Wednesday, April 16, 2014

INVESTIGATION: Underhand tactics, Illegal advertising raise British American Tobacco’s profits in Nigeria, Africa

Published:

The tobacco giant is benefiting from weak tobacco legislation in  Nigeria.

On the afternoon of July 11, 2012, a client contacted Belinda Walter, a tobacco lawyer in Pretoria, South Africa, with a disturbing message, while she was still basking in the glory of a recent court victory over British American Tobacco, BAT, on illegal advertising.

The client informed Ms. Walter that despite a recent court ruling upholding a ban on cigarette advertising and promotion,  BAT had totally disregarded the rule of law and was undertaking a massive marketing and promotional drive in respect of its DUNHILL cigarettes.

Ms. Walter packed her Blackberry phone and car keys and drove to the petrol service station – Shell Select in Atterbury Road, Pretoria- where one of the ad agents hosted a Dunhill promotional campaign. At the station, she found a very young girl promoting DUNHILL cigarettes, true to her informant’s claims.

“I was offered a free DUNHILL cigarette to taste by the girl – in contravention of our law,” Ms. Walter told PREMIUM TIMES. The ad agent confirmed to Ms. Walter, mother of a 14 year old son, “that the promotion was being undertaken at many locations and with many girls hired for the same promotions.”

She took the photographs of the lady with her products, and left to begin another round of campaign against big tobacco impunity in South Africa.

Big tobacco, gullible African governments

BAT is a large and powerful Tobacco company with business interests across the world, dealing in one of the most restricted consumables, Tobacco.

Restrictive laws and heavy taxation greatly limit the company’s business growth and income around the world. Despite growing restrictions and plummeting  profits in developed nations, the company has managed to keep its annual profit steadily on the rise, relying heavily on its African markets.

The company, latching on the gullibility and weakness of African governments, has created sneaky and illegal policies to outsmart restrictive laws, keeping Africa as one of its most lucrative markets while endangering millions of lives.

Last year, BAT sold 705 billion cigarettes, ending the year with an 11 per cent increase in  a profit of £5,519 million.

Eastern Europe, Middle East and Africa – recently lumped together as a business region – brought in 26 per cent of the revenue, having consumed 34 per cent of the company’s cigarettes for the year. The region posted profits ahead of Western Europe and the Americas.

In its 2011 financial reports, BAT admitted that cigarette sales in developed countries are declining; but predicted sales volume growth in emerging markets – Africa and Asia. The company said its growth in emerging markets will be anchored on the region’s “population growth and increasing disposable income.”

A PREMIUM TIMES investigation reveals that rather than a growing economy, seemingly illegal business conducts sustained – and may sustain – BAT’s future revenue growth in Africa.

The first part of our series dug into company memos and court documents to expose underhand deals BAT applies in Africa to maintain its leading position in tobacco trade in the continent. The company, the story showed, engages in cloak and dagger business, industrial espionage, intensive cross-border smuggling, competitor tyranny, and infiltrating governments.

This part of the series reveal how BAT achieved great returns on investment through what could be illegal adverts and promotions to both smokers and targeted converts in African countries where the laws are strict.

In countries with weaker laws, the company infiltrates governments to block the passage of restrictive laws.

Bad SA market

British American Tobacco sales lady SA

British American Tobacco sales lady SA

South Africa, Egypt and Nigeria are BAT’s key markets in Africa.

Last year, BAT’s portfolio in South Africa turned in poor returns, unlike Nigeria and Egypt.

The company first reported decline in sales in South Africa in 2010. It blamed the decline on “significant increase in the incidence of illicit trade,” which it in turn blamed on “ill-considered regulation” of the tobacco industry.

In February 2008, Thabo Mbeki, a former South African President signed South Africa’s Tobacco Products Control Act, No. 83 of 1993, as amended, into law. The law brought tougher restrictions on  public smoking and advertising of tobacco products in the country. Big tobacco companies in South Africa, chiefly BAT, hit a snag with the law.
BAT has admitted to the promotions Ms. Walter captured, but told PREMIUM TIMES it was legal.

