There are signs of unrest in our local tobacco industry: The Egyptian Competition Authority (ECA) has received a complaint from tobacco distributors JTI-Nakhla and Al Mansour International Distribution Company (AMIDC). The complaint alleges that state-owned tobacco manufacturer Eastern Company and its new majority shareholder Global Investment Holding (GIH) are engaging in monopolizing practices, a senior government official told Enterprise on condition of anonymity.

JTI-Nakhla and AMIDC think they’re unfairly being pushed out of the market: JTI-Nakhla, the local arm of Japan Tobacco International, and AMIDC accuse Eastern Tobacco of blocking them agreeing to new contracts (or renewing old ones) to have Eastern manufacture their cigarettes, according to our source.

Why this matters: Eastern Company and Philip Morris’ local subsidiary, United Tobacco, are the only licensed tobacco manufacturers in Egypt. Other companies in the local market that sell cigarettes either import them from abroad or enter into operation contracts with Eastern, which manufactures their cigarettes for them.

Eastern playing ball has never been more important: Tobacco distributors’ reliance on Eastern Company has increased with new amendments to cigarette tax laws passed earlier this month, according to our source at the ECA. The new law bans the import of middle-range cigarettes that many tobacco companies focus on, meaning that JTI-Nakhla and AMIDC have no other choice but to manufacture those product lines locally.

ICYMI: This isn’t the first time JTI-Nakhla and AMIDC have alleged monopolistic practices. The two had twice boycotted a tender offering up the rights to become our second licensed tobacco manufacturer, citing concerns about monopolistic practices and what they claimed were unfair tender conditions.

Our two tobacco manufacturers are connected at the hip: The UAE’s Global Investment Holding became Eastern’s largest shareholder in September after it bought a 30% stake from the government’s Holding Company for Chemical Industries for USD 625 mn. Unconfirmed local media reports also claimed that GIH is part-owned by an investor in the country’s other tobacco manufacturer, United Tobacco. Eastern Company acquired a 24% stake in United Tobacco in May 2022 as part of an agreement that would allow the Philip Morris subsidiary to become the second company to locally manufacture tobacco products.

IT’S BEEN AN EVENTFUL WEEK FOR EASTERN-

It’s earnings season: EGX-listedEastern Company saw its new revenue fall 32.5% to EGP 3.1 bn in 1Q FY2023 from EGP 4.6 bn in the same period last year, according to earnings release (pdf) out on Tuesday. Net income fared slightly better and dropped 20.0% y-o-y in the quarter to EGP 1.1 bn from EGP 1.4 bn.

Market reax: Eastern Company shares fell 2.0% to close at EGP 27.7 on Wednesday after it released its earnings.

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