"How Philip Morris quietly secured major stake in Egypt tobacco market with IMF-led privatisation"

...In April 2022, President Abdel Fattah El-Sisi’s government awarded a valuable license to manufacture cigarettes to a private entity in exchange for a cash injection. This move was a major pivot: for decades, selling cigarettes was a right reserved solely for the state-controlled and highly-profitable tobacco monopoly, Eastern Co. SAE.   

Sixteen months later, facing pressure from the International Monetary Fund (IMF) to privatize state assets, Egypt also agreed to sell its controlling stake in Eastern, leaving it as a minority shareholder in the Middle East’s largest tobacco company.  

The two deals, shrouded in secrecy, have transformed the world’s sixth-largest cigarette market, replacing a state monopoly with a privately-controlled one. Winners include Philip Morris International (PMI) and the tobacco giant’s longtime business partner and distributor, a politically-connected Emirati mogul named Abdullah al-Hussaini. 

The prospect of a more efficient and aggressive tobacco industry has alarmed health experts who fear even higher sales in one of the few places in the world where smoking rates are still rising.  

“This privatisation will inevitably have hugely negative health and economic impacts in a country already struggling to cope with the harms of tobacco,” said Anna Gilmore, director of the Tobacco Control Research Group at the University of Bath...

The reporting shows that Egypt, beset by a shortage of hard currency, bowed to pressure from the IMF and creditors like the United Arab Emirates to privatize a jewel of its state-owned holdings. The government then orchestrated two opaque transactions that paved the way for Philip Morris International and Al Hussaini to claim a major foothold in a lucrative and growing marketplace – while leaving Philip Morris International’s competitors crying foul over a process they saw as rigged...

Philip Morris International declined to comment on detailed questions for this story, including about the smuggling allegations raised in the lawsuit, but said “this does not constitute an acknowledgement that any of the allegations you raised are either correct or incorrect.” Al-Hussaini and the Egyptian government did not respond to repeated messages seeking comment for this story...

Eastern one of the Egyptian government’s most valuable assets. The company earned $274 million on sales of $1 billion in 2021. Egyptian smokers burned through 108 billion cigarettes that year, twice as many cigarettes as were consumed in Brazil, a country with roughly double Egypt’s population.

The status quo was upended in early 2021 when Egypt’s Industrial Development Authority, the government department charged with implementing industrial policy, announced that it would offer a license to a second company to manufacture cigarettes in competition with Eastern.  

The new license would also grant the recipient the right to manufacture e-cigarettes and increasingly popular heated tobacco products.  

In theory, this was an open tender. But in practice, the rules favoured one company: Philip Morris International...

In April 2022, a winner was announced: The new license went to a small Egyptian firm named United Tobacco Co. It was the sole bidder...

United remains something of an enigma. With entities controlled by al-Hussaini, al-Nuami, Philip Morris International and Eastern collectively owning 62% of the company, who owns the remaining 38% is a mystery – as is the amount the Egyptian government received for granting United a license to make cigarettes. 

According to Imbabi of Egypt’s Federation of Industries, both the identity of United’s ownership and the amount it paid for a cigarette license is “a governmental issue and is classified”.

In Egypt, this is not unusual. When ownership of companies is not disclosed it’s often because of the involvement of companies owned by Egypt’s military, which is a sensitive issue domestically, according to Shana Marshall, the associate director of the Institute for Middle East Studies at George Washington University...

This pact with the IMF catalysed a wave of privatizations, with Eastern and 34 other state-owned enterprises earmarked for divestment. The move appealed to Gulf nations like the UAE and Saudi Arabia, whose governments provided tens of billions of dollars to bolster El-Sisi's administration, and who have sought Egyptian state assets in return...

One of the most important aspects of the privatization of Egypt’s tobacco industry is one rarely discussed by economists: health. An estimated 90,000 Egyptians died of smoking-related diseases in 2019...

While a government owning a tobacco company may seem like an irreconcilable conflict of interest, the alternative may be worse. A 2011 review of studies on the effects of privatisation of tobacco monopolies in the 1990s and early 2000s found that such changes in ownership pose “a major threat to public health”. 

That paper, co-authored by Gilmore, of the University of Bath, found that privatisation led to increases in smoking rates. It noted that privatised companies focused marketing particularly on women and young people, and that privatised tobacco companies were highly effective at lobbying to undermine tobacco control measures...

In a response to The Examination, the IMF said that it did not distinguish between a cigarette maker and any other kind of company when advising governments to privatise as part of its loan packages. “The decision on what portfolio of state entities is offered up for divestment is the sole decision of the Egyptian authorities,” said an IMF spokesperson in a statement. 

But some observers say a distinction should be made between tobacco companies and other industries. “Why you’d want to make a company more efficient whose primary product kills half its customers is beyond me,” said Lawrence King, an economics professor at the University of Massachusetts Amherst, who researches IMF policies...