The Economics of Kicking the National Bad Habit

Jun 5 , 2021
By Christian Tesfaye

---

Vice pays, and not just to traffickers and gangs but governments as well. Even Ethiopia’s government does it as it continues to profit from the sales of tobacco products. In spite of this, the Food, Medicine & Health Care Administration & Control Authority of Ethiopia held an event to highlight the dangers of tobacco on World No Tobacco Day last Monday.

The vice of smoking is not a scourge in Ethiopia the way it is in developing Asian countries. Outside Addis Abeba, it is not as widespread. But as the economy has grown, access to it and media material that romanticises its use have loosened cultural constraints, there are more and more smokers these days. This is true of most developing countries – people are more likely to afford vices first (fatty foods and high pollution cars) before they do ‘good’ things (a gym membership or an electric vehicle).

About 1.8 million adults (15 and older) smoked cigarettes each day while close to 16,800 died every year due to tobacco-related diseases in Ethiopia by 2015, according to TobaccoAtlas. Not quite an epidemic compared to other countries - where the global average is a whopping 20pc of the population - but growing and in need of attention.

For a long time, the most direct beneficiary of this deadly habit has been the government. The Imperial Ethiopian Tobacco Monopoly, which opened in 1935, and eventually became the National Tobacco Enterprise, has been a government enterprise for most of its existence, depositing its revenue into government coffers.

The company was gradually privatised over the past two decades. In 2016, it proved to be the most profitable privatisation deal closed by the government when it sold 40pc of the stakes it retained in the Tobacco Enterprise for just over half a billion dollars to a Japanese tobacco conglomerate – not too bad a sum for an addictive product that produces nothing but the decay of the human body.

But when there is the widespread view that tobacco has no benefits, why is it legal? While cannabis, a substance that is far less addictive and detrimental (not to mention prescribed for certain medical cases), is entirely illegal, how come cigarettes get away with restrictions?

Mainly, this is cultural. Cigarettes have been around for long. People are used to them, like alcohol. They are more tolerated. Tobacco also greases too many pockets to suddenly cease to exist. To be fair to every government that has not downright banned tobacco use, it is also a great deal harder and, in the end, fruitless to try and police something that is in such high demand.

Look no further for proof of this than the epidemic of hookah bars in Addis Abeba. Week after week, the authorities say that they have apprehended hundreds of hookah bottles along contraband channels while their use grows in clubs, bars and lounges. Police officers could go from bar to bar, lounge to lounge every night trying to stem its prevalent use, as they sometimes do. But this will probably escalate the cost for the government while most probably not helping in significant ways as it would be a matter of time before generous bribes get the police to look the other way.

If we were not so culturally puritanical, and our primary aim is to stem the growth, hookah could be legalised but at a hefty price. Lounges and bars have to disclose where they import the hookah from while getting taxed on selling it. With high enough taxes, its use could be discouraged while allowing the government to make money from the vice and funnel this extra income into productive sectors.

Why stick to the practice of stubborn policing when it demonstrably does not work?

The tobacco industry is better regulated in this regard. An excise tax is placed on most luxury goods and those considered socially harmful, including tobacco. This is a 30pc tax rate on the cost of producing cigarettes, in addition to a specific excise rate of eight Birr on each packet. This is hoped to reduce the number of smokers by a tenth, reduce deaths by around 91,000 people over the years and bring in for the government nearly a billion Birr in extra revenues, according to the World Health Organisation.

This may not be enough, though. Cigarettes are what are known as inelastic goods. Like basic food stuffs and alcohol, the mere fact that its price went up does not imply that its consumption would go down by just as much. Substitutes (like e-cigarettes) are either hard to come by or too expensive for a market such as Ethiopia’s. It is also very addictive. The demand is great and stubborn.

The excise tax placed on it has thus room to go even higher. This is easier said than done. If it becomes too expensive, it could give rise to an underground market that thrives on contraband, like hookah is doing. Thus, it requires a coordinated effort to kick the habit, including region-wide enforcement deals, improved contraband controls, and awareness of its negative effects.

---

PUBLISHED ON Jun 05,2021 [ VOL 22 , NO 1101]

---