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May/June, 2010

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The Terrible Cycle...

Romania has steadily marched towards building a modern economic infrastructure since emerging from Communist rule in the 1990s. But like nearly all of the worldís economies, which are more intertwined than ever, Romania has taken a hit in the latest economic downturn. A new report states that within 2010 there have been ďabrupt losses on [cigarette] sales volumeĒ with all major manufactures reporting losses. BATís Romanian sales have reportedly dropped up to 17% in the first quarter of alone, while JTI reports a downturn of up to 40%.

Has the population of Romania decided en masse to forgo their tobacco habits as a frugality in a time of economic uncertainty? A short walk around the capital of Bucharest would show this not to be the case. It is ture that the Romanian smoking population is looking to save money, but they arenít looking to give up cigarettes. In order to sidestep the numerous (and sometimes hefty) taxes on tobacco products, Romanian smokers are turning towards the black marketís offers of smuggled and counterfeit wares.

While the authorities of Romania may have more important things to look after than the bottom line of international manufacturers, the cigarette industry is one of the countryís biggest economic contributors. In 2009, Romania earned over Ä2 bn from taxes levied on cigarettes. If all cigarette sales were legitimate, it is estimated that the state would earn an additional Ä1 bn, which the Romanian government desperately needs right now. Thatís why this past March, Romanian officials announced a battle plan to combat the underground cigarette economy and decrease the practice over the next two years.

But he problem of smuggling isnít only a Romanian issue. Even western markets such as Switzerland, Ireland, and the United States have recently implemented plans to battle the tobacco black market. Since governments around the world have implemented such heavy taxes on cigarettes, they have forced consumers to look to cheaper, if illegitimate alternatives. And when they do, Governments are then forced to spend time, money, and manpower to protect the industry from which they get so much of their funding. Itís a crazy cycle, and one that shows no signs of slowing down in the immediate future.

- E. D.

Tobacco International - May/June, 2010

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