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Tuesday, March 13, 2012

Uganda becomes key tobacco producer

Uganda is becoming a key tobacco growing country six years after British America Tobacco Uganda (BATU) decided to concentrate on growing the leaf and leaving the production of cigarettes to its Kenyan operations.

Uganda Tobacco Field
A farmer at a tobacco field
British American Tobacco has already made Uganda the key location for its leaf operations. The company relocated its regional headquarters for Leaf Operations in Eastern Europe, Middle East and Africa (EEMEA), from South Africa to Uganda.
From just one country with only 30,000 farmers, Uganda will now oversee 11 countries, three continents, 1,038 employees and 100,000 farmers. According to Alain Schacher, BATU’s Managing Director, who is also EEMEA Regional Leaf Supply Manager, the choice was between Uganda and Zimbabwe, another key source.
But Uganda emerged favourite because of its potential for growth, with more opportunities for expansion in terms of the farmers’ base, availability of land and political stability.
“For BAT, Uganda is a key source for tobacco for the group. To improve synergy between the global strategy and the local implementation, we felt Uganda was the best location,” Schacher says.
Last year, BATU farmers produced 18,000 tons of tobacco leaves higher than 12,000 tons produced in 2010. The move by BATU to close its cigarette factory in Jinja in 2006 and shift its equipment to Kenya raised debate over the company’s future in Uganda.
Some people argued then that some investors were finding Uganda hostile, and Kenya offered better opportunities. But BATU has proved all those sceptics wrong.
“For BAT, Uganda is a key source for tobacco for the group. To improve synergy between the global strategy and the local implementation, we felt Uganda was the best location,” Schacher says.
“We want to grow our farmers bigger, not necessarily to commercialize but a farmer with half an acre can move on to an acre so that we have effective means of dealing with them,” he adds.
This year, the company looks forward to consolidating last year’s produce. “By the office being here, farmers are assured of transformation. You get prime knowledge, prime technology and resources. They are at the heart of the business,” Schacher notes.
BATU intends to spend about $5m in its Uganda operations over the next two to three years. According to Schacher, with tobacco leaf growing, the company’s benefits trickle down to more people as opposed to the factory in Jinja which by the time it closed, it employed only 35 people.
Schacher further notes that it was hard for the country to achieve a lot with the cigarettes. He says 25,000 tons, for example, produce 30 billion sticks of cigarettes. Uganda consumes a total of two billion sticks annually.
“We are a supplier of tobacco, not a supplier of cigarettes,” he says.
BATU exports tobacco leaves to more than 20 countries in the world. The announcement of the new office comes on the heels of several milestones that BAT Uganda has registered this year including a total dividend payment of 11.2 billion to shareholders at Shs 228 per share as well as a 7% increase in profits in the first half of 2011.
The company is listed on the Uganda Securities Exchange, where the counter has turned around after years of its share performing poorly. BAT Uganda also launched a 3.3 billion project to expand the Central Purchasing Point in Hoima to boost its operations in Bunyoro region where it works with 15,000 farmers of its 30,000 contracted farmers.

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