Marlboro Man Spotted in Central Asia: Alive and Well

By MARK O'NEILL

In the first of a two-part series examining the challenges of operating in Central Asia, MARK O'NEILL discovers how multinational tobacco firms succeed in Kazakhstan. The Marlboro Man may have been banished from much of Europe and the United States but you can still see him in action, corralling horses through the canyons of the Wild West, on late-night television screens in Kazakhstan.

"He does not appear on the screen until after 11pm, after the children have gone to bed," explained Robert May, director of corporate affairs of the Almaty Tobacco Co (ATC) acquired in 1993 by Philip Morris in the first cash privatization in the history of independent Kazakhstan.

A giant billboard of the famous Marlboro Man adorns the top of the company's factory building in downtown Almaty.

Central Asia has become a battleground for the global giants of the tobacco industry, since the collapse of the Soviet Union in 1991 and the eagerness of the independent states that replaced it to attract foreign capital.

Kazakhstan, with a population of 15 million, has attracted three of them - Philip Morris, Gallahers and RJ Reynolds, part of Japan Tobacco - while neighbour Uzbekistan, with 24 million people, sold its cigarette industry to British American Tobacco.

ATC is building a greenfield factory near the airport on the outskirts of the city at a cost of $150 million, which is due to start production in the first quarter of next year, with capacity of 25 billion units. It was given the land there free and will stop production at the old plant which it will give it back to the government.

Kazakhstanis consume 21 billion to 22 billion cigarettes a year and consumption is not expected to rise in the future. So the firm plans to export more from its new plant to Russia, the mainland and Central Asian countries.

This is no easy task. The devaluation of the rouble has driven down the price of Russian cigarettes here to less than 15 tenge (about 87 HK cents) a packet. ATC brands sell from 15 to 40 tenge for local brands, 45 to 50 tenge for its international brands and 120 tenge for Marlboro.

The devaluation has also led to widespread smuggling in both Kazakhstan and Uzbekistan which imposes import tariffs of 237 per cent on cigarettes.

Under the pressure of falling budgets, governments in the region have resorted to emergency measures to protect local producers, such as high import duties and taxes.

"Central Asia is an extremely competitive market," said an official of a western tobacco firm. "Consumption is falling with the drop in incomes, a migration of people from Kazakhstan and the death of elderly smokers (from natural causes). The foreign companies see Central Asia as an export base but this is difficult because of the currency squeeze."

The government in April said the population had fallen from 16.2 million in 1989 to 14.95 million due to the emigration of non-ethnic Kazakhs.

While cigarette packets carry a health warning and the manufacturers have an agreement among themselves to limit advertising, the social and regulatory environment is less hostile to smoking than in the West. The coffee shops and kiosks on the streets of Almaty are covered in advertisements for famous brands.

A Western diplomat said Philip Morris had succeeded because it entered first, had a very good knowledge of the local market and had invested heavily in government relations.

ATC president James Scott said the success of foreign investors in Kazakhstan depended largely on how they perceived and approached the government to solve issues.

"We have learned over the past five years that the most beneficial approach is to address the government directly, as a partner, and find a solution that works within the Kazakh legal framework. It is often a slow process but, with patience and perseverance, the right solution eventually does come," he said.