Vinataba receives the First Class Independent Medal
By Nattira Medvedeva
The Vietnam National Tobacco Corporation (Vinataba) recently celebrated its 30th anniversary as well as received the First Class Independent Medal from the state.
The First Class Independent Medal was awarded to Vinataba by the party and the state for their outstanding achievements, which include: its dominance in the domestic market and tobacco exports, which plays a key role in the development of the Vietnam tobacco industry; Vinataba’s effective growth in the foodstuff sector; establishing Vinataba as a large scale business brand; forming stable and sustainable tobacco growing areas in which poverty alleviation programs have been effectively implemented, improving the economic outlook and the quality of life of the people in these areas; and the completion of major projects including the construction of state-of-the-art facilities.
Ranked in the world’s top 15 consumers of tobacco with more than 15 million smokers, Vietnam is one of the more smoker-friendly countries. A survey by Vietnam’s Health Strategy and Policy Institute found that Vietnamese people spend about VND22 trillion (US$1.02 billion)., a year on tobacco. According to the Global Adult Tobacco Survey (GATS) in 2010, 47.4% of men and 1.4% of women (aged 15 years and up) in Vietnam are smokers. This means that more than 15 million adults are smokers.
Vinataba was established during the early days of Vietnam’s “renovation period”. In 1986, the Vietnamese government launched “Doi Moi”, an all-round renovation process with top priority being given to economic reform to create a multi-sector market economy regulated by the government, while at the same time consolidating the legal environment and renovating the party’s and state’s structure. Since then the Vietnamese economy became open and transformed from a centralized, planned economy heavily based on imports to a market-oriented nature.
Vinataba became the leading business, enjoying dominant domestic market share as well as tobacco exports and has achieved significant milestones throughout the 30 years since its inception. The most significant milestones have been as follows.
Formation of The Union of Vietnam Tobacco Factories on April 5th, 1985. On this date, the Council of Ministers (government) decreed the establishment of the Union of Vietnam Tobacco Factories, referred to as the Union of Vietnam Tobacco (precursor to Vinataba), on the basis of a merger of the United Tobacco Factory I and the United Tobacco Factory II. This was to unify the two organizations with the purpose of focusing on management to implement targeted production development programs of the state. The birth of the Union of Vietnam Tobacco was the result of a process of advocacy, innovative thinking in terms of organization, and production direction at a macro management level. Accordingly, a closed production and business economic sector was gradually formed, which marked a new step in management practices and became a first management model for the entire Vietnam tobacco industry.
Vietnam National Tobacco Corporation incorporated April 29th, 1995. Under this new “state” model, Vinataba was empowered to: appoint officials as well as have control over investment and pricing, autonomy of finance and operations, and scope of business expansion. During 10 years of operation under the model of Corporation 91, Vinataba made great progress in the organizational restructuring of the industry and was involved in policy system development, which was the legal basis for business management, production of tobacco, and market stability. In addition, as a leading corporation in the Vietnam tobacco industry, Vinataba set benchmarks with its developments in areas from raw materials to production and distribution.
Having achieved great progress in the tobacco sector, it was also time that Vinataba moved ahead with its diversification. The operation of Vinataba no longer relied on the funds contributed by its affiliates. Instead, costs, profits, and capital accumulation from business development had been firmly ensured, creating a solid basic premise for the conversion of the corporation to operate under a parent company business model in later periods.
Vinataba switches to operate as parent company on January 1, 2006. During this period, upon receiving state equity participation in Nguyen Du Joint Venture, Nam Dinh Food Industry JSC, and Northern Food Company, Vinataba effectively engaged in production management of major business sectors in the foodstuff industry.
Proper restructuring of the parent company actually demonstrated its financial strength and business potential. At this time, while other economic sectors were facing a decline, the domestic market of the tobacco industry, in which Vinataba dominates, remained stable and growing.
Challenges
The biggest challenge Vietnam’s tobacco industry faces is illicit cigarette trade, which, according to Vinataba, accounts for more than 25% of the whole market, or more than one billion sticks. This equates to a loss of over VND8 trillion to the state budget. The importation of cigarettes has been illegal in Vietnam since 1990.
Another challenge manufacturers in Vietnam’s tobacco industry face is the Law on Prevention and Control of Tobacco Harms, which came into effect on May 1, 2013. Among other regulations, the law bans smoking in certain public places, the sale of cigarettes to minors, and any advertising of tobacco products. It also requires all cigarette packs to feature graphic health warnings on half the surface of the pack. Compliance deadlines were November 2013 for soft packs and March 2014 for hard packs.
Add to that list the new Law on Special Consumption Tax, which will come into effect on January 1, 2016 and will increase excise tax on tobacco and alcohol. The tax rate on tobacco will be increased from the current 65% to 70% as of January 1, 2016, and to 75% as of January 1, 2019.
Shisha smoking is also now very popular among young professionals, university students, teenagers, and foreign tourists in Vietnam, particularly in big cities like Ho Chi Min City and Hanoi. While shisha is not currently banned, authorities and the local medical community have started voicing concerns about its health effects, with some people up in arms and even going as far as proposing a total ban on shisha in the country.
The year 2014 was a watershed year for the Vietnam tobacco industry: the National Assembly passed the excise tax law amendments, the government-issued Directive 30 on strengthening the combat against the smuggling of cigarettes and decided to destroy all smuggled cigarettes. It was also the first year that the implementation of the Law on Tobacco Hazard Prevention was fully enforced, which had a strong impact on production and operation of the manufacturers, leading to the number of smuggled cigarettes to increase by 30-40% compared to 2013.
However, despite the numerous challenges, Vinataba achieved positive results and met its planned targets, including reaching US$1.4 billion in sales, US$350 million budget contribution, and over US$51 million profit.
Vinataba has big goals moving forward. First and foremost, of course, is to maintain its position as the leader in the Vietnam tobacco industry as well as to promote the growth of the industry and effectively consolidate export markets. Their second goal is to work with the authorities in fighting against illicit tobacco trade, increase awareness against contraband tobacco, and to gradually eliminate illicit cigarette markets. In other words, Vinataba plans for 2015 to be its year of anti-smuggling.