CAIRO: Rumors of the sale of Egypt s sole tobacco producer have been rampant for months. Citing unnamed sources, Britain s Sunday Times reported last December that several multinational cigarette makers were considering a bid for the government s 53 percent stake in Eastern Tobacco. The newspaper stated that British American Tobacco, Altria Group, which owns Phillip Morris, Imperial Tobacco and the Spanish Altadis SA were all reported to be considering bids the government s 52 percent stake in Eastern Tobacco.
A Reuters report followed in February stating that Phillip Morris confirmed it had abandoned plans to expand in China, but said it could participate in possible privatizations of state tobacco firms in Egypt and Turkey.
Meanwhile, 36 percent of Eastern Tobacco is traded on the stock market and its share price hit an all-time high of LE 345 last month, with investors expecting a foreign buyer to pay a premium for the company.
More recently, the Ministry of Investment announced this week that it has short-listed five banks to advise it on the sale of the cigarette manufacturer. Eastern Tobacco also told The Daily Star Egypt that the process of valuation of the company is underway but deferred questions on the plans for the government s stake in the company to its parent, the Holding Company for Chemical Industries. The latter as well as the Ministry of Investment would not provide any comment in time for publication.
While the short-listing of the five banks may be an initial step toward a potential sale, no decision has been made by the government to date about whether to proceed with the sale. But the continued silence of all parties has only served to fuel speculation and increase uninformed trading activity on the company s shares.
The Ministry of Investment has taken the approach of late to avoid commenting on privatization decisions, emphasizing its role as an agent or overseer of the privatization process and referring questions to the nine holding companies that own public companies. In this case, both the holding company and Eastern Tobacco are themselves apprehensive about communicating to the public, turning to the Ministry of Investment for guidance about how it plans to proceed. In light of the row over Omar Effendi and Egyptian American Bank, the potential sale of Eastern Tobacco is an opportunity for the government s privatization program to redeem itself. Minister of Investment Mahmoud Mohieddin said in a debate earlier this week that his ministry has published its privatization program on its Web site and that the onus is on the public for its failure to read it. But there is no information of his plans for Eastern Tobacco that is readily accessible on the Web site.
Such disclosure is particularly important for a politicized commodity such as tobacco. Egypt has the highest rate of smoking in the Arab world and tobacco was once included in the basket of goods used to calculate inflation, alongside wheat and other essential products. Furthermore, through its holding of Eastern Tobacco, the government is effectively subsidizing tobacco consumption in the country by reducing the markup on its most popular brand, and as a result cigarette prices in Egypt are amongst lowest in the world. It is unclear whether this low price can be maintained by a private buyer.
Eastern Tobacco employs some 14,000 people. Its revenues were LE 3.4 billion last year, of which 8.6 percent were in the form of products sold under license for international brands, including those of Phillip Morris and British American Tobacco. Although only 1.8 percent of the company s production is exported, Egypt is the world s 17th largest tobacco producer.
