E. Europe Tobacco Business Booming (fwd)

[Robert Weissman <rob@essential.org>]

Here is a powerful Financial Times story documenting the degree of
multinational tobacco corporation incursion into Eastern Europe and the
former Soviet Union.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org


Big tobacco invades Eastern Europe, and business is
smokin' 
August 13, 1998
By VLADA TKACH 
The Financial Times 

KIEV, Ukraine - On Khreshchatik, Kiev's main street, girls wearing baseball
caps, short skirts and big smiles offer
pedestrians a brand of western cigarette little known in the West but widely
available in Ukraine. 

The cigarettes are free and those who take up the offer don't have to prove
they have reached the legal smoking age of 18. 

Over the past decade, leading western tobacco companies have capitalized on
the opening of markets in former communist
countries. U.S. and European tobacco companies now ``own'' all the Baltic
states and Kazakhstan as well as some of the
biggest marketing areas in Poland, Ukraine and Russia. 

According to Jonathan Fell, tobacco analyst at Merrill Lynch, annual tobacco
consumption in these and other post-communist
states in Europe is about 600 billion cigarettes. But widespread smuggling
means this could be a conservative estimate. 

The World Health Organization estimates that in 1995 about 17 percent of all
deaths in the region were caused by tobacco
use. This figure is expected to increase to 22 percent by 2020. 

Middle-aged men in Eastern Europe are twice as likely to die from a
tobacco-related death as middle-aged men in the West. 

But young people are most affected. According to WHO, smoking rates among
adolescents in Eastern Europe and the former
Soviet Union are increasing, especially among girls. The chance of a
15-year-old Eastern European boy surviving until 60 is
only half that of a Western European boy and is worse than in many
developing countries. 

Smoking was always common in Eastern Europe but rarely associated with
glamour. Now billboards in post-communist cities
call on consumers to ``fire the night,'' ``taste the freedom'' and ``test
the West.'' 

Since tobacco TV commercials are banned in most of the region, outdoor
advertisements and magazines remain the prime
medium for tobacco companies. 

According to the Moscow-based Video International Advertisement Group, the
``big four'' - Philip Morris, R.J. Reynolds,
British American Tobacco and Rothmans - share between 25 and 30 percent of
the ad market in the former Soviet republics. 

VIAG says Russian consumers associate the Marlboro, Camel, West and Pall
Mall brands with fashion, sexuality and
showing-off. Davidoff, Dunhill and Rothmans are for those who would ``pay
extra for a prestigious product.'' 

If you fail to grab the opportunity, the opportunity will grab you, says
Anastasiya Zanuda, a Ukrainian journalist. ``My
14-year-old sister was invited to fill out a Marlboro competition entry form
on the street, even though she was in her school
uniform. She didn't win the trip to the States, but Philip Morris sent her a
Marlboro travel bag.'' 

The WHO believes an epidemic of tobacco-related diseases among women is just
starting. About 28 percent of women in the
former communist countries smoke, compared with 23 percent in countries with
established market economies. 

Neil Collishaw, acting chief of WHO's Tobacco or Health program, says
governments are more interested in tobacco
revenues than people's health. 

The reality is that western tobacco companies often make post-communist
economies offers that are hard to refuse: hundreds
of millions of dollars in investment and hundreds of thousands of jobs. 

``Tobacco companies are traditionally very competitive and very secretive,''
Fell says. ``My wild guess would be their
investment for the whole region - Eastern and Central Europe plus the former
Soviet Union - is around $2 billion.'' 

According to Alexander Bukhalov, BAT's corporate affairs manager in Kiev,
western tobacco companies have already
invested about $130 million in Ukraine. There's talk of Philip Morris
building another plant worth $200 million. This is a lot for
a country where total foreign direct investment since independence in 1991
has reached only $2 billion. 

Rolf Bielefeldt, BAT's manager for corporate affairs, said BAT's total
investment in post-communist states has reached $800
million. Last year, of 124 billion cigarettes BAT sold in Europe, 45 billion
were sold in the ``new market.'' 

Even though excise taxes across the region are fairly high, overall price
levels and low labor costs mean western brands in
Eastern Europe often cost a quarter of their price in the West. 

But Fell observes: ``The environment in the East might be better for tobacco
companies at the moment, since there is no
complete advertising ban, like in the West. But the local governments are
catching up with western trends.'' 

Bielefeldt says catching up will take at least 10-15 years for some
countries. But he denies that tobacco companies are
exploiting this advantage and getting Eastern Europeans hooked on tobacco. 

``The issue of western marketing and advertisement having a lot of influence
on local consumers is a myth,'' he says. ``We are
not getting more people to smoke. It is just that they are switching from
local, often filterless brands to better-quality
tobacco.''