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Egypt\u2019s economy was in disarray, and its government was desperate for U.S. dollars.<\/span><\/p>\n In April 2022, President Abdel Fattah El-Sisi\u2019s government awarded a valuable license to manufacture cigarettes to a private entity in exchange for a cash injection. This move was a major pivot: For decades, selling cigarettes was a right reserved solely for the state-controlled and highly-profitable tobacco monopoly, Eastern Co. SAE.\u00a0\u00a0<\/span><\/p>\n Sixteen months later, facing pressure from the International Monetary Fund to privatize state assets, Egypt also agreed to sell its controlling stake in Eastern, leaving it as a minority shareholder in the Middle East\u2019s largest tobacco company.\u00a0<\/span><\/p>\n The two deals, shrouded in secrecy, have transformed the world\u2019s sixth-largest cigarette market, replacing a state monopoly with a privately-controlled one. Winners include Philip Morris International and the tobacco giant\u2019s longtime business partner and distributor, a politically-connected Emirati mogul named Abdullah<\/span> Al Hussaini.<\/span><\/p>\n The prospect of a more efficient and aggressive tobacco industry has alarmed health experts who fear even higher sales in one of the few places in the world where smoking rates are still rising.\u00a0<\/span><\/p>\n \u00a0\u201cThis privatization will inevitably have hugely negative health and economic impacts in a country already struggling to cope with the harms of tobacco,\u201d said Anna Gilmore, director of the Tobacco Control Research Group at the University of Bath.<\/span><\/p>\n The Examination and the Organized Crime and Corruption Reporting Project (OCCRP) reviewed hundreds of documents from corporate records, securities filings and legal documents across the Middle East, Europe and the U.S., and interviewed current and former Egyptian officials, tobacco industry insiders, public health officials and economic experts to assemble the most detailed picture yet of how the controversial deals came together.\u00a0<\/span><\/p>\n The reporting shows that Egypt, beset by a shortage of hard currency, bowed to pressure from the IMF and creditors like the United Arab Emirates to privatize a jewel of its state-owned holdings. The government then orchestrated two opaque transactions that paved the way for Philip Morris International and Al Hussaini to claim a major foothold in a lucrative and growing marketplace \u2013 while leaving Philip Morris International\u2019s competitors crying foul over a process they saw as rigged.\u00a0\u00a0<\/span><\/p>\n The deals, cemented with little public disclosure, come as Philip Morris International has pledged to \u201cunsmoke the world\u201d and wean itself from cigarette sales in favor of new nicotine products.<\/span><\/p>\n Al Hussaini, 66, has distributed Philip Morris International\u2019s cigarettes in the Middle East since at least the early 1990s. He is well-connected in the Arab world: other business associates have included a former UAE foreign minister and <\/span>Mohamed Alabbar,<\/span> the billionaire real estate magnate who developed Dubai\u2019s Burj Khalifa, the world\u2019s tallest building.<\/span>\u00a0<\/span><\/p>\n In a 2020 lawsuit filed in New York, another business partner of Philip Morris International\u00a0 claimed that in the 1990s, a company <\/span>closely connected to<\/span> Al Hussaini collaborated with the tobacco giant to smuggle cigarettes in the region and flout U.S. sanctions on Libya. The case was dismissed on jurisdictional grounds.\u00a0<\/span><\/p>\n Philip Morris International<\/span> declined to comment on detailed questions for this story, including about the smuggling allegations raised in the lawsuit, but said \u201cthis does not constitute an acknowledgement that any of the allegations you raised are either correct or incorrect.\u201d Al Hussaini and the Egyptian government did not respond to repeated messages seeking comment for this story.<\/span><\/p>\n Cleopatra: Queen of cigarettes<\/b><\/p>\n Nationalized in 1956<\/span> under President Gamal Abdel Nasser, Eastern enjoyed a monopoly for decades. Headquartered in Giza,<\/span> not far from the Sphinx,<\/span> the company is known locally for its straw-colored packs of Cleopatra cigarettes adorned with a profile of the iconic queen.\u00a0<\/span><\/p>\n By the early 2020s, along with Eastern\u2019s other brands, Cleopatra held about two-thirds of Egypt\u2019s cigarette market and was one of the top-selling cigarettes in the Middle East.<\/span> More expensive foreign cigarettes from Philip Morris International, British American Tobacco and Japan Tobacco were sold in the country only if manufactured at Eastern\u2019s Egyptian factory under terms Eastern itself considered <\/span>\u201cfavorable,\u201d according to a 2020 financial presentation by the company.<\/span>\u00a0<\/span><\/p>\n The situation made Eastern one of the Egyptian government\u2019s most valuable assets.<\/span> The company earned $274 million on sales of $1 billion in 2021.<\/span> Egyptian smokers burned through 108 billion cigarettes that year, twice as many cigarettes as were consumed in Brazil, a country with roughly double Egypt\u2019s population.<\/span><\/p>\n The status quo was upended in early 2021 when Egypt\u2019s Industrial Development Authority, the government department charged with implementing industrial policy, announced that it would offer a license to a second company to manufacture cigarettes in competition with Eastern.<\/span>\u00a0<\/span><\/p>\n The new license would also grant the recipient the right to manufacture e-cigarettes and increasingly popular heated tobacco products. <\/span><\/p>\n In theory, this was an open tender. But in practice, the rules favored one company: Philip Morris International. The authority\u2019s bidding handbook specified that the new licensee must produce at least 15 billion cigarettes per year in Egypt.