Egypt is set to increase the prices of local and imported cigarettes by EGP 0.25/pack in July 2021, local media sources have reported.
The proceeds of the increase will be directed to the Ministry of Finance, and will contribute to funding for the Universal Healthcare Insurance programme. The programme was launched in July 2018, where an initial EGP 0.75/pack rise was added to the final price of cigarettes.
The programme’s executive regulations stipulate that an additional EGP 0.25/pack will be added every three years, notably in July 2021, July 2024 and July 2027, until the total tax reaches EGP 1.50/pack.
The Eastern Company, Egypt’s largest producer of cigarette and tobacco products, said that it has not yet been officially informed of the increase. It also said, however, that it expects the rises to be enforced as per schedule. It remains unclear whether the company would maintain or increase its ex-factory prices in July.
In February 2020, the Eastern Company decided to maintain its ex-factory prices when retail prices were raised, as a result of the Ministry of Finance’s decision to amend the flat tax brackets and flat tax rates.
Over the last two years, the company has preferred to apply price hikes on specific stock keeping units (SKUs), rather than implement general price hikes on all of its products.
Naeem Research expects the company to deliver a sturdy performance in fiscal year (FY) 2020/21, on the back of higher production capacity and utilisation rates. The company recently upgraded its production facilities, increasing the production capacity from 200m cigarettes/day to 250m cigarettes/day.
The Eastern Company has also scored optimism over ongoing negotiations with Philip Morris International (PMI), which owns a 20% market share in the Egyptian company and takes care of 95% of the former’s third-party manufacturing.
Some terms and conditions, primarily regarding the payment currency, are being reviewed as EAST EY’s main contracts with PMI are expected to expire in January 2021.
Naeem Research added that the Eastern Company’s sturdy performance is further boosted by the reduction in the retailer’s margin on cigarettes through indirect price increases, from EGP 0.10/pack to EGP 0.025/pack in December 2020.
This is expected to add around EGP 20m to revenues every month. The appreciation in the Egyptian pound is also likely to ensure the company makes further gains in the current FY, as it entirely imports its raw tobacco, which make up more than 80% of raw materials.