cigarettes," said a source at BAT, who said that as the company works under the umbrella of the GOT, and not officially independent in Syria, he wished to remain anonymous. "They don't come from Lebanon, as prices are equivalent to Syria at US$1 a pack, but from Iraq and Jordan. And they are imported at competitive prices, so more people are smoking them," he added. Syria is the third largest market in the Middle East for illicit tobacco products, after Iran and Iraq. The GOT said that more than 50 brands are smuggled into the country from "unknown origin."

Syria is a black market for advertising, not allowed on billboards, TV, radio or at points of sale (POS). "Imperial and JTI are always breaking this ban, giving free handouts and commercial items--lighters, matches, gifts--at restaurants, bars and at events; they are getting around the rules," claimed the BAT source. "So there is no negative effects of the ban on advertising as many companies are not committed."

Similar enforcement issues are anticipated with a 'soft' public place (including offices, restaurants and bars) smoking ban that went into effect in October 2009. Thus far, it appears to have had minimal impact on smoking prevalence. Its impact is dependent on greater enforcement by the authorities that is expected to be implemented in the coming year. Under governmental regulations, 15% of the surface of cigarette packets have health warnings, in both English and Arabic. BAT however has devoted 30% of the packet to health warnings, including an image of blackened lungs.

Lack of enforcement is a particular concern, said the GOT. Despite for instance a ban on single stick sales, street vendors openly sell two sticks for SYP 5(Euro 0.07), as well as illegal brands. "You see single sticks being sold on the streets and in popular areas, the government is doing nothing about it," said the BAT source. The same applies to enforcing the legal age of smoking, which is set at 18 years old.

But while the government is lax in imposing rules on certain aspects of the tobacco trade, 10 stick packets are not allowed. "The last time 10 packs were imported was seven years ago, but it was stopped, and there was a prohibition agreement on sales signed with PMI and BAT," he added.

Domestic and international demand for Syrian tobacco leaf is rising, driving growth within Syria's tobacco industry across the board. Under GOT supervision, Syria grows Virginia, burley, basma (NOTE--SPELLINGS ARE CORRECT), shek al bent and oriental leaf tobacco, while last year introducing a variety called katrina. (SPELLINGS SUPPLIED BY GOT) The GOT has awarded 65,000 cultivation licenses and estimates that the planting industry employs around 325,000 people.

In 2009, the GOT estimates between 17,500 and 24,000 tonnes of tobacco will be produced, dependent on the effects of a four-year drought. "We are facing problems with Virginia and burley production, especially in Deir el Zour (in the North East) as production is down due to a lack of rainfall," said Beshara. According to a United Nations report released in the summer, an estimated 1.3 million people in north east and eastern Syria have been affected by climate change and drought, while 803,000 people have lost their livelihoods over the past year.

"But while Burley is down in the north east we still produce what we need, as we have changed cultivation to other areas," said Beshara.

Tobacco cultivation covers a total area of 19,396 hectares and is focused in six governorates: Latakia, Tartus, Idlib, Aleppo, Hama and Daraa (NOTE--SPELLINGS ARE CORRECT). Production has increased in Latakia, on the Mediterranean coast, and in Hama, in central eastern Syria, now accounting for 65% of production in the country.

The GOT produces Ajami tombac (NOTE--SPELLING IS CORRECT) for the burgeoning domestic nargileh (NOTE--SPELLING IS CORRECT) (hubble bubble) market in the Latakia region, and several flavours of molasses: two apple flavours, grape, banana, fruits and strawberry.

"Nargileh smoking is increasing, especially with the young people to show off, and there are more women smoking," said Beshara.

Meanwhile, the trade in tobacco products between the EU and Syria could be boosted by the long-awaited formal signing by the European Union in November of an EU-Syria association agreement. This will create a virtual free-trade zone between the EU and Syria and see tobacco product tariffs tumbling. It was initialed in 2004, but diplomatic complications have stalled its approval by the EU council of ministers. With this secured, tobacco traders can look forward to the abolition of 20% Syrian duties on EU-made cigarette exports over nine years; and 50% duties on EU-made cigars, cheroots and cigarillos over 12 years. The deal will not significantly change the EU's existing liberal regime regarding Syrian tobacco exports.

* Additional reporting by Keith Nuthall
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Author:Cochrane, Paul
Publication:International News
Geographic Code:7SYRI
Date:Nov 1, 2009
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