Japan Tobacco International (JTI) has finally sealed a deal, following its record high offer in Ethiopia’s privatisation history – half a billion dollars for the acquisition of 40pc of the National Tobacco Enterprise.
The deal between the Ministry of Public Enterprises and Japan International Tobacco was signed on July 15, 2016, almost a month later than the 10-day ultimatum given to the company to deposit the money and seal the contract earlier in June.
Second in line was the British tobacco giant, British American Tobacco (BAT). Philip Morris International, the US counterpart of BAT, also took part. Both these offers fell way below the half billion dollar winning bid, however, at 230 million dollars and 120 million dollars, respectively.
The signatories, Demitu Hambissa, Minister of Public Enterprises and Martin Frauendorter and Francois Fldaza, representing JTI, were accompanied by the Japanese Ambassador to Ethiopia, Kazuhiro Suzuki, and other officials from both sides.
JTI has settled the full payment to the Ethiopian government, it was stated at the signing, making the single largest Japanese investment so far in Ethiopia.
A close source to the deal told Fortune that the Ministry of Finance & Economic Cooperation has already sent a letter to JTI ensuring the transfer of shares.
An article of association of national tobacco will be amended now the deal has been signed. Other issues, like how the management should look and the fate of the workers, will be decided by shareholders, said sources.
“The Group is delighted to be entering the Ethiopian market, where we currently have no presence,” said Mutsuo Iwai, Executive Vice President of JTI. “Ethiopia will be an important expansion of our geographic footprint in emerging markets.
“As the largest shareholder, we expect to be able to exert significant influence over the direction of the company,” Iwai added. “The country’s industry volume is also expected to continue to increase.”
Currently, JTI has a presence in seven African countries, including Sudan, South Africa and Nigeria. The number of smokers in Ethiopia is higher than most African countries due to its population size. More than 100,000 children and 2.3 million adults smoke cigarettes each day in Ethiopia, according the tobacco atlas – a compendium of research on tobacco use by the American Cancer Society and the World Lung Foundation. Moreover, current data shows that six percent of the world’s adult smokers, 77 million to be exact, live in Africa. If the current upward trend persists, 22pc of the total population of the continent will become smokers by 2030.
“We will work with all shareholders to see how we can continue to grow the National Tobacco Enterprise (NTE) business and explore opportunities to further strengthen NTE’s brands, such as Nyala, [the flagship brand of NTE], as well as the overall distribution and manufacturing capabilities,” Iwai said.
Established in 1935 as “Imperial Ethiopian Tobacco Monopoly” with a paid up capital of 50,000 Maria Theresa dollars, NTE was re-established as a share company in 1999. At that time, a 22pc share of the company was transferred to Sheba Investment Group for 35 million dollars. This company owns 29pc of the shares, with the remaining 31pc owned by the Ethiopian government.
Over the past five years, the annual turnover of the NTE has continually increased by an average of 190 million Br. It offers five brands: Nyala, Gissila, Elleni, Delight and Nyala Premium. The company currently employs close to 1,000 workers.
The company’s list of cigarettes will now incorporate JTI’s brands, such as Winston, Camel and Benson & Hedges. JTI was founded in 1999, when Japan Tobacco Inc (JT), its parent company, purchased the non-US operations of the multinational R.J. Reynolds for 7.8 billion dollars. The company has earned a total sales volume of 8.8 billion dollars, as of July 2016.
The share company has been granted a ten-year monopoly over the production and importation of tobacco in Ethiopia.
Source : Fortune