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Lebanon has one of the highest regional rates of smoking in the adult population. Moreover, shisha smoking is deeply rooted in the country’s culture. The tobacco market is dominated by cigarettes and benefits from low prices, a relaxation of a smoking ban and strong population growth, especially among the poorest demographics, among whom smoking is prevalent. Moreover, there are currently two million Syrian refugees in the country, who also represent a new consumer base for tobacco companies.
This report analyses the market for tobacco in Lebanon. For the purposes of the study, the market has been defined as follows:
Cigars, Cigarillos and Smoking Tobacco
Smokeless Tobacco and Vapour Products
Explanations of terminology used in this report are as follows:
GBO refers to Global Brand Owner, which is the ultimate owner of a brand.
NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company.
Retail refers to sales of tobacco through retail outlets including supermarkets, hypermarkets, discounters, convenience stores, internet and other store and non-store channels, as well as sales of tobacco through bar-tobacconists and hotels/restaurants/bars.
Duty-paid retail sales are legitimate sales with tax applied to the final price.
Illicit trade refers to sales of duty-not-paid (or DNP) tobacco.
Market sizes are researched at category level, lower data levels are modelled.
Although cross-border and duty-free sales are considered legitimate, they are excluded from duty-paid sales.
Illicit trade (DNP) tobacco refers to contraband, counterfeit and unbranded tobacco, as well as illicit whites.
Lebanon is a narrow (100km wide) strip of land running from north to south for about 220km along the eastern coastline of the Mediterranean. In the south it is bordered by Israel and in the north and east by Syria. The country has a temperate Mediterranean climate with warm summers but occasionally cool winters, especially in the hills. Its location at a crossroads between the East and West makes it an easy-to-reach destination for Europeans and Arabs. Its positon on the Mediterranean has also been to its advantage, as its extensive coast features many beach/seaside resorts.
However, Lebanon continues to suffer from a highly unstable political and economic situation due to a spillover from the war in Syria. Also significant are a two-year presidential vacancy, internal political disputes, a waste collection crisis, which has caused pollution on the shoreline and across the country, as well as economic instability, with falling oil prices across the region affecting business.
As a result of the Syrian crisis, Lebanon has witnessed a massive influx of refugees, with the number of registered refugees currently totalling over one-quarter of the population. This situation only adds to poverty and unemployment, creates increased instability in Lebanon and puts additional pressure on the economy’s already-weak public finances and infrastructure. The government lacks the funds to provide for these people and must depend almost entirely on international aid.
Lebanon has also been struggling with a protracted political crisis, with the presidency having been vacant since early 2014. Although the cabinet can still enact legislation without a president, this can only be done if agreed unanimously by all ministers. Moreover, Saudi Arabia is exerting considerable pressure on Lebanon to assist its campaign against Hezbollah, suspending USD3 billion of military aid in 2016 and expelling many Lebanese workers, which significantly reduced remittance payments. Riyadh, along with its allies, has also issued travel warnings for Lebanon, which is having a further significant impact on the tourist industry.
Per capita income fell by two-thirds during Lebanon’s 15-year civil war and has yet to recover, with the economy now struggling as the Syrian crisis drags on. Real GDP has been increasing by less than 2% per year with such rates being well short of Lebanon’s economic potential. Lebanon’s traditional growth drivers ? tourism, real estate, and construction ? have weakened and the chances of an imminent rebound are bleak.
High levels of unemployment also demonstrate a lack of flexibility in the labour market, as well as the need for adjustments in the education system in order to meet the needs of companies looking to hire workers. Moreover, the general business environment in the country is in a state of chaos: Political tensions, religious strife and uncertainties created by the ambiguous state of relations with Israel and Syria overshadow policy matters.
Reforms of the electricity sector are also urgently needed as these operations continue to be a large drain on the budget and a key bottleneck to improving competitiveness. The government intends to introduce multiple tax increases, including a one-percentage point increase in the value-added tax, on such utilities.
Despite being located near other Middle Eastern countries that do produce oil, Lebanon is not an oil- producing country. However, seismic tests and other geo-physical data have yielded encouraging results with regard to offshore deposits. The country currently imports all of the oil it consumes.
In terms of the tobacco market, the Régie Libanaise des Tabacs et Tombacs (Régie) is a public organisation controlled by the Lebanese Ministry of Finance. It aims to manage the plantation, manufacture, trade and transport of tobacco, Tunbac and its derivatives across the north, south and Bekaa districts of Lebanon. Régie's activities also aim to support the agricultural sector and farmers. As such, the Régie plays an important economic, social and developmental role in Lebanon, helping to support the national Lebanese budget.
