FDI in cigarette industry curls upArchive
KARACHI: The tobacco and cigarette industry is still attractive to foreign investors in Pakistan, reflecting growing business and rising profits despite high taxes on this sector.
Foreign direct investment (FDI) has been increasing in this sector for last three years, shows data of the Pakistan Bureau of Statistics. In FY13, the total foreign investment was $84.3 million, consisting of $44.5m FDI and $39.8m foreign portfolio investment (FPI).
However, the pattern changed in FY14 as FDI constituted $92.4m of $94m total foreign investment. The FPI was a mere $1.6m.
The foreign investment in tobacco and cigarettes further rose in FY15 to $115m, including $112m FDI and $3.5m FPI. So, during the three years, this industry attracted $293m in foreign investment.
On the whole, Pakistan has become almost a neglected country for foreign investors as FDI has fallen to $851m in FY15 from $6.96bn in FY07.
Pakistanis are among the few nations which have been spending hundreds of billions of rupees on smoking each year.
Smoking is not prohibited in Pakistan, but advertisements for promotion of brands of cigarettes are banned for several years.
An earlier report of the State Bank of Pakistan showed that Pakistanis smoke 65bn cigarettes a year while the country’s processing capacity is of 123bn cigarettes. A conservative estimate indicates that Pakistanis spend about Rs300bn on smoking.
This is against the global trend since in most developed and some developing countries, smoking is now seen as a kind of criminal act.
Meanwhile, the repatriation of profits and dividends from this sector has doubled to $12.5m in the first seven months (July-January) of this fiscal year from $6.8m during the same period a year ago. By comparison, the seven-month inflow of FDI was $50m compared to $60m in the same period of last year.
More than 80 per cent of the world’s smokers live in lowland middle-income countries, and the tobacco industry is increasingly targeting these emerging markets. Cigarette retail values in 2014 were worth $744bn. In 2014, over 5.6 trillion cigarettes were sold to more than one billion smokers worldwide.
Published in Dawn, March 9th, 2016