How Philip Morris quietly secured major stake in Egypt tobacco market with IMF-led privatisation

This story is part of Smoking for the State, a The Examination series examining government-controlled tobacco companies supported in part, by a grant from the Pulitzer Center. The Examination is a nonprofit investigative newsroom covering global public health, which receives funding from Bloomberg Philantropies among others. This instalment was reported in collaboration with the Organized Crime and Corruption Reporting Project (OCCRP). The New Arab Investigative Unit co-publishes an edited version of the same story, after independently fact-checking the datasets used in this investigation.

Egypt’s economy was in disarray, and its government was desperate for U.S. dollars. 

In April 2022, President Abdel Fattah El-Sisi’s 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.   

Sixteen months later, facing pressure from the International Monetary Fund (IMF) to privatize state assets, Egypt also agreed to sell its controlling stake in Eastern, leaving it as a minority shareholder in the Middle East’s largest tobacco company.  

The two deals, shrouded in secrecy, have transformed the world’s sixth-largest cigarette market, replacing a state monopoly with a privately-controlled one. Winners include Philip Morris International (PMI) and the tobacco giant’s longtime business partner and distributor, a politically-connected Emirati mogul named Abdullah al-Hussaini. 

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.  

“This privatisation will inevitably have hugely negative health and economic impacts in a country already struggling to cope with the harms of tobacco,” said Anna Gilmore, director of the Tobacco Control Research Group at the University of Bath. 

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.

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 – while leaving Philip Morris International’s competitors crying foul over a process they saw as rigged.

"In a response to The Examination, the IMF said that it did not distinguish between a cigarette maker and any other kind of company when advising governments to privatise as part of its loan packages. 'The decision on what portfolio of state entities is offered up for divestment is the sole decision of the Egyptian authorities,' said an IMF spokesperson in a statement."

The deals, cemented with little public disclosure, come as Philip Morris International has pledged to “unsmoke the world” and wean itself from cigarette sales in favour of new nicotine products.

Al-Hussaini, 66, has distributed Philip Morris International’s 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 Mohamed Alabbar, the billionaire real estate magnate who developed Dubai’s Burj Khalifa, the world’s tallest building.

In a 2020 lawsuit filed in New York, another business partner of Philip Morris International claimed that in the 1990s, a company closely connected to al-Hussaini collaborated with the tobacco giant to smuggle cigarettes in the region. The case was dismissed on jurisdictional grounds.  

Philip Morris International declined to comment on detailed questions for this story, including about the smuggling allegations raised in the lawsuit, but said “this does not constitute an acknowledgement that any of the allegations you raised are either correct or incorrect.” Al-Hussaini and the Egyptian government did not respond to repeated messages seeking comment for this story.

Cleopatra: queen of cigarettes 

Nationalized in 1956 under President Gamal Abdel Nasser, Eastern enjoyed a monopoly for decades. Headquartered in Giza, not far from the Sphinx, the company is known locally for its straw-coloured packs of Cleopatra cigarettes adorned with a profile of the iconic queen.  

By the early 2020s, along with Eastern’s other brands, Cleopatra held about two-thirds of Egypt’s cigarette market and was one of the top-selling cigarettes in the Middle East. More expensive foreign cigarettes from Philip Morris International, British American Tobacco Plc and Japan Tobacco Inc. were sold in the country only if manufactured at Eastern’s Egyptian factory under terms Eastern itself considered “favourable,” according to a 2020 financial presentation by the company.

The situation made Eastern one of the Egyptian government’s most valuable assets. The company earned $274 million on sales of $1 billion in 2021. Egyptian smokers burned through 108 billion cigarettes that year, twice as many cigarettes as were consumed in Brazil, a country with roughly double Egypt’s population.

The status quo was upended in early 2021 when Egypt’s 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.

"Philip Morris International’s distributor became a major shareholder in the two intertwined companies that were allowed to manufacture cigarettes in Egypt: United and Eastern. Philip Morris International disclosed a stake in one of them, but the distinction between the two companies became increasingly fuzzy given the layers of cross-ownership."

The new license would also grant the recipient the right to manufacture e-cigarettes and increasingly popular heated tobacco products.  

In theory, this was an open tender. But in practice, the rules favoured one company: Philip Morris International. The authority’s bidding handbook specified that the new licensee must produce at least 15 billion cigarettes per year in Egypt. Only one international company, Philip Morris International, sold that number of cigarettes annually in the country. 

Representatives of British American Tobacco, Japan Tobacco and Imperial Group – whose combined sales were less than the 15 billion quota – protested in joint letters to Egyptian Prime Minister Mostafa Madbouly. 

The authority issued new bidding rules in response, but failed to persuade the objectors. In December 2021, Philip Morris International’s 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 “a quasi-monopoly situation in the cigarette market and will clearly restrict free competition.” 

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. 

Secret owners 

Within three months of United winning the license, British American Tobacco, Philip Morris International’s largest international competitor, announced it was leaving Egypt – a market where cigarette sales had grown for nine consecutive years.  

A spokesperson for British American Tobacco did not respond to The Examination’s request for comment. Ibrahim Imbabi, head of the tobacco division for Egypt’s Federation of Industries, a government-chartered business group, said it was clear why the tobacco giant left. “They felt like there is no fair play with Philip Morris,” he said. 

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’s cigarettes.

Eastern’s 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, a former foreign minister of the UAE and a member of the family ruling over the emirate of Ajman. Al-Hussaini and al-Nuaimi’s 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.   

Still, United remains something of an enigma. With entities controlled by al-Hussaini, al-Nuami, Philip Morris International and Eastern collectively owning 62% of the company, who owns the remaining 38% is a mystery – as is the amount the Egyptian government received for granting United a license to make cigarettes.  

 

According to Imbabi of Egypt’s Federation of Industries, both the identity of United’s ownership and the amount it paid for a cigarette license is “a governmental issue and is classified”.

In Egypt, this is not unusual. When ownership of companies is not disclosed it’s often because of the involvement of companies owned by Egypt’s 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.   

According to the Carnegie Middle East Center, a US think tank in Beirut, the military owns dozens 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.

The military sometimes retains minority stakes in industries that are strategic politically or economically, but also “as a special concession that business owners must make in order to operate in Egypt,” says Marshall, who noted that she does not have any specific knowledge about whether the military is involved with United.

Selling Eastern Co. SAE 

If the first phase of breaking Egypt’s 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.  

This time, the Egyptian government’s 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’s foreign currency shortage had reached alarming levels.   

In December 2022, El-Sisi’s government received a $3 billion lifeline from the IMF. The agreement with the fund, Egypt’s fourth in six years, was expected to trigger an additional $14 billion from Egypt’s other international partners – especially Egypt’s oil rich neighbours.

This pact with the IMF catalysed a wave of privatizations, with Eastern and 34 other state-owned enterprises earmarked for divestment. 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 Egyptian state assets in return.

In August 2023, Eastern disclosed to the Egyptian Stock Exchange that foreign investors had expressed interest in acquiring up to 30% of the company from the government, with Egyptian press focusing on Philip Morris International and Japan Tobacco. 

Two weeks later, Egypt’s government announced that a newly-formed Dubai-based company named Global Investments Holding Ltd would buy 30% of Eastern, making it the largest shareholder in Egypt’s former tobacco monopoly. 

Global’s owners at the time included Alabbar, the Burj Khalifa developer, and al-Hussaini’s son, Abubakr. But, as of May 8, Global was owned by a series of corporate entities with just one person with significant ownership: Abdullah al-Hussaini. Neither Alabbar nor Abubakr al-Hussaini responded to messages seeking comment.

That meant Philip Morris International’s distributor became a major shareholder in the two intertwined companies that were allowed to manufacture cigarettes in Egypt: United and Eastern. Philip Morris International disclosed a stake in one of them, but the distinction between the two companies became increasingly fuzzy given the layers of cross-ownership.

Global, Eastern’s largest shareholder, and United, the new company with its own cigarette license, are “sister companies”, said Imbabi, the head of the tobacco division for Egypt’s Federation of Industries. 

When the deal closed in November 2023, a statement from Eastern noted the stake was sold for $530 million, with an additional $95 million to be paid in instalments over an unspecified period.

This $625 million price tag to become Eastern’s largest shareholder looks like a good deal for the buyers – at least when compared with a similar deal a decade ago. In 2013, Philip Morris International paid the same amount for 25% of a joint venture with Algeria’s legacy tobacco monopoly. Algeria’s cigarette market is less than one-third the size of Egypt’s.  

“The published price that they’re getting seems pretty paltry compared to the amount they should be getting,” said Marshall, of George Washington University. 

Contraband cigarettes 

Al Hussaini’s history with Philip Morris International in the region involved doing business in difficult environments and navigating trade restrictions imposed on his US partner. Key to this is Al Rashideen Group, a regional conglomerate closely tied to al-Hussaini and headquartered in the UAE, where many companies are not required to disclose who owns them.  

Six sources, including three who formerly worked for al-Hussaini, said that he owns and operates the group. Companies that are part of it share a post office box that is the registered address of al-Hussaini himself, and records from the U.K., Liechtenstein, and the UAE variously show al-Hussaini as an owner, director, or principal of firms that are part of the group.

Founded in 1982, Al Rashideen Group has over 10,000 employees across the Middle East, in industries as varied as real estate development and automotive distribution. In Egypt alone, its network of trucks and warehouses distribute consumