BATU Quits Before New Uganda Law

Source from:  East African Business Week  09/15/2014

British American Tobacco Uganda (BATU) recently announced its exit from supporting leaf growing, but will concentrate on selling cigarettes.

According to Jonathan D'Souza the BATU Managing Director, they will lay off 138 workers. He said these can seek for employment in Alliance One International (AOI) that will take over BATU's tobacco growing and exporting business.

"We hope to remain with about 30 workers in our new business operations," D'Souza told reporters in Kampala while insisting that they have not closed their business.

The company said it will only remain in Uganda as cigarette importers and sellers.

It will also remain in Uganda to improve its distribution, build brand equity and grow value and market share.

Giving some background to their decision, D'Souza cited the recent imposition of a leaf export tax of  20 US cents per kilogramme in the June national budget and the situation that could be worsened by the proposed repeal of the Existing Tobacco growing regulations in the draft 2014 Tobacco Control Bill as the key reasons for the decision taken.

He said over 14,000 farmers will be affected by their decision.

"The profitability from our leaf export will be significantly eroded by the recent imposition of a leaf export tax at 20 US cents. We're engaging with relevant stakeholders to highlight the impact of this tax on our leaf growing operation at a time when we cannot pass on this tax to our customers in view of the timing of the leaf growing season and the global over-supply of tobacco.

"This situation is further compounded by the proposed repeal of existing Tobacco growing regulations in the draft 2014 Tobacco Control Bill that is currently being reviewed by Parliament," D'Souza said.

He said they will continue to work with various stakeholders and anticipate that a well-balanced and evidence based legislation, coupled with a stable tax environment and continued focus on reduction of illicit trade will contribute to the sustainability of the industry and government revenues.

Paul Sine, the BATU Finance Director they will however continue to buy tobacco leaves from farmers up to January 2015.

He said they made a profit after tax of Ush8.6 billion (just over $ 3 million). Sine said their exit will cost them over Ush12 billion ($4.5 million).

D'Souza said for the 2015 crop season, it is expected that Alliance one International will contract most of the experienced tobacco farmers.

"However, under the Tobacco (Control and Marketing) act Cap 35 and the regulations there under, farmers are free to choose who to contract with at the start of every crop season," he said.

D'Souza said AOI's entry in the market creates opportunity for the talented and experienced staff currently working in the BATU leaf division, as it is expected the AOI will choose to hire the majority of those who cease to work with BATU.

"The 2014 season is not affected by this change, BATU will stand by its sponsorship commitments to the farmers and will purchase the crop that it has contracted to be grown,"  D'Souza said. Enditem