PT Djarum, a 73-year-old Indonesian cigarette manufacturer, is exploring entry into the Kenyan market in a move that would shake the dominance of leading player British American Tobacco (BAT) Kenya.
A delegation from the company visited Kenya last week in an exploratory tour to learn more about the country’s operating environment, including demand for cigarettes, competition, and tax laws.
Djarum, which is Indonesia’s second largest cigarettes maker, already has a presence in Africa through its operations in South Africa.
“Djarum’s visit was part of a preliminary study of Kenya to check the state of the market. There is no commitment to set up in the country yet,” said Mr Rendra Kusumawardana, the first secretary at the Indonesian embassy in Kenya.
Mr Kusumawardana said that the firm’s visit will enable Djarum to make a decision on whether to set up a cigarettes manufacturing facility in Kenya.
“The company is already operating in South Africa and is aiming to use Kenya as an entry into the East African market,” he told the Business Daily.
The multinational's cigarette brands include Djarum Super, Djarum Coklat, Inspiro and LA Lights.
The Djarum delegation visited the Kenya Association of Manufacturers (KAM) where the lobby group gave a presentation of the state of the market in Kenya.
In its presentation, KAM told Djarum of the preferential trade agreements that the firm can benefit from should it set up in Kenya.
“Emphasis was placed on KAM’s ongoing efforts to combat illicit trade and ensure a fair and competitive market for all manufacturers,” said KAM in a statement.
BAT, which is listed on the Nairobi Securities Exchange (NSE), is the leading manufacturer of cigarettes in Kenya.
Another cigarettes maker, Mastermind Tobacco (K), was put into administration in December last year by I&M Bank over an undisclosed debt.
It was at the time the country’s second largest manufacturer of cigarettes.
Recent tax increases on cigarettes have, however, soured the market for BAT as an influx of cheaper cigarettes from neighbouring countries flood the market.
According to BAT, citing research by a third party, illicit cigarettes now command 27 percent of the Kenyan market.
“The shrinkage of the legitimate cigarette market due to illicit trade continues to adversely impact industry revenues and deny the government an estimated Sh7 billion per annum in taxes,” said the firm in its latest annual report.
The company has also been battling lackluster demand for cigarettes due to a high cost of the product.
BAT says that due to the price pressures, consumers are switching to cheaper brands.
“In the domestic market, business performance was negatively impacted by consumer affordability challenges which triggered down trading to lower priced brands,” it said.