<\/span> Only one international company, Philip Morris International, sold that number of cigarettes annually in the country.<\/span><\/p>\n Representatives of British American Tobacco, Japan Tobacco and Imperial Group \u2013 whose combined sales were less than the 15 billion quota \u2013\u00a0protested in joint letters to Egyptian Prime Minister Mostafa Madbouly<\/span>.<\/span><\/p>\n The authority issued new bidding rules in response, but failed to persuade the objectors. In December 2021, Philip Morris International\u2019s three rivals wrote to the Egypt Federation of Industries to notify the business group that they would not bid, saying the license terms would create \u201c<\/span>a quasi-monopoly situation in the cigarette market and will clearly restrict free competition.<\/span>\u201d<\/span><\/p>\n In April 2022, a winner was announced: The new license went to a small Egyptian firm named United Tobacco Co. It was the sole bidder.<\/span><\/p>\n Within three months of United winning the license, British American Tobacco, Philip Morris International\u2019s largest international competitor, announced it was leaving Egypt<\/span> \u2013 a market where cigarette sales had grown for nine consecutive years.\u00a0<\/span><\/p>\n A spokesperson for British American Tobacco did not respond to The Examination\u2019s request for comment. Ibrahim Imbabi, head of the tobacco division for Egypt\u2019s Federation of Industries, a government-chartered business group, said it was clear why the tobacco giant left. \u201c<\/span>They felt like there is no fair play with Philip Morris,\u201d he said.<\/span><\/p>\n United itself was actually a joint venture, as Eastern would immediately announce that it had taken a minority stake of the new company and would lease it a building and manufacturing lines to produce Philip Morris International\u2019s cigarettes.<\/span>\u00a0<\/span><\/p>\n Eastern\u2019s partners in the new venture would remain obscure for more than a year, until in July of last year when Philip Morris International disclosed in a U.S. Securities and Exchange Commission filing that it had purchased a 25% stake in United through a subsidiary it co-owned with Al Hussaini and Rashid Al Nuaimi,<\/span> a former foreign minister of the UAE. Al Hussaini and Al Nuaimi\u2019s shares in the same subsidiary gave them an additional minority stake in United. The acquisitions were made through a chain of companies, some of which were based in secrecy havens like Dubai. Al Nuaimi did not respond to questions relayed through his lawyer.\u00a0\u00a0<\/span><\/p>\n Still, United remains something of an enigma. With entities controlled by Al Hussaini, Al Nuaimi, Philip Morris International and Eastern collectively owning 62% of the company, who owns the remaining 38% is a mystery \u2013 as is the amount the Egyptian government received for granting United a license to make cigarettes.<\/span>\u00a0<\/span><\/p>\n According to Imbabi of Egypt\u2019s Federation of Industries, both the identity of United\u2019s ownership and the amount it paid for a cigarette license is \u201ca governmental issue and is classified.\u201d<\/span><\/p>\n In Egypt, this is not unusual. When ownership of companies is not disclosed it\u2019s often because of the involvement of companies owned by Egypt\u2019s military, which is a sensitive issue domestically, according to Shana Marshall, the associate director of the Institute for Middle East Studies at George Washington University.\u00a0\u00a0<\/span><\/p>\n According to the Carnegie Middle East Center, a think tank in Beirut, the military owns dozens<\/span> of companies in Egypt in industries including cement, gold-prospecting and zoo management, and its economic role has dramatically expanded in the decade since El-Sisi took power in a military-backed coup.<\/span>\u00a0\u00a0<\/span><\/p>\n The military sometimes retains minority stakes in industries that are strategic politically or economically, but also \u201cas a special concession that business owners must make in order to operate in Egypt,\u201d says Marshall, who noted that she does not have any specific knowledge about whether the military is involved with United.<\/span><\/p>\n If the first phase of breaking Egypt\u2019s tobacco monopoly was the creation of United, a joint venture between Eastern and Philip Morris International, Al Hussaini, Al Nuaimi and one or more undisclosed entities, the second phase was more direct: privatizing Eastern itself.\u00a0<\/span><\/p>\n This time, the Egyptian government\u2019s motivations were more transparent: The country was broke. Buffeted by a loss of tourists during the COVID-19 pandemic and a huge outflow of foreign currency as investors sought safety in the early weeks of the war in Ukraine, Egypt\u2019s foreign currency shortage had reached <\/span>alarming<\/span><\/a> levels.\u00a0\u00a0<\/span><\/p>\n In December 2022, El-Sisi\u2019s government received a $3 billion lifeline from the IMF.<\/span> The agreement with the fund, Egypt\u2019s fourth in six years,<\/span> was expected to trigger an additional $14 billion from Egypt\u2019s other international partners \u2013 especially Egypt\u2019s oil rich neighbors.<\/span>\u00a0\u00a0<\/span><\/p>\n This pact with the IMF catalyzed a wave of privatizations, with Eastern and 34 other state-owned enterprises earmarked for divestment.<\/span> The move appealed to Gulf nations like the UAE and Saudi Arabia, whose governments provided tens of billions of dollars to bolster El-Sisi’s administration, and who have sought\u00a0 Egyptian state assets in return.<\/span><\/p>\n![\"\"](\"https:\/\/zawia3.com\/wp-content\/uploads\/2024\/05\/egypt-tobacco_-eastern-co-sae-1_ibrahim-ahmed-scaled.jpeg\")
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Secret owners<\/b><\/h3>\n
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<\/p>\nSelling Eastern Co. SAE<\/b><\/h3>\n