Even with a rapidly tightening regulatory environment, cigarette volumes are set to climb in Myanmar.
By Shane MacGuill
In common with many other emerging tobacco markets, Myanmar combines strong growth potential with ethical and reputational risks for international manufacturers. After decades of isolation, the country is beginning to re-emerge in the international community. The path to full liberalization of an economy and, more importantly, a society, is rarely a straight one, and Myanmar is no exception with concerns about governance and political violence yet to be resolved. Significant for the longer term, though, it is a country with a large, young population and a culture of tobacco use. As such, Myanmar is one of only a handful of global markets likely to provide future volume growth for the industry.
As of 2016, more than 54 million people live in Myanmar, up from 52 million in 2011. While the growth rate declined to 1 percent in 2016, according to the Myanmar Ministry of Health and Sports, forecasts suggest that the population will reach 56 million by 2020 and exceed 60 million by 2030, allowing Myanmar to retain its place among the world’s 30 most populous countries.
It is also a young population, with a median age of 28 years (though this is expected to rise to 32 years by 2030). A third of the total population is under 18 years, and 60 percent is aged between 18 and 59. By comparison, only one-fifth of France’s population is under 18. This backdrop provides advantageous conditions for economic growth in general and suggests there may be a significant consumer base for nicotine products in the medium term.
Two-thirds of Myanmar’s population—a higher share than in most neighboring countries—lives in rural areas. Levels of urbanization are slowly increasing, though. Some 35 percent of Myanmar’s population lived in cities in 2016, compared with 32 percent in 2011. By 2030 this is expected to reach almost 45 percent. However, this is still below the Asia Pacific average, where more than 40 percent of the population already lives in urban areas.
While in the recent past Myanmar’s economic profile was dominated by stagnation, it is now characterized by abundant potential, and it is in this context that the prospects for tobacco should be placed. Since 2008, the country has engaged in an economic and democratic liberalization process (albeit imperfect) that has spurred its economic development. Real annual gross domestic product growth in Myanmar stood at 7.5 percent on average over the period of 2011–2016. Facilitated by increased inflows of foreign direct investment and further regulatory and economic reforms, growth is expected to continue at at least these levels between 2017 and 2022. As a corollary, Euromonitor International expects the number of middle-class consumers in Myanmar to double by 2022.
According to The Tobacco Atlas, 31 percent of males and 7 percent of females in Myanmar used tobacco products daily in 2013, implying a total smoking population of around 7 million. However, only 9 percent of males and less than 1 percent of females smoked cigarettes, with the balance of the population consuming other tobacco products, which are usually distributed through unofficial channels. In addition, the Ministry of Health and Sports states that only around 10 percent of cigarette smokers use filtered cigarettes.
Euromonitor is initiating direct research of Myanmar’s tobacco market in its data release scheduled for mid-2017. The company estimates that the market for rolled manufactured cigarettes has been expanding at a compound annual growth rate (CAGR) volume of between 5–10 percent since 2011 and accounted for in excess of 10 billion sticks in 2016. Driven by rising consumer income, the expansion of modern grocery retailers and liberalized trade rules, the market value has grown to around $500 million in 2016.
Per capita consumption lags behind regional peers, standing at a bit above 300 cigarettes in 2016, compared with more than 900 sticks across the Asia Pacific region and more than 1,000 sticks in Vietnam. This suggests that tobacco users in Myanmar spread their consumption across one or more different product categories.
Roughly half of all tobacco use in Myanmar is in the form of smokeless tobacco, in particular betel nut, tobacco and spices mixed in palm leaves. Traditional cheroots, made from chopped-up tobacco leaves, stems and wood chips, and bidis remain popular and make up most of the remaining tobacco consumption, especially in rural areas. Consumption of rolled manufactured cigarettes is therefore marginal in the total context, but manufacturers anticipate consumers to transition into the segment over time. Consumption of Western-style cigars and other tobacco products is negligible in Myanmar due to higher price points and the availability of indigenous alternatives.
Quantifying the black market in Myanmar is an imprecise science. However, estimates by industry representatives suggest that illegal sales are double those of duty-paid cigarettes. Illegal imports from neighboring countries are also prevalent, with smuggled cigarettes reportedly even being sold through supermarkets. Like in other markets in the region, handmade products are difficult to track and tax; therefore, bidis and cheroots account for the great majority of unofficial sales.
Myanmar’s regulatory regime, while still less restrictive than those in many developed countries, has been tightening. Smoking is prohibited in health care facilities, educational facilities, government offices and some other enclosed spaces. However, there are no restrictions on smoking in other public areas, including cafes and restaurants.
Regulations regarding marketing are a mixed bag. Direct tobacco advertising is not allowed, except point-of-sale advertising. However, companies are allowed to use indirect advertising, such as promotional discounts and brand placements on TV shows/movies. A 2016 order, due to come into effect this month, mandates the use of 75 percent graphic health warnings on the front and back of every pack, a scenario that makes Myanmar’s packaging regulations more restrictive than those in many developed markets.
Cigarettes and tobacco products in Myanmar are subject to excise tax. The special commodities tax on cigarettes was increased to 120 percent from 100 percent in 2016, meaning that in total excise now makes up over half of the final pack price paid by consumers.
Building on tradition
While Myanmar is sometimes regarded as a frontier tobacco market, international companies have a long history there and are already heavily involved once again. Cigarette manufacturers, such as British American Tobacco (BAT), were forced to leave Myanmar in the early 2000s by a combination of the direct stipulations of international sanctions and the broader reputational issues relating to involvement with Myanmar’s political system of the time. However, following democratization and economic liberalization, the international manufacturers are steadily ramping up activities in the country. While concerns persist about corruption and government involvement in the economy, global players now see a presence in Myanmar as a boon rather than a bother.
BAT re-entered the market in 2013 and has invested heavily in the intervening years in combination with a local company, IMU Enterprise. Japan Tobacco has also been expanding its presence in the past three to four years, building a new factory for its local subsidiary, Japan Tobacco Myanmar, in conjunction with local partner Kyaw Win. Quite simply, this concerted focus from international manufacturers on the Myanmar market is predicated on the belief that sales of cigarettes will post robust growth in the short to medium term.
Most urban smokers purchase cigarettes from supermarkets or corner stores. Cigarettes in Myanmar are sold in 20-stick packages, and the price of a pack of cigarettes in supermarkets in Yangon—the country’s largest city—ranges from around $0.60–$0.70 for a leading local brand such as Red Ruby to upward of $2.50 for an imported international brand, such as Marlboro. However, unofficial sales still prevail, and cigarettes are also widely distributed by street vendors and in traditional markets.
Local brands dominate in the market, due to the distinct price differential with imported brands. Ruby is the most popular brand, accounting for an estimated 40 percent of market by volume. It is followed by BAT’s London brand, which accounts for 20 percent of volume sales. Other leading brands are Duya, Red & Blue and 555.
Looking forward, tobacco consumption will increase in Myanmar both in general terms and specifically in the case of machine-manufactured cigarettes.
Even in the context of an increasingly constricted regulatory environment and renewed focus on the country from local and international tobacco control agencies, Euromonitor believes that a CAGR of about 10 percent in volume terms up to 2021 is not unreasonable, driven by rising consumer incomes and increasing brand awareness. What’s more, filtered cigarettes are an under-indexed segment in Myanmar, and the presence of the global players will continue to boost sales of these products and, with that, the overall market value.
Shane MacGuill is head of tobacco research at Euromonitor International.