Firm to build US$80m tobacco processing plant

09 Oct, 2022 - 00:10 0 Views
Firm to build US$80m tobacco processing plant

The Sunday Mail

Martin Kadzere

TOBACCO concern Cut Rag Processors plans to invest at least US$80 million in a new manufacturing facility in Harare, sources familiar with the project said.

The company, which is one of the country’s largest exporters of cut rag and manufacturer of the cigarette brand Remington Gold, has already started clearing 60 000 square metres of land in the Lochinvar industrial area, where the plant will be built.

“The manufacturing plant will have both primary manufacturing department and secondary manufacturing department processing lines. Civil works are already underway,” said a source who declined to be named, citing protocol.

Tobacco processing starts with the primary production of cut rag blends, while secondary production involves the manufacture of cigarettes.

Zimbabwe has four major cut rag producers: Cut Rag Processors, Amidol, British American Tobacco (BAT) and Britannicus.

Major cigarette manufacturers are BAT Zimbabwe, Cut Rag Processors and Pacific.

Cut Rag Processors managing director Mr Nyasha Chinhara confirmed the company was setting up a new plant in Harare, but declined to shed more light, citing “finalisation of confidential internal processes”.

“We confirm that Cut Rag Processors is in the process of setting up a new manufacturing plant in Harare,” revealed Mr Chinhara.

“This is in furtherance of the company’s broad strategic direction underpinned by TVCTP (Tobacco Value Chain Transformation Plan), which seeks to boost national economic benefits through value addition.”

Last year, Cabinet approved the TVCTA.

Zimbabwe, which is the world’s sixth largest producer of tobacco, is adding value to only 2 percent of output, according to Government statistics.

The push for beneficiation and value addition seeks to unlock US$5 billion in export revenue by 2025.

Net foreign currency inflows from tobacco stood at only US$45,7 million in 2020, from about US$39,4 million in 2019, because farming of the crop is largely funded using offshore funds, according to the Reserve Bank of Zimbabwe.

As such, the TVCTA seeks to increase localisation of funding for tobacco farming to 70 percent by 2025, boost output to 300 million kilogrammes, increase the level of value addition of the leaf into cut rag and boost production of cigarettes to 30 percent from 2 percent.

Tobacco farming stands out as one of the biggest empowerment stories in the history of Zimbabwe. Prior to the land reform programme, tobacco farming was a preserve of large-scale white commercial farmers.

Smallholder black farmers were discouraged from producing tobacco as it was said to be too technically challenging.

However, the successful empowerment of the sector at the primary level has not translated into gains further down the value chain, where superior returns are being made by leaf merchants and cigarette makers.

About 98 percent of tobacco produced in Zimbabwe is exported in green (semi-processed) form by big tobacco merchants.

With one or two exceptions, indigenous merchants have failed to penetrate this market due to formidable entry barriers. They include limited access to low-cost funding and lack of factory processing capacity.

Zimbabwe has three processing facilities owned by Zimbabwe Leaf Tobacco, Tobacco Processors Zimbabwe and Mashonaland Tobacco Company. As a result, indigenous merchants have been condemned to trading as speculators at the auction floors. They engage in surrogate buying on behalf of the big merchants. They are also involved in the management of contract-growing schemes on behalf of the large merchants.

Returns from all these activities are a pittance relative to the returns indigenous players could realise in export markets as leaf merchants or cigarette manufacturers.

Effectively, the indigenous tobacco merchant does not have a seat at the main table and is surviving on crumbs dropped by larger merchants.

Cut Rag Processors was formed in February 2000 as the first independent cut rag production facility in Zimbabwe servicing both the domestic and export markets.

The establishment of the company paved the way for the merger of BAT and Rothmans in 2000. The Government, through the Competition and Tariff Commission, had rejected the merger out of concern the merged entity would create a monopoly.

Between 2012 and 2014, the company scaled down operations, when it closed its cigarette line.  A year later, the company decided to exit the entire tobacco business. It, however, returned to production after Gold Leaf sold the business to new shareholders in 2019.

“The new investor injected capital into the manufacturing business and decided to expand, taking advantage of the thrust being pursued by the Government to enhance value addition,” another source said.

The expansion involved acquisition of the land last year, and construction of the plant, which has already started. At least US$80 million will be spent on the project, but the figure could potentially rise to US$100 million.

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