New cigarette manufacturer could enter state-dominated Egyptian market as government relaunches licensing tender

A tender for a new cigarette manufacturer to enter the Egyptian market was re-launched on Monday by the Industrial Development Authority and will allow the bid winner to manufacture cigarettes in the cheapest and most popular price range. 

All of the tobacco companies in Egypt currently operate via the majority state-owned Eastern Tobacco company, which does all the manufacturing for the various makes and brands of cigarettes. 

Different conditions were laid out in the original version tender launched in March, which came under fire from industry figures who said it would preserve Eastern Tobacco’s monopoly and would exclude all but one of the manufacturers in Egypt due to its requirement for a particularly high rate of production. 

Industry sources told Mada Masr that several of the potential bidders still object to the amended conditions that the tender sets out, while the head of the cigarettes division at the Federation of Egyptian Industries Ibrahim Embaby told Mada Masr that the companies have not yet submitted a grievance to the prime minister, as they did for earlier iterations of the bid. The companies will meet to discuss a potential submission, said Embaby.

As in the conditions for the previous tender, Eastern Tobacco is entitled to take a 24 percent share of the capital of the new company that will be established by the winning bidder.

The new conditions booklet also states that Eastern Tobacco will be granted the rights to manufacture electronic cigarette products in exchange for a fee, which Embaby said it will likely be required to pay to the company that wins the license. The products will include e-liquid, heated tobacco products and equipment.

Another change to the tender conditions, according to an official in one of the companies eligible to bid for the license who spoke to Mada Masr on condition of anonymity, is that the bidding rules will allow the winning company the right to manufacture cheaper and therefore more popular cigarettes. 

This is the opposite of the current situation in the market, which bans foreign companies from manufacturing the Cleopatra brand of cigarettes, Eastern Tobacco’s cheapest product that dominates 55 percent of sales in the local market. 

The original tender in March stipulated that the new company would be required to price its cigarettes at a 50 percent markup over Eastern Tobacco’s cheapest.

The minimum production capacity stipulation was lowered from 15 billion cigarettes per year to 1 billion, in earlier amendments the government made to the original version of the tender, which it nevertheless withdrew in June. Embaby said the production capacity alteration was made following an intervention from the Egyptian Competition Authority.

United Tobacco Company — the Egyptian arm of global tobacco giant Philip Morris — was alone in presenting a technical offer for the original tender before it was withdrawn. 

Four international cigarette manufacturers currently operate in the Egyptian market — British American Tobacco, Philip Morris International, Japanese Tobacco International, Imperial Brands and Al-Mansour International Distribution, with Eastern Tobacco manufacturing and packaging their products in exchange for a fee.