ECONOMY-BALKANS: Tobacco Giants Make a Heavy Investment

By Vesna Peric Zimonjic Reprint | | Print |

Vesna Peric Zimonjic

BELGRADE, Aug 13 2003 (IPS) - Multinational tobacco giants Philip Morris and British American Tobacco bought two of the biggest cigarette manufacturing facilities in Serbia last week. The move is seen as better for the health of the economy than of the people.

The purchase of the biggest Serbian tobacco manufacturing company Duvanska Industrija Nis (DIN) and its sister company Duvanska Industrija Vranje (DIV) for 690 million dollars was bigger than all the privatisation deals of last year.

"This is the single biggest tender privatisation in Serbia for years," privatisation and economy minister Aleksandar Vlahovic told IPS. "Last year, 760 small and medium sized firms were sold for 684 million dollars."

The deal brought half a billion dollars to the Serb budget, Vlahovic said. The rest of the money will go towards investments into manufacturing, and towards what has been described as a "social programme" for more than 3,000 workers.

The two multinational manufacturers will continue production of well-known domestic brands and also start production lines for several of their own brands already popular in the Balkans, Vlahovic added. Neither Vlahovic nor the representatives of the two companies revealed the expected level of production in coming years.

The new production will make sourcing of a lot of cigarettes legitimate. "In the past three years, Serbia has taken an express highway from being a smugglers’ paradise to becoming a major cigarette producer in the Balkans," finance minister Bozidar Djelic said in a statement on the deal.

In the 1990s, the whole of the Balkans (including Croatia, Bosnia- Herzegovina, Serbia and Montenegro, Kosovo, Macedonia, Albania, Romania and Bulgaria) was a smugglers paradise, particularly for cigarettes.

"There was absolutely no control by any relevant international body, agency or organisation," analyst Dimitrije Boarov says. "On one hand, wars were tearing apart former Yugoslavia, and smuggling was flourishing. On the other hand, countries like Romania or Bulgaria went through the transition from communist to market economy, but lacking proper regulation." That made conditions ideal for smugglers.

The South European Cooperation Initiative (SECI), a regional European Union (EU) sponsored body, estimates that profits from illegal trade in cigarettes in the Balkans amounted to two billion dollars between 1997 and 2000.

Most of this money ended up in private pockets. Since 2000, tighter border controls and implementation of laws has improved the situation, SECI officials say. The market for smuggled cigarettes has fallen to 15 percent of peak levels, they say. For smugglers before, and for manufacturers now, the Balkans represent a huge market. Smoking is a passion among about 60 million people in the region.

SECI figures indicate that more than half the population of these countries smokes, with the level reaching almost 60 percent in Albania and Macedonia. Although relatively poor, people in the Balkans spend more than 5.5 billion dollars annually on cigarettes. More than 163 billion cigarettes are smoked in the area every year.

Like most countries in the region, Serbia and Montenegro lacks a strategy to support people to quit smoking, although 54 percent of the population smokes.

"The state would find it ridiculous," says Belgrade University professor Ratko Bozovic. "With the change of regulation since Milosevic fell from power, taxes on cigarettes are regularly filling the budget, so why give it up?"

Health concerns were a non-issue in the takeover of the cigarette firms. Smoking is popular among medical staff who would otherwise be expected to give stern warnings about the dangers from smoking.

A survey at the biggest healthcare centre in Serbia, the Belgrade Clinical Centre, showed that 37 percent of doctors and 52 percent of nurses smoke. Lung cancer tops the list of 30,000 new cancer cases diagnosed in Serbia each year.

"The authorities seem unwilling to do more to discourage smoking or start an awareness campaign," says Dr Dragan Jovicevic from the Clinical Centre. "The response we get from authorities is that smoking is a strong tradition."