In accordance with Law 151, Régie is the exclusive agent for all imported tobacco products and the sole agency with authority to grant permits for the sale of tobacco. Régie also oversees anti-smuggling operations within Lebanon and on the country’s borders.
The Middle East and North Africa region is one of the fastest growing consumers of tobacco products, especially cigarettes. The combination of a young, rapidly-growing population where smoking is culturally acceptable with a low awareness of health implications means tobacco consumption is high.
Prior to the country’s introduction of a smoking ban in indoor spaces in 2012, smoking was prevalent everywhere, inside bars and restaurants, etc. However, despite this measure, awareness of the dangers of smoking and the risks to the health of tobacco consumption are still poorly communicated. Moreover, cigarette prices are still very low compared to Europe and the West in general, at an average of USD2.00 per pack.
Despite these factors, social acceptance of smoking is declining, at least among the more educated elements of society and the well-travelled who are more aware of the dangers of smoking. However, it is still prevalent among the poorer demographics, especially as some Lebanese brands are the cheapest on the market, making them highly accessible to even the poorest in the country.
Shisha smoking is considered a highly social activity that is deeply rooted in the country’s culture. Since the introduction of the smoking ban, many outlets have acquired licences to allow smoking shisha only and have become destinations for that purpose. Cigarettes is by far the largest category in the country’s tobacco market, accounting for a 94% value share, although the smoking of nargileh, or water pipes (also known as the Tombac in Lebanon), is also widespread.
Lebanon has one of the highest rates of smoking in the adult population, with consumption reaching 12.4 packs per person per month. In 2016, approximately 43% of men and 34% of women smoked tobacco in the country, with a 32% vs 21% ratio for cigarette smokers. Lebanese women also have the highest female smoking rate in the region. Nonetheless, women generally smoke less than men because society, especially in rural areas, is far less accepting of female smokers than men. Smoking is more prevalent among urban-dwelling women, especially Beirut as opposed to other cities. However, in Beirut, almost the same proportion of men and women smoke, with just a small bias towards men.
The tobacco market in Lebanon recorded 14% growth in value sales in 2016. Cigarettes is by far the largest category, accounting for a 94% value share, with cigars, cigarillos and smoking tobacco holding the remaining 6% share. Both categories achieved growth in 2016 of 14% and 13%, respectively. Although the sale of e-cigarettes or vapour products is illegal in the country, many illegal sales still take place.
While the government has become somewhat more active since introducing the anti-smoking law in 2012, NGO Green Hand is the only organisation that has a tobacco control programme. Green Hand believes that smoking behaviours are linked to gaps in knowledge and permissive attitudes and its anti-smoking programme concentrates on providing information to Lebanese consumers, particularly those in the 15-21 age range, about the harmful ingredients of cigarettes and the dangers of all types of smoking. It also aims to change misconceptions regarding smoking and its harmful consequences, in addition to the dangerous effect of passive smoking, through a variety of initiatives.
Lebanon ratified the WHO Framework Convention on Tobacco Control on 7 December 2005. Under this law, smoking is not permitted in health care, educational and government facilities, as well as indoor offices and workplaces, restaurants, cafés, pubs/bars and public transport. National law also stipulates the imposition of fines for smoking, which are levied on the establishment and the smoker. However, the law which only began to be enforced in 2012, met with low compliance, especially in offices and workplaces, cafés, pubs, bars, and on public transport. Pressure was also brought to bear from local businessmen, who stated that their businesses were suffering as a result of the smoking ban, with their lobbying ultimately leading to a relaxation of the law in 2015.
The industry focuses innovations on attracting specific target groups. This has led to the creation of low cost/low priced products in all categories. This is especially true in cigars and cigarillos, products which are considered to convey prestige on the smoker, especially as the majority of the population cannot afford them. This category saw the introduction of price fighter cigarillos. New product developments in cigarettes have recently taken the form of lighter and slimmer cigarettes, with a recent new launch being the new domestic brand, Maestro.
As seen with the sales growth of lower-priced products, even cigarettes, such as the local Cedars brand, are faring well, especially in light of the very difficult economic situation currently characterising the country.
