• BAT Kenya MD Crispin Achola sheds light on the company's value and trade strategy
• The MD addresses the challenges faced and opportunities amid harm reduction push
Kenya is the largest and most advanced economy in Africa, being a commercial hub for many multinationals and having a talented population. According to the Kenya Investment Authority (KenInvest), the country’s continued growth is supported by an emerging urban middle class and an increasing appetite for high-value goods and services.
Multinational corporations have been identified as a key booster to creating employment in the country. “By creating employment, multinationals contribute to the economy of that country. Look at Google, for example. Google maps has transformed how Kenyans live and do business by enhancing mobility,” says Abraham Muriu, a financial expert.
“Nowadays we also have Google Swahili in recognition of how widely the language is spoken. A lot of the work is done here in Nairobi, and that is contributing both in improving the coverage and different programmes and services in Kenya and also creating employment.”
“Multinationals also contribute to the economy of the host country by meeting legal obligations, with some of them being large taxpayers.”
BAT Kenya is among the notable multinationals that have significantly invested in Kenya, thereby contributing to the country’s socioeconomic growth and development. The company’s legacy in Kenya goes back over 100 yeose, underpinning its long-term success.
We speak to BAT Kenya managing director and general manager, East & Southern Africa markets, Crispin Achola, on the company’s heritage, challenges and outlook, following the recent publication of the Company’s 2022 Sustainability Report.
To what would you attribute BAT’s long-term success in Kenya and what, in your view, is the role of companies such as BAT in Kenya’s socio-economic growth?
BAT Kenya has a long history and rich heritage in Kenya, spanning 116 years. We have been listed on the Nairobi Securities Exchange since 1969, and currently have more than 5,000 local shareholders. We are proud of our local heritage, anchored on many years of commitment to continuous investment in tobacco growing, manufacturing and as a regional export hub serving more than 10 markets.
A business with our heritage, having developed integrated and diverse ecosystems, must be built on solid fundamentals. At BAT Kenya, our success is anchored on our talented people, which includes employees, customers, contracted farmers, suppliers and various other stakeholders across the value chain.
Our people are empowered to deliver a proven business strategy, which is adaptive to an ever-evolving operating environment and consumer preferences. Over the years, we have invested in our people, processes, systems and products, helping us weather local and global socioeconomic shifts to remain resilient and sustainable, resulting in us being among the best-performing counters at the Nairobi securities exchange.
We are creating shared multistakeholder value in Kenya, which includes supporting the livelihoods of more than 80,000 Kenyans in our integrated value chain through direct and indirect employment as well as creation of business opportunities, and by dutifully meeting our statutory obligations to the exchequer.
In a nutshell, it is incumbent on all commercial enterprises, not just multinationals, to contribute to a country’s socioeconomic fabric, anchored on the advancement of its people.
Over the last 116 years the company has been in existence, how has the business landscape changed and how is BAT adapting to the changes?
Our industry has evolved significantly over time, with a focus on tobacco harm reduction underpinned by world-class science and product innovation. At BAT, we are clear that the only way to avoid the health risks related to combustible cigarettes is not to start, or to quit smoking. For those who continue to smoke, we encourage them to switch completely to scientifically substantiated, reduced-risk alternatives*.
At BAT Kenya, we are transforming our business to one that defines itself not by the products it sells but by the consumer needs it meets. This is anchored on our purpose to build 'A Better Tomorrow' by reducing the health impact of our business through offering a greater choice of less risky products to our adult consumers.
What is BAT Kenya’s annual contribution to the country’s economy? BAT Kenya has made a sustained contribution to the country’s socioeconomic development, as detailed in our 2022 Sustainability Report. For instance, over the past six years, BAT Kenya has paid more than Sh107 billion to the Government of Kenya in the form of various taxes, and earned Kenya annual forex inflows of about $115 million.
In 2022, we delivered direct economic value totalling more than Sh20 billion in payments to various partners. This is in addition to investments made towards environment, social and governance (ESG) priorities, including renewable energy, farmer livelihoods and product manufacturing.
The key concern is that we have an unpredictable tax regime, which makes it difficult to effectively plan for the medium and long term
What would you say are some of the challenges facing the business or industry, and how is the company tackling them?
I would broadly categorise BAT Kenya’s key challenges into two buckets. One relates to the fiscal and regulatory landscape, while the other is on illicit trade in cigarettes.
The fiscal challenges facing our industry are not unique to us as they affect other manufacturers and businesses in the country. The key concern is that we have an unpredictable tax regime, which makes it difficult to effectively plan for the medium and long term. However, it is encouraging to note that the government is focused on entrenching a National Tax Policy that will provide more predictability, which is essential for planning and investing.
Similarly, we face regulatory challenges for our portfolio of reduced-risk non-combustible products*, largely due to misinformation, misunderstanding and lack of differentiation between these products and combustible cigarettes.
Additionally, illicit trade remains a serious challenge to the sustainability of our business. The unpredictable nature of historic excise increases has led to diminished consumer purchasing power, resulting in unintended consequences, such as illicit trade in tax-evaded cigarettes as consumers search for cheaper products. At the end of 2022, illicit trade in cigarettes was at about 25.5 per cent (third-party research). We estimate that this illegal trade robs the government of about Sh6.5 billion in taxes annually.
That said, we acknowledge the government’s efforts to address illicit trade through ramping up enforcement. We, however, advocate enhanced actions, which includes increased collaboration with neighbouring countries, such as Uganda, which is the source of most cigarettes smuggled into Kenya.
What are some of the opportunities you foresee for BAT’s outlook in the medium term?
Our focus is on reducing the health impact of our business. We are doing this by providing adult consumers with reduced-risk products, such as tobacco-free nicotine pouches. To fully unlock opportunities in this area, a pragmatic approach is key.
The best way to address the harm related with cigarettes is through a regulatory and fiscal environment that recognises the potential of these new products and enables smokers to switch. We believe that by doing so, Kenya can reduce the health burden associated with smoking-related diseases. Increased awareness, understanding and factual reporting about these products based on science, as well as the participation of all stakeholders, including the media, government and industry, is paramount in enabling this.
* Based on the weight of evidence and assuming a complete switch from cigarette smoking, these products are not risk-free and are addictive