Presented at Sun n’ Sand Resort, Mangochi . 8 th September, 2013

1. INVESTING IN VALUE-ADDED TOBACCO (as a way toward industry sustainability) JOSHUA NTHAKOMWA, DIRECTOR INVESTMENT PROMOTION Malawi Investment and Trade Centre (MITC) mitc@mitc.mw www.malawi-invest.net Presented at Sun n’ Sand Resort, Mangochi. 8th September, 2013

2. Revealing Statistics • Global Tobacco Industry generated sales of almost US$721 billion in 2010 (Report Linker -www.reportlinker.com) • US$681 billion from cigarettes sales, which represents almost 95% of the total industry market • Cigarettes represent the leading market segment

3. Revealing Statistics (Continued) • Currently, there are 1.3 billion smokers in the world and figure is expected to increase by 4% annually – 52 million smokers annually • Around 12 million cigarettes are smoked every minute around the world • Around 35% of men in developed nations smoke against 50% in developing nations

4. Market Trends in the Industry • About 5.5 trillion cigarettes are produced globally each year (Source: B.A.T) • Biggest Single market is China (about 350 million smokers – 40% of global total) • Four biggest international tobacco companies: BAT, Imperial Tobacco, Japan Tobacco and Phillip Morris account for 45% of global market

5. Research reveals that while cigarette sales in developed countries continue to decline year after year, sustained volume growth is widely predicted in emerging markets • These are driven by population growth and increasing disposable income • Consequently, according to the report, the overall value of the tobacco market continues to growth

6. Statistics indicate that more tobacco companies are being pushed by regulatory factors in developed countries and are exploring investment in Africa, where the market seems to be emerging • Anticipation is that some of such investments could locate in Malawi being a locational country

7. Value-addition Prospects • Market trends and investment push factors in the developed world provides huge prospects for local value addition for export (Sub- and extra-region) • Optional strategy could be value addition (cigarette manufacturing) under sub-contractual arrangements

8. Market Access • EBA into European Market • SADC and COMESA • AGOA • Bilateral trade agreements with Zimbabwe, Mozambique, China, India, Japan etc.

9. Government Support Policies • Tobacco being main forex earner, government has huge interest for its value addition particularly for export market • For such value addition exclusively for export, GoM offers the EPZ status under which such export-oriented companies import their machinery/raw materials duty/tax/surtax -free

10. Industrial Rebate Scheme – covers manufacturing which does not qualify under EPZ – capital equipment/raw materials duty/surtax/excise exempt • Various tax allowances that will lower effective taxable income • Some can be negotiated with GoM, particularly for export-oriented ventures

11. Diversified Investment • GoM encouraging tobacco companies to also consider investment into non-traditional areas, e.g. soy-bean processing; groundnut processing etc • Also non-agricultural areas e.g. import-substituting areas in electrical accessories, production of tires (rubber sourced locally), energy generation using renewable sources etc.

12. Specific incentives exist for these: e.g. up to 10 years tax holiday for investment in energy and agro-processing – in addition to other incentives..

13. Thank you for your attention