While Uganda Will Grow And Process Leaf

Source from:  The East African (Nairobi) December 20, 2005 Malingha-Doya And Wairagala Wa 12/21/2005

British American Tobacco Uganda has announced a restructuring exercise under which it will cease cigarette manufacturing in Uganda and instead import all its products for the Ugandan market from Kenya. The move is aimed at improving efficiency within the group's operations by taking advantage of the strengths of its various units in the region. It was seen as a result of the increasing smuggling of cigarettes into the Ugandan market, where contraband cigarettes are estimated to command 20 per cent of the market. The $3.7 million restructuring exercise will turn Uganda into one of BAT's five top "tobacco growing, leaf processing and export centres" in the world, while Kenya will become a "centre for manufacturing excellence." Company officials said that a significant sum of the restructuring monies would be spent on the closure of BAT Uganda cigarette manufacturing factory in Jinja, where 68 workers will be laid off and others redeployed within the company. The Jinja plant, which operates at 50 per cent capacity, will be closed in April 2006. The plant has a capacity of two billion cigarettes per year but current volume is about 1.1 billion cigarettes. An additional 200 million sticks is currently imported from BAT Kenya. BAT Kenya reportedly has extra production capacity and 43 per cent of the cigarettes it produces are exported. Currently, BAT Uganda imports Benson & Hedges, Embassy, Sweet Menthol and Rex from BAT Kenya. The Rex brand is manufactured using Uganda-grown tobacco, as the Kenyan crop is only adequate to meet BAT Kenya's domestic processing needs. "Volumes on the domestic market have been adversely affected by the presence of contraband products commanding a considerable proportion of the market owing to their low prices due to duty evasion," said a statement from the group. "This has undermined the ability of legitimate manufacturers who carry huge manufacturing overheads, to compete effectively on an uneven playing field," Jimmy Kiberu, the head of corporate and regulatory affairs at BAT Uganda, said. The BAT Group is restructuring its business to create an integrated business unit for its operations in East Africa. This would focus BAT Uganda on quality assurance and control of leaf growth and processing for export in addition to marketing and cigarette distribution. "Allied with the vision to create one common market for the East African Community, the BAT Group has restructured its business to create an integrated business unit for its operations in EA," Mr Kiberu said. "This will lead to the creation of a more efficient and sustainable business model to compete effectively in future." Uganda's cigarette market is significantly smaller than that of Kenya, with total volumes consumed in Uganda less than those sold in Mombasa region of Kenya. In fact, the cigarette business constitutes 20 per cent of BAT Uganda's turnover as the company is largely a leaf-driven operation. Leaf production peaked at 35 million kilogrammes a few years ago, but currently stands at 20-30 million kilogrammes. The firm pays out about $23 million annually to contracted farmers, and exports about 95 per cent of the tobacco it grows. "Uganda grows better quality and far more tobacco than Kenya, whereas Kenya manufactures a lot more cigarettes than Uganda so this development is a good thing for both countries," said Mr Kiberu. The company earned $43 million in tobacco leaf exports last year and contributed Ush40 billion (about $21.8 million) to Treasury in taxes. The company processes tobacco leaf in its plant at Kampala where its head office is located, employing 409 permanent staff and over 1,500 seasonal and contract staff. Uganda will join BAT's other "Centres of Excellence for Leaf Growing, Leaf Processing and Tobacco Exports" which are in Brazil, Zimbabwe, India and Indonesia. Company officials said Uganda's fertile soils and stable weather patterns give the country immense potential to become a major source of world class tobacco products. Closure of the factory at Jinja, the first BAT cigarette factory in East Africa built in 1928, will see reusable machinery redeployed for other work in leaf processing and some absorbed to other locations within the BAT Group. Some $250,000 has been invested in upgrading the Green Leaf Threshing plant in Kampala as the company seeks to exploit the country's comparative advantage of growing and processing tobacco leaf over cigarette production. Over the past four years, the company has invested $6.5 million in warehouses and marketing infrastructure at the company's upcountry points in Arua and Hoima. The development means BAT Uganda will sell its tobacco directly to the BAT Group and not through an export merchant company like the Universal Tobacco Leaf which has been handling the exports. The Group said it was in the process of redeploying some of the 68 employees affected by the closure of the Jinja plant to other areas of the business. Besides the statutory three months' severance notice, and appropriate termination and redundancy payments, the company will implement personal finance management training, development, outplacement programmes and counselling for the affected staff. BAT said the restructuring will help the company focus more on improving leaf quality following the 2003 rejection of 200 tonnes of tobacco worth $5 million from the company on the world market due to quality problems. "Some farmers were selling substandard tobacco through the accounts of the BAT contracted farmers whose tobacco is grown under strict supervision of our leaf technicians. This illegal practice compromised the crop quality but we have strict measures in place now, said the official. Enditem