Philip Morris enters Egyptian market after disputed tender

Philip Morris International (PMI) has acquired a stake in United Tobacco, which recently won a license to manufacture and market cigarettes in Egypt, one of the world's most coveted tobacco markets. United Tobacco's full ownership has not been disclosed and the licensing process has been contested by rival companies.

The Examination Media[1] and the Organized Crime and Corruption Reporting Project (OCCRP)[2] analyzed hundreds of documents from corporate registries, securities filings and legal documents from the Middle East, Europe and the United States. They also interviewed current and former Egyptian officials, tobacco industry employees, public health officials and economic experts to understand the relationship between the tobacco company and United Tobacco.

Figure 1 - Source: The Examination

Questions over United Tobacco ownership

Efforts by Philip Morris and other tobacco companies to dominate the Egyptian market have long been stymied by the Eastern Company of Egypt, which until recently controlled all cigarette production in the country and was majority-owned by the state. But under pressure from the International Monetary Fund to privatize state assets in order to receive aid and loans, Egypt has loosened its grip on the tobacco industry, allowing private investors to enter the sector.

In 2021, the Egyptian Industrial Development Authority therefore invited private tobacco manufacturers to submit bids for a cigarette manufacturing license. In April 2022, the tender was awarded to United Tobacco Company. At the time, media reports described United Tobacco as a “subsidiary” of PMI, but the Swiss company’s involvement was not confirmed in a filing with the Securities and Exchange Commission until mid-2023.

PMI holds shares in United Tobacco alongside Emirati businessman Abdullah Al Hussaini, who has distributed cigarettes for PMI for decades, and Eastern Company, which acquired 24 % of United Tobacco when the license was awarded. Together, PMI, Eastern and a British company partly owned by Al Hussaini control about 62 % of United Tobacco, but the identities of the other shareholders have not been disclosed.

Shana Marshall, associate director of the Institute for Middle Eastern Studies at George Washington University, told The Examination that the lack of disclosure by corporate shareholders in Egypt could indicate involvement by companies owned by the Egyptian military, a sensitive issue domestically. The military sometimes maintains minority stakes in politically or economically strategic industries. The military is also a party to “special concessions that corporate shareholders must accept to operate in Egypt,” said Marshall, who said she did not know whether the military was involved in the United Tobacco case.

A contract contested by Philip Morris competitors

According to The Examination, it was theoretically an open tender. But in practice, the rules favored Philip Morris International. The tender criteria specified that the new licensee would have to produce at least 15 billion cigarettes a year in Egypt to obtain the license. Only one international company, Philip Morris International, was then selling that many cigarettes a year in the country. Representatives of British American Tobacco, Japan Tobacco and Imperial Group - whose combined sales fall short of the 15 billion quota - protested in joint letters to Egyptian Prime Minister Mostafa Madbouly.

The terms were changed, reducing the quota to 1 billion cigarettes, but companies still refused to participate, complaining to Mr Madbouly that granting a single license would lead to “market distortion” and “new forms of monopoly”. PMI is the only one of Egypt’s four major tobacco players that did not sign the letter of protest against the licensing process, and United Tobacco was the only bidder in the final phase.

Al Hussaini and Philip Morris identified as key players in illicit tobacco trade in the region

In a 2020 lawsuit filed in New York, another Philip Morris International business partner, Raoul Setrouk, alleged that in the 1990s a company closely tied to Al Hussaini worked with Philip Morris to smuggle contraband cigarettes into the region and circumvent U.S. sanctions on Libya.

Setrouk also claimed that Al Rashideen distributes cigarettes for Philip Morris International in “Algeria, Egypt, Jordan, the Gulf States and throughout Africa” and that “most of the contraband found in European countries or conflict zones comes from the very close partnership between Al Rashideen and Philip Morris International.” Old PMI documents, made public in 1998 following a series of landmark lawsuits brought by the United States against the world’s four largest tobacco companies, show that Al Hussaini began distributing Philip Morris International cigarettes in Iran in 1991, just as the Islamic Republic was beginning to normalize trade relations with the United States. In 1995, after President Bill Clinton imposed new sanctions on Iran, Al Hussaini and a Swiss-based executive at the tobacco giant exchanged letters to discuss how to circumvent the new restrictions.

A contract that goes against the "smoke-free world" displayed by Philip Morris

The deals, which were struck without much publicity, come as Philip Morris International has formally committed to achieving a “smoke-free world” and reducing its sales of manufactured cigarettes in favor of new nicotine products. In 2017, PMI formally presented its vision for a “smoke-free” future. Then, former CEO André Calantzopoulos began giving interviews about his company’s “transformation.” He wanted to transition smokers to PMI’s new line of cigarette substitutes, which he said would improve public health.

In reality, the “smoke-free” mission is a major marketing campaign for PMI’s IQOS heated tobacco device and an attempt to rehabilitate the company’s image so that it can once again seek to influence policy and regulation. The tobacco company is actively rolling out its heated tobacco campaign in countries where smoking rates have declined in recent years, but at the same time it continues to actively promote its manufactured cigarettes in many developing countries and oppose measures to reduce smoking. Cigarette shipments increased by nearly 5% in the Middle East and Africa, by about 2% in the Americas, and by 1.5% in South and Southeast Asia.[3].

With 114 billion cigarettes sold in 2022, Egypt remains one of the few countries where tobacco demand is expected to increase, making it a highly coveted and lucrative market for the cigarette manufacturer.

©Generation Without Tobacco

AE

[1] Jason McLure, Aisha Kehoe Down, Lara Dihmis, How Philip Morris International secured a stake in one of the world's few growing cigarette markets, The Examination, published May 8, 2024, accessed May 13, 2024

[2] Jason McLure, Aisha Kehoe Down, Lara Dihmis, Philip Morris Enters Egypt Market Following Disputed Tender, OCCRP, published May 8, 2024, accessed May 13, 2024

[3] Is PMI Really Creating a 'Smoke-Free Future'?, STOP, published on April 10, 2023, consulted on May 13, 2024