Tax breaks can lure FDI into tobacco value chain

Zimbabwe could attract significant investment in tobacco value addition by offering tax breaks and simplifying the export process, an industry expert has said.

This would ensure the country retains maximum value from its green leaf tobacco.

While tobacco is currently one of its largest foreign currency earners, Zimbabwe is currently retaining little of the crop’s potential value.

Processed tobacco accounts for only two percent of Zimbabwe’s tobacco exports.

Consequently, the country is retaining only about 12,5 percent of the potential value from this major foreign currency earner.

Last year, tobacco exports amounted to US$1,3 billion.

Ms Kudakwashe Chiutsi, brand and marketing manager of Pacific Cigarette, said tax breaks and a simplified export process would make Zimbabwe a more attractive destination for investment in tobacco processing facilities.

“Complex export processes often lead to hidden costs, deterring potential investors,” said Ms Chiutsi.

Savanna, the producer of the Pacific cigarette brand, is a leading cigarette manufacturer.

British American Tobacco (BAT) is arguably the biggest player in the market.

A multi-million-dollar tobacco beneficiation plant is under construction by Cut Rug, and upon completion, it is expected to be the largest such facility in the country.

Ms Chiutsi said most tobacco is exported in raw unmanufactured form, which negates value addition while the rest is exported in form of cut-rag which is semi-manufactured with little value added.

She said value addition “lies in export of finished product in cigarette form.”

Zimbabwe’s favourable climate conditions nurture tobacco leaves that are particularly well-suited for blending in cigarette production.

This inherent quality, along with the overall high quality of the Zimbabwean crop, presents a significant opportunity to expand beyond raw leaf exports and venture into finished cigarette exports.

“Potential exists to export cigarettes due to the high quality of the Zimbabwean crop,” said Ms Chiutsi.

Furthermore, Zimbabwean cigarette manufacturers possess the capability to produce and package high-quality cigarettes that rival those showcased at international exhibitions like the World Tobacco Africa (WTA).

The capacity, coupled with the superior quality of domestic tobacco, strengthens the case for Zimbabwe’s potential as a major cigarette exporter.

“Zimbabwean cigarette manufactures have the capacity to manufacture and package quality products similar to those exhibited at the WTA,” said Chiutsi.

Zimbabwe’s Tobacco Value Chain Transformation Plan aims to transform the industry into a US$5 billion powerhouse by 2025.

The ambitious goal will be reached through several key initiatives including boosting production and productivity to 300 million kilogrammes annually, encouraging local financing for tobacco farmers, and promoting value addition through processing and cigarette manufacturing.

The plan also seeks to create jobs, raise household incomes, and increase overall export revenue.

The Tobacco Conference, hosted by Business Weekly explored the example of China National Tobacco Corporation (CNTC), a State-owned entity that dominates China’s tobacco industry and generates significant revenue for the Government.

CNTC’s success is attributed to its integrated approach, encompassing production, processing, and export.

While not a direct blueprint, “Zimbabwe can learn from China’s experience in developing a successful state-owned tobacco corporation, adapting the model to suit its own needs and context,” said Mr Tapiwa Masedza, managing director of Chevron Tobacco.

He said the domestic market consumes only 2 percent of production and to address this, a multi-faceted approach was needed.

This involves engaging “friendly nations” to open their cigarette markets to Zimbabwean products crucial to diversify export destinations and reduce reliance on a limited domestic market.

herald