Lebanon’s economic prospects over the medium term will be extremely sensitive to geopolitical and security conditions, with the economy set to improve only modestly in the near term. Achievement of pre-crisis growth rates will depend on resolution of the Syrian war in a manner that does not compromise Lebanon’s stability. Moreover, traditional growth drivers, such as financial services, tourism and real estate, will continue to be undermined by falling household and business confidence. Growth of real GDP should remain under potential reaching 3% per year in the medium term, although real GDP growth of only 2% is expected for 2017, up from 1% in 2016. Increasing oil prices will also prove a drag on the economy.
In addition to an unemployment rate of 7.3% in 2016, the majority of the country’s refugees work in low-skilled jobs, and many are willing to accept much lower wages than Lebanese workers, putting downward pressure on wages. Nevertheless, after a long battle, the government has agreed to raise wages in the public sector, which will be funded by tax increases. Prices fell by 0.8% in 2016, while inflation of 2.6% is forecast for 2017. The country also faces a huge – and growing – electricity bill, which is another serious problem.
Over the longer term, vulnerabilities related to the size of public debt loom large. On a per capita basis, government debt is around USD10,000, while the annual interest bill exceeds USD600 per person. The risks of yet another political crisis also pose a threat to Lebanon’s fiscal future.
Support from donors will therefore be essential to meet the government’s financial requirements. Lebanon is receiving financial support from Saudi Arabia and Kuwait but will need much more from other members of the international community.
In terms of the tobacco market, value sales at constant 2016 prices are set to remain static, with the same holding true for cigarettes. Cigars and cigarillos is set to contract at a CAGR of 2%, while only smoking tobacco is expected to register positive growth, achieving a CAGR of 1% in value sales at constant 2016 prices. The cigarette category in Lebanon is somewhat saturated but stable; therefore consumption patterns are not expected to change drastically in the coming years. Strong growth or decline could however be stimulated by changes in the form of large influxes of immigrants from neighbouring Syria, or with a reconsideration of the entry restrictions for Syrians, which could cause unexpected changes in the population and therefore the consumer base for tobacco products.
Tobacco is still very affordable in Lebanon and cigarettes are well within the financial reach of most consumers. The cheaper brands can cost as little as LBP1,000. Although prices have risen over the years, the rate of increase has been very slow and not enough to deter smoking among a variety of demographics, even among the youth.
Cigar smoking is seen as prestigious and is prevalent among businessmen and more affluent consumers. It is viewed by some as a statement of style and prestige. However, in terms of cigarette brands, there is limited differentiation, although the new slimmer Marlboro and Kent cigarettes have become trendier, especially among those who are trying to reduce their tobacco intake. Among some demographics, cutting back is in vogue, with such people choosing brands and products specifically to appear on trend while they try to reduce their habit, or at least make themselves feel like they’re reducing their habit.
There has been strong population growth especially in the southern suburbs of Beirut, in the South and the Bekaa. In cities, the growth rate has been much slower while extremely high rates of migration have overtaken population growth. The strongest growth is among the least well educated and poorest classes of society, among whom smoking is prevalent. Moreover, there are currently two million Syrian refugees in the country, many of whom also constitute a new consumer base for tobacco companies.
Tobacco products are highly accessible as they can be purchased in many standard retail outlets, such as supermarkets and corner shops. There are few tobacco specialists in the country and many of those that do exist also double as alcoholic drinks specialists, with this channel accounting for a low 4% volume share in 2016. A few retailers that specialise in the sale of cigars are also present in the country, although they are not common.
The sale of tobacco is widespread, covering the on-trade and all off-trade establishments. This is unlikely to change in the near future unless the government introduces legislation forbidding the sale of tobacco products in selected channels.
In terms of retail sales, independent small grocers held a 69% volume share of cigarettes in 2016, with supermarkets and hypermarkets accounting for a combined 27% share. For cigars, cigarillos and smoking tobacco, tobacco specialists accounted for the majority 55% volume share, with supermarkets, independent small grocers and hypermarkets holding 29%, 14% and 2% volume shares, respectively in 2016.
Illicit trade, especially of cigarettes, is present in the country with cross-border smuggling estimated at 15% of tobacco revenue. Recently, the state-owned Régie Libanaise de Tabac et Tombac declared a 30% decrease in sales of its cigarettes in 2015, compared to the same period in the previous year. According to the Régie, this was not due to implementation of the indoor smoking ban, which is barely respected, but instead stems from illicit smuggling from Syria. In contrast, sales of waterpipe (narguilé, hookah and shisha) tobacco products increased by 60%, because, according to the Régie, this type of product is not available in Syria. However, sales also increased so dramatically because of the increasing popularity of shisha, particularly among youth, who perceive it as less harmful than cigarettes, a viewpoint that is turning shisha smoking into a new epidemic in the country and the Middle East as a whole.
