Cigarette Manufacturing in the UAE

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Features

The UAE is home to a surprisingly large number of both international and local cigarette companies. But what makes the country such an enticing base? A couple of major operators share their thoughts with Tobacco Asia.

By Thomas Schmid

A confederation of seven emirates, the United Arab Emirates (UAE) over the course of the past few decades has transformed into the economic powerhouse of the Persian Gulf region. With oil reserves expected to be depleted towards the end of the century, the country embarked on a carefully orchestrated economic development plan that gave rise to a number of burgeoning industries, from financial services to logistics and goods manufacturing. Several free zones dotted around the country, including the state-of-the-art port facilities within the Jebel Ali Free Zone just south of Dubai, have also attracted a slew of cigarette companies to base themselves here. Kaane, Al Matuco, Asspren Tobacco, BMJ Industries (by its own claim the “largest privately owned cigarette manufacturer in Dubai”), Gulbahar Tobacco International (GTI), and the Indian BBM Group’s Intercontinental Tobacco Company (ITC) are some of the more prominent names among many more.

From Afghanistan to the World

Gulbahar Tobacco International FZE (GTI) surely serves as a great paradigm that the UAE attracts foreign companies in droves with a very favorable local investment climate. When Afghanistan’s Gulbahar Group in 1996 decided to get into the cigarette manufacturing business, its choice for setting up a factory fell on Dubai’s Jebel Ali Free Zone. A wholly-owned subsidiary of the Gulbahar Group, GTI currently has 213 employees, all of whom are foreigners from a variety of different nations. With this employee demographic, the tobacco firm reflects a picture that is very common among many companies based in the UAE, a country where expats make up around 80% of the total workforce. “Thanks to being located within the Jebel Ali Free Zone, there are no customs duties applicable on the import of raw materials and we are also accorded a number of other tax breaks,” Muneeb Hussain Dar, the firm’s marketing manager, extols one of the primary incentives his company enjoys. But there are further advantages, including the thoroughly modern logistics infrastructure at Jebel Ali’s port, the numerous shipping line connections emanating from there to all corners of the world, and of course the UAE’s proximity to GTI’s key markets.  

Three Brands Utilize 80% Capacity

As a cigarette manufacturer, GTI is very much focused on producing, marketing, and distributing its own brands, and does not really rely on OEM business.

“Only about 1% of our annual cigarette output is derived from contract manufacturing for other companies, the other 99% are for our own brands,” Dar says. Considering his claim that the factory’s maximum annual production capacity is 40 billion sticks, of which 80% is currently utilized, that would translate to almost 32 billion sticks of GTI’s house brands per year. That figure is spread out across three cigarette brands, the only ones GTI has in its product portfolio at the moment: Cavallo, Milano, and Mond (see table).

Up to 70% of the Virginia and American blends used in their production is imported from countries such as Brazil, Zimbabwe, Indonesia and Jordan, the rest coming from local tobacco farms. Other raw materials like cigarette papers, filter tow, filter rods, plug wraps, tipping papers, inner liners, and outer packaging are purchased by the company from various suppliers in Asia and Europe.

Asia, Africa Immediate Expansion Targets

All three GTI brands have a strong presence in the Middle East but also in some CIS territories. Dar would like to expand brand penetration in Asia, though, where the brands are presently only available in a few markets. “We already have a rather strong position in the Middle East and we, therefore, would like to become more active in Asia, where we see good potential because our products are suitable for the mass consumer base that prevails in that particular region,” he says. A further target for expansion in the medium to long term is Africa, where, according to Dar, the company has “comparatively little market share” because “it is always an incredible challenge to find a suitable and reliable distribution channel there.”

A Coveted Foothold in Europe, US

A foothold in Western Europe and North America – and particularly in the US – is coveted by the company as well, but Dar is aware that this might be a goal a bit too ambitious to achieve, at least for the time being. “Yes, we would like to introduce our company’s products there. However, the consumer demographics in those territories are so very different [from our current markets] that the taste profiles of our present brands might not be their preferred choice.”

But, perhaps GTI has already started working towards that lofty goal. Although Dar isn’t able to go into closer details, he says that the company is eyeing to bolster its product portfolio with a number of new brands in the not too distant future. That gears have perhaps started grinding at GTI also might be indicated by a plan to set up more machinery at the Jebel Ali facility. “Our existing production facilities are all very modern and comprise the latest technologies, but yes, we do have plans for expansion in terms of installing additional machines,” he confirms, unwilling to lift the cloak of mystery any further than that.