The Bangladesh Competition Commission has found grounds to proceed with a full probe into allegations that the U.K.'s British American Tobacco has abused its dominant position in the country's cigarette market to the detriment of Japan Tobacco, according to the body's chairman.
Bangladesh's cigarette market is South Asia's largest, exceeding those of India and Pakistan, according to data from Euromonitor International. The share held by the local affiliate of Japan Tobacco (JT), however, has withered since its purchase in 2018 for $1.48 billion by the Tokyo-based company in Bangladesh's largest-ever buyout.
Based on findings from five preliminary hearings held to review the complaint filed last March by JT, Commission Chairman Md. Mofizul Islam told Nikkei Asia that the body has launched a formal investigation and will hold another hearing before presenting its conclusions.
"There were required elements with the commission that supports the complaint, thus a case was filed," he said.
Deputy Director Anwar-Ul-Haleem added that the commission may have to seek an extension of the original Feb. 18 deadline to conclude its investigation, due to delays in collecting evidence because of surging coronavirus infections.
Since JT bought United Dhaka Tobacco from local conglomerate Akij Group, the unit's market share has fallen to 12.6% from just under 20%, according to data JT cited from research company Nielsen. BAT's share rose to 79.2% from 68.4% over the same period.
More than 70 billion cigarettes are sold annually in the country, with some 35% of adults smoking out of a population of more than 165 million. But amid the pandemic, sales have seen significant monthly fluctuations.
Bangladesh is South Asia's largest cigarette market, exceeding those of India and Pakistan. (Photo by Sharar Nayel Sartaj)
According to the JT complaint, BAT Bangladesh penalizes retailers who stock or sell JT products, sometimes threatening to cut off supplies of its products. JT claims this behavior violates the country's Competition Act as it "amounts to collusion," with the "intention to control the tobacco market."
"Due to BATB's dominant market share in the tobacco sector, the retailers have no choice but to abide by any program imposed on the retailers by BATB," the complaint says.
To support its argument, JT noted that both companies launched new brands into the market around the same time in 2019. The complaint states that by the end of 2020, BAT's new Royals brand had a 9.5% market share, while JT's "LD only has 0.1% share, as the retailers refused to sell our products."
JT has asked the regulator to order BAT to stop rewarding retailers who avoid JT products, and that it fine BAT 10% of its average annual revenue.
Local JT spokesman Zakir Ibne Hai said the company hopes the competition authority will act, as he said BAT's anticompetitive practices are still occurring.
The government, mostly through state-owned companies, holds a 9.9% stake in Dhaka-listed BAT Bangladesh, which generated a net profit of 8.62 billion taka ($98.37 million) on gross revenues of 180.84 billion taka in the first half of 2021.
Japan's ambassador to Bangladesh raised JT's competition gripes against BAT in a letter last year to Finance Minister A.H.M. Mustafa Kamal, also touching on other complaints from JT about unfavorable tax and regulatory decisions.
"I believe that Japanese investors are carefully watching the action of the government as JTI Bangladesh is a single largest flagship investment from Japan," said Ambassador Naoki Ito in the letter, which was published on a tobacco industry research site run by the U.K.'s University of Bath.
"Some of the challenges faced by them may not reflect well on the 'ease of doing business' in Bangladesh," Ito wrote. "I kindly seek your overall guidance and directive to all relevant authorities to ensure that the largest investor into Bangladesh private sector gets treated fairly and in a predictable manner."
BAT Bangladesh did not respond to requests for comment. Asked about JT's complaint, a spokesman for the business told a local newspaper that the company "has been doing business in this country for more than 110 years by complying to all rules and regulations of the country."
"We have received multiple accolades from the government for our benchmark governance and business practices," he said. -Nikkei Asia