“The Dunhill promotion at Shell was legally compliant having been conducted in accordance with the Tobacco Products Control Act 86 of  1993,” the Head of Corporate Social Responsibility & Communications, BAT West Africa Area, Oluwasoromidayo George, said.

“All initiatives undertaken at the premises of our customers and with our trade partners are legally compliant in all aspects,” BAT claimed.

South Africa has one of the toughest anti-tobacco laws in the continent, stifling the cigarette company’s business interest. But the company has failed to comply with the law, pushing on in both government fronts and covert advertising and promotions.

BAT approached the North Gauteng High Court, in South Africa, after the South Africa Tobacco Product Control Act was ratified by the president, seeking to shove the law aside or minimize the impact the amendment would have on its ability to communicate one-to-one with consenting  adult consumers  of  tobacco  products.

The company asked the court to declare that the definition of “advertisement” of “tobacco products” by the amended law was “unconstitutional.” It lost the case but went ahead to appeal the judgement in the Supreme Court of Appeal of South Africa.

The Appeal Court, led by Khayelihle Kenneth Mthiyane, Deputy President of the Supreme Court of Appeal of South Africa, dismissed its appeal on June 20, 2012. BAT has since appealed to the Supreme Court of South  Africa.

Lobbying the SA government

Before approaching the North Gauteng High Court, in South  Africa, BAT lobbied the South African President to drop the law in a series of correspondences. Justice Mthiyane said that some of these  correspondents,  were “directed  to  the  highest  office  in  the  Presidency,”  in his judgment in June.

The company had also planned to lobby the legislature for an amendment to the law if the South African leader, Jacob Zuma, had accepted its terms.

The cigarette giant asked the South African president to order that the advertising  bans in the law did  “not  apply  to  one-to-one  communications between tobacco manufacturers, importers, wholesalers and retailers on the one hand, and consenting adult tobacco consumers on the other.”

Alternatively, the cigarette company lobbied the president to declare the  advertising restrictions unconstitutional,  to be followed by another order suspending the law for 18 months, “to allow Parliament to enact legislation to cure (the) unconstitutionality” in the law.

When this exchange with government failed to bear fruit, the company approached the North Gauteng High Court for the failed June 2012 judicial adventure.

Lucrative Nigerian Market

Nigeria, one of Africa’s most populous and corrupt countries, is BAT’s most lucrative market in Africa. The company controls 84 per cent of the cigarette market.

In 2010, while markets in Turkey, Iran and South Africa declined, BAT’s profit from the African and Middle East regions grew by £134 million to £858 million, driven largely by its Nigerian market.

In 2011, the company told its shareholders in its 2011 annual report that “In Nigeria, volumes were up and market share continued to grow.”

It  predicates its Nigerian market expansion on a blanket “population growth and increasing disposable income.”

But anti-tobacco groups disagree. The civil society groups believe that BAT and the Nigerian government officials are in bed, in a long lasting deal that grows the company’s business, rewards individual government officials, and endangers millions of lives.

Recently, the Nigerian government gave an Export Expansion Grant to BAT Nigeria. The grant is a cash inducement designed to assist Nigerian firms expand the volume and value of their exports, diversify export markets and become more competitive in the international market.

The cigarette company also benefits from weak anti-tobacco laws in Nigeria and seems determined to keep the bars low.

BAT defines the rule in Nigeria

The most potent regulation of the tobacco industry in Nigeria is the WHO Framework Convention on Tobacco Control (FCTC) which Nigeria signed in June 2004 and ratified in October 2005. The regulation is implemented by a Health Ministry multi-sectoral and inter-ministerial committee on tobacco control in Nigeria, inaugurated in 2006.

Few states have different regulations on tobacco. The Cross River State Government, passed a law prohibiting advertising of tobacco products in the media in 2001 while the Federal Capital Territory Administration placed a ban on public smoking since May 31, 2008.

The Nigerian parliament passed the National Tobacco Control Bill in 2009. The bill recommended an increase in taxation, alongside other stringent measures to reduce tobacco advertising and consumption. Its implementation would impact cigarette sales negatively. But successive presidents have refused to sign the bill into law. It was scheduled to be assented to by President Goodluck Jonathan in March 2011, but that never happened.

Holding a strategic relationship with the government in the absence of efficient regulation sees BAT, a major player in the industry, defining the rules in the industry. And the company has openly admitted this.

“The absence of any regulatory framework for the tobacco industry in Nigeria threw the onus of defining standards on BAT Nigeria, and the company has been in the enviable position of leading the development of legislation in consultation with the government,” Sade Morgan, the company’s  legal director told a PR magazine earlier this year.

In the absence of a strong tobacco law in Nigeria, BAT told PREMIUM TIMES it holds itself accountable under an internal set of Marketing Standards that “are currently more detailed than the existing law in Nigeria.”

Targeting 4 in 10 students

A Global Youth Tobacco Survey for Nigeria, carried out by Professor Ima-Obong Ekanem in 2008, revealed a dangerous trend in BAT’s drive to sustain its business through advertising and promotions.

His survey revealed that nearly 4 in 10 students saw billboards bearing tobacco advertisements across the country, with the situation more serious in Kano where he found that more than half of the students did so.

“Possession of objects with cigarette logo was commonest in Kano (26.8%)” he found.

He also asserted that tobacco companies were offering students free cigarettes with average highest in Cross River State (14.2%) and followed by Abuja (11.3%); Kano (9.5%) and Lagos (7.1%) respectively.

The Environmental Rights Action/Friends of the Earth Nigeria, ERA/FoEN, a Nigerian leading environment and anti-tobacco group believes this trend has not changed much.

“BAT still holds secret smoking parties for students across Nigeria,” Bode Olufemi of ERA said.

BAT denies any wrongdoing in Nigeria, saying they are “fully compliant with existing laws, directives and standards guiding the sales, marketing and manufacture of Tobacco in Nigeria.”

“To the best of our knowledge, under the  existing laws, directives and standards there is no prohibition of the activities” mentioned in this story, Ms George said.

Ahead of the game

While barefaced advertising may have yielded to both local and international business regulations in South Africa and Nigeria, BAT have since developed under-the-radar strategies to keep consumers glued, while recruiting younger ones to replace dying smoking generation.

In Nigeria, colourfully branded retail kiosks, secret smoking parties for students and young adults, souvenirs, social responsibility stunts, drop-in roles in local movies and surprise promos in bars and clubs are few strategies the company applies to advertise and promote cigarettes.

In South Africa, the laws are a bit tougher; and the company, in addition to direct customer promotions, is shifting the pressure of marketing its cigarettes to its distributors and retailers.

BAT induces retailers with cash rewards to advertise its products through one-on-one promotions, industry sources say.

This, they say, encourages retailers to communicate certain “key” advert messages to “adult smokers” and win a share of R200,000. These promotions were run with flyers.

“This is prohibited by legislation and carried a maximum fine of R1,000,000 per incident,” Ms. Walter argued.

But BAT, again, says its actions are legal.

“This was part of a lawful trade competition with Spar and was  done in accordance with what is permissible between a tobacco manufacturer and its trade partners in terms of the Tobacco Products Control Act,” the company said.

Ms. Walter, the tobacco lawyer disagrees.

“I am a mother of a 14 year old son,” she said. “I cringe that he may step up to a cigarette counter to buy a cool drink and instead be told about DUNHILL cigarettes (with the promotion and promises of the mystery shopper incentives), or when we walk into a Shell Select store, my son is confronted with a beautiful teenage girl offering him a cigarette.”

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