Economy, Domestic Economy

Cigarette Smugglers Raise the Ante

Cigarette Smugglers Raise the AnteCigarette Smugglers Raise the Ante

A senior official at the Ministry of Industries, Mining and Trade has received death threats from cigarette smugglers, in the latest twist of how the impending lifting of sanctions is exacerbating conflicts of interests in Iran.

Ali-Asghar Ramzi, who heads the Center for Tobacco Planning and Supervision, was in charge of the ongoing negotiations between Iran and Philip Morris International, producer of Marlboro, on the scope of legal activities this tobacco firm would assume in the country after sanctions are lifted.

He allegedly received the death threat from powerful smuggler gangs overseeing vast parts of Iran’s million-dollar illegal cigarette trade and who feel the existential threat posed by conducting tobacco business through legal channels, Eghtesad News reported.

“Smugglers, collecting profits of thousands of billions of rials on the trade of Marlboro cigarettes, without paying any taxes to the government, have threatened Ramzi with death as talks with Philip Morris on official imports and on the joint production of Marlboro in Iran are going on,” Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh said.

Nematzadeh took over Ramzi’s position after the threats, stating that: “I believe that managers should not be harassed and their lives threatened so I decided, despite criticism from other representatives, to put myself in charge and bring the talks to a conclusion.”

Domestic cigarette production has fallen over the past years, while smuggled products now constitute up to 80% of Iran’s tobacco market, not least because Philip Morris has time and again promoted smuggling as a way to dent the market share of native cigarette brands like Bahman.

Iran charges a fee of 7% on imported cigarettes to protect its own industry, which foreign companies dexterously circumvent through smuggling.

Smuggling has also received a boost by the fact that the US exempts the export of cigarettes from its list of sanctioned goods, classifying it as an agricultural or as a pharmaceutical good, regardless of its negative health impacts.

Major tobacco companies, acknowledging that Iran is one of the largest importers of American cigarettes, have lobbied fiercely for these exemptions. Philip Morris has an active office in Tehran even despite the US tightening of sanctions in 2012 and jointly produces Marlboro cigarettes with state-owned Iranian Tobacco Company.

Cigarette output in Q1 fell by 51% on an annual basis and production is currently running at only 30% of total capacity.

“Lack of special supervision over the illegal import of domestically produced cigarettes has brought the ITC to its knees,” former industries minister, Mostafa Hashemi Taba, said.

The Iranian government hopes that increasing ITC-PMI joint production of Marlboro cigarettes will stop the relentless siege of the domestic cigarette industry.  

Inviting foreign investment is seen as essential to shore up the ITC’s dilapidated physical capital and shocking financial balance.

Until 2008, Philip Morris International was a subsidiary of US-based Altria Group when it decided to spin off because it would give the company more freedom to focus on sales growth in emerging markets.

Iran Tobacco Company is one of the largest state-owned industrial enterprises in Iran, employing around 9,000 workers.

Exacerbated by falling demand, the company has suffered from an extended dispute between employees and management, with the former accused of rent-seeking practices and the channeling of profits away to the firm’s majority shareholder, the Steel Pension Fund.

Industry experts believe that the only way to realign employee with management interests is by allowing the formation of an independent board of directors. Currently, this board is appointed jointly by Ministry of Cooperatives, Labor and Social Welfare, and the Ministry of Industries, Mining and Trade.