According to a report published in July 2017 by KPMG, between 2015 and 2016, smuggled cigarettes accounted for 20% of total cigarette consumption in the Maghreb region. Although the report received criticism for its sources of funding, it provided interesting data about the issue in the Maghreb, including Tunisia. According to the report, Tunisia is the world’s second-largest consumer of illicit cigarettes, after Libya. Around one out of four cigarettes consumed in Tunisia is either counterfeit or contraband. In financial terms, the region is estimated to US$565 million in tax revenue annually.
The illicit trade in cigarettes is facilitated by several factors. Pricing differences between countries create incentives and opportunities for parallel markets, where profiteers – particularly transnational criminal syndicates – buy from countries where the product is cheap and sell in countries where prices are higher. For example, cigarettes are cheaper in Algeria than in most other markets in the region, which contributes to high volumes of contraband.
According to the KPMG report: ‘Non-domestic cigarettes were mainly flows of Illicit Whites’ (cigarettes labelled ‘duty free’ or without country-specific labelling). They were even cheaper than counterfeit cigarettes distributed illegally in Algeria then smuggled to Tunisia, in addition to other types of counterfeit cigarettes smuggled through Libya.
The National Board of Tobacco and Matches (RNTA) is a Tunisian state-owned company that has a monopoly over tobacco. It manufactures and imports cigarettes, which are then distributed to authorised resellers through local tax offices, who sell at fixed prices determined by the Ministry of Finance.
According to a former employee of the Ministry of Trade interviewed by ENACT in January 2019, ‘the state’s monopoly on the tobacco industry is one of the causes of the market distortion, because the market is very regulated. The state controls and [makes decisions about] all steps of the supply chain.’ But, ‘this system provides [an] opportunity for corrupt stakeholders involved in the [licit] market of cigarettes to benefit from their position and knowledge and participate in the illegal cigarette trade by causing stock shortages.’ Stock shortages, in turn, increase the demand for smuggled and counterfeit cigarettes.
Border regions in Tunisia are characterised by underdevelopment, compared to big cities and coastal towns. Border economies are therefore important conduits for illicit trade. In fact, most populations living in these regions depend on the parallel economy for their livelihoods. Fighting it would paralyse entire regions and cause social unrest. A customs official interviewed by ENACT in October 2018 said that this informal market is a necessary evil in border regions. ‘Integrating the parallel market into the formal economy would help overcome the state’s [economic] impasse’, he added.
The illicit cigarette trade harms state revenues. Taxes represent 66.39% of the price of cigarettes in Tunisia. But smugglers do not pay taxes, and associated losses between 2014 and 2016 were estimated at 44%.
According to the KPMG report, the trade decreased in 2016 thanks to an enhanced security presence in border regions and the narrowing of cigarette prices between Maghreb countries. However, the cigarettes smuggled from Algeria and Libya still represent an alternative for smokers with low purchasing power.
Tunisia should actively tackle the drivers of the illicit trade in cigarettes through alleviating market distortions and collaborating with neighbours to continue reducing price gaps.
Rim Dhaouadi, Researcher, ENACT project, ISS