Demand for the local Cedars cigarette brand, for instance, witnessed growth stimulated by the war in Syria. However, its retail price varies considerably between one dealer and another, often with huge mark-ups going straight into the pockets of the black marketeers. The price has also been seen to vary over the course of a single day and can often be dependent on the point of sale. Some 10% of traders who own licences to sell tobacco and which have relationships with key distributors at the Régie, monopolise the market. However, licences through the state-run company have been suspended for some time, which has caused some traders to try to obtain one through the black market. It has also been muted in the media that illegal trade in cigarettes takes place with the full knowledge of the Régie, and other official authorities, who prefer not to intervene and continue to boast about the growth in domestic consumption of the national product.
The Syrian conflict, regional geopolitics, uncontrollable borders, and political and economic instability, contribute to encouraging the smuggling of tobacco products from Syria to Lebanon. Illicit cigarettes are either sold in Lebanon, in particular to Syrian refugees and the hosting communities, or transited to other countries in the Middle East
Illicit trade is also seen in many other categories. For instance, in addition to cigarettes, there is also a black market for cars, counterfeit consumer goods, alcoholic drinks, beauty and personal care, pirated software, CDs, and DVDs.
The minimum legal smoking age is 18, though this is not widely enforced. Tobacco is sold to everyone, and few outlets actually prevent a minor from purchasing cigarettes.
Smoking among youth under the age of 18 is of concern because of the accessibility of smoking, the nightlife culture, which is prevalent in Beirut and many other areas, and the low cost of tobacco products in the country. The shisha or arguileh culture also encourages underage smoking because children are often exposed to their parents’ smoking, with some even starting to smoke the shisha with their parents at a young age.
In terms of consumer preferences, there are many smokers of strong tobacco in the country, with the Marlboro Red brand a traditional favourite among Lebanese smokers, especially men. However, there has been a slight shift towards lighter tasting options in recent years.
With regard to advertising, all types of advertisements and promotional elements for tobacco products, tobacco brands, logos or trademarks are totally prohibited. It is also prohibited to produce, import, promote, sell or display all kinds of products that represent or imply to tobacco products, such as food items, confectionery or toys, especially those intended for use by minors. It is also forbidden to provide free samples of tobacco products and advertising materials in any place or provide minors with any tobacco product, through any means such as selling it to them or distributing it for free. It is also forbidden to sell cigarettes in a unit pack containing less than twenty cigarettes or place tobacco products at points of sale in a way that allows consumers to grab them directly by themselves. It is also illegal to provide tobacco products and accessories in restaurants, nightclubs and enclosed places.
However, tobacco companies can still organise events, that are not branded, but which indirectly promote their brands. They also have strong supplier relationships for the sale of cigarettes on-trade, which is also a lucrative channel for them.
With regard to health warnings, the national law mandates that health warnings appear on tobacco packages. All tobacco packs or packets must contain health warnings in Arabic, describing the dangerous effects of tobacco on health. These warnings should cover 40% of the total surface of the pack/packet, and are determined by implementation decrees issued by the Minister of Public Health based on the opinion of the Standards and Specifications Authority of Lebanon. Warnings must be written on the two main sides of the pack and packet, ie the widest sides, covering 40% of the principal display areas of the front and 40% of the rear.
There is considerable ambiguity in the country around the ban on smoking in public places. Lebanon signed the WHO Framework Convention on Tobacco Control on 4 March 2004. This was then ratified on 7 December 2005 and led to the creation of Law 174, which banned smoking in public places, such as cafés, restaurants, bars, government buildings and offices. However, in reality the ban on smoking in public places was not actually enforced until 3 September 2012. At this time, violation of the ban was subject to a fine of over USD100 for the offender, while the establishment (restaurant, café or hotel, etc) was subject to a fine of between USD1,300 and USD4,000. However, the ban was not completely respected as establishments with large windows or an opening to a terrace permitted smoking indoors, as did some nightclubs. After years of public outcry over the smoking ban, on Saturday 7 February 2015, Law 174 was “relaxed”. This was designed to ease the burden on the hospitality sector, which was still suffering from a decimated tourist industry due to the ongoing political and economic crisis.
In addition to suffering from poor enforcement, Law 174 has also been subject to infringement, especially among business owners seeking loopholes. Moreover, as the Law had not been phased in over a period of time, no consideration had been given to shisha cafés around the country, which should have been given the right to apply for a specific licence at that time. For the law to have been implemented successfully, the government would also have needed to engage in a concurrent public health campaign to highlight the benefits of smoke-free public places.
The current lack of clarity and enforcement around the ban is an indicator of Lebanon’s sporadic difficulties in enforcing the rule of law, sometimes putting local business interests ahead of what might be interpreted as the public good. Prior to the relaxation of the Law in February 2015, only around 70% of restaurants were thought to have been abiding by it, with this percentage now thought to be considerably lower.
Taxation and duty levies
Government revenue from tobacco taxation mainly comes from ad valorem excise, customs and value added taxes. On 31 July 2016, the ad valorem excise on a pack of cigarettes was rated at 30.9%, while VAT was 9.0% and import duty, 1.4%. These taxes currently constitute 30-50% of retail prices, well below the 70-80% shares in upper middle-income countries. Given that average imported cigarette prices are quite low in Lebanon (USD1.6/pack compared to USD2.5/pack in upper middle-income and USD5/pack in high income countries), there is considerable scope to increase the price of tobacco products as part of a national tobacco control strategy, aimed at protecting the health of the Lebanese population. As such, in 2017, the Lebanese Parliament approved a series of tax hikes, which include a tax increase of LBP250 (USD0.16) per pack on imported cigarettes.
Within the context of high smoking prevalence in the country, the Lebanese government is currently able to derive around USD230 million per year in tobacco tax revenue. This excludes profits accrued by the national public tobacco production and trade monopoly (the Régie), and is affected by cross-border smuggling which is estimated at 15% of total tobacco revenue.
There are two duty free zones in Lebanon. The first is located at the Port of Beirut and the second at Tripoli port. One duty free shop is located at Beirut International Airport while the Lebanese Government is seeking to establish various free zones in a number of cities in Lebanon.
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Chart 1 Tobacco in Lebanon in 2016 Chart 2 Paraguay Socioeconomic Trends
Taxation and duty levies
Chart 3 Tobacco: Modern Retailer (1) Chart 4 Tobacco: Modern Retailer(2)
Table 1 Sales of Tobacco by Category: Volume 2011-2016 Table 2 Sales of Tobacco by Category: Value 2011-2016 Table 3 Sales of Tobacco by Category: % Volume Growth 2011-2016 Table 4 Sales of Tobacco by Category: % Value Growth 2011-2016 Table 5 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 6 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 7 Forecast Sales of Tobacco by Category: Value 2016-2021 Table 8 Forecast Sales of Tobacco by Category: % Volume Growth 2016-2021 Table 9 Forecast Sales of Tobacco by Category: % Value Growth 2016-2021
Table 10 Sales of Cigarettes: Volume 2011-2016 Table 11 Sales of Cigarettes by Category: Value 2011-2016 Table 12 Sales of Cigarettes: % Volume Growth 2011-2016 Table 13 Sales of Cigarettes by Category: % Value Growth 2011-2016 Table 14 Forecast Sales of Cigarettes: Volume 2016-2021 Table 15 Forecast Sales of Cigarettes by Category: Value 2016-2021 Table 16 Forecast Sales of Cigarettes: % Volume Growth 2016-2021 Table 17 Forecast Sales of Cigarettes by Category: % Value Growth 2016-2021 Table 18 NBO Company Shares of Cigarettes: % Volume 2012-2016 Table 19 LBN Brand Shares of Cigarettes: % Volume 2013-2016 Table 20 Sales of Cigarettes by Distribution Format: % Volume 2011-2016 Summary 1 Cigarettes Pricing
CIGARS, CIGARILLOS AND SMOKING TOBACCO
Chart 7 Cigars: Traditional Retailer
Table 21 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2011-2016 Table 22 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2011-2016 Table 23 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2011-2016 Table 24 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2011-2016 Table 25 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2016-2021 Table 26 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2016-2021 Table 27 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2016-2021 Table 28 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2016-2021 Table 29 NBO Company Shares of Cigars and Cigarillos: % Volume 2012-2016 Table 30 LBN Brand Shares of Cigars and Cigarillos: % Volume 2013-2016 Table 31 NBO Company Shares of Smoking Tobacco: % Volume 2012-2016 Table 32 LBN Brand Shares of Smoking Tobacco: % Volume 2013-2016 Table 33 Distribution of Cigars and Cigarillos by Format: % Volume 2011-2016 Table 34 Distribution of Smoking Tobacco by Format: % Volume 2011-2016 Summary 2 Cigars, Cigarillos and Smoking Tobacco Pricing
SMOKELESS TOBACCO AND VAPOUR PRODUCTS
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