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BAT to build Sh2.5bn nicotine pouch plant

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British American Tobacco cigarettes factory in Industrial Area in Nairobi. FILE PHOTO | NMG

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Summary

  • The product, called Lyft, is gaining popularity since being introduced late last year and the factory will make Kenya an export hub for Africa.
  • It is expected to diversify BAT’s revenues away from the traditional tobacco cigarettes that have come under intense pressure from government through increased taxes and levies.
  • The government last year introduced a two percent solatium compensation contribution levy on value of manufactured tobacco products and a 20 percent increase in excise duty.

British American Tobacco (BAT) Kenya #ticker:BAT will build a Sh2.5 billion factory in Nairobi to produce for the African market oral nicotine pouches that are viewed as an alternative to cigarettes.

Managing Director Beverley Spencer-Obatoyinbo said Thursday that the product, called Lyft, is gaining popularity since being introduced late last year and the factory will make Kenya an export hub for Africa.

“Given the high incidence of oral stimulant use among smokers, we believe that this new product category will provide a viable alternative to smoking,” said Ms Spencer-Obatoyinbo.

“We are looking to invest Sh2.5 billion in building a first-of-its-kind factory in Africa for the manufacturing of our oral nicotine pouch.”

This is expected to diversify BAT’s revenues away from the traditional tobacco cigarettes that have come under intense pressure from government through increased taxes and levies.

The government last year introduced a two percent solatium compensation contribution levy on value of manufactured tobacco products and a 20 percent increase in excise duty.

Solatium levy is used by the government to fund tobacco control research and tobacco cessation and rehabilitation programmes.

This saw net profits for last year plunge 4.9 percent to Sh3.89 billion despite gross revenue rising 9.1 percent to Sh39.8 billion.

BAT is already exporting its cigarettes to 10 African countries, providing an immediate market to target with the new product.

Exports are crucial revenue earner for BAT, having accounted for 45 percent of the total revenue last year. The firm supplied 9.2 million cigarettes sticks earning Sh8.6 billion ($85 million).

BAT’s net cash from operating activities grew 45 percent to Sh7.7 billion last year and it announced yesterday that part of this money will fund the new factory.

Nicotine pouches contain fibres from pine trees, eucalyptus, nicotine, and flavouring agents and are marketed as a safer alternative for smoking addicts who want to quit the habit.

Consuming tobacco products has been linked to increased risk for cancer and heart diseases and BAT said the new product is made from nicotine alone to lower such risks.

However, lobbyists continue to criticise the product as equally harmful given that nicotine is also addictive. The Kenya Tobacco Control Alliance (Ketca) last year said there was no adequate data to show the smokeless pouches were a less risky alternative to cigarettes. US, Sweden and Italy are some of the countries where the tobacco-free nicotine pouches is already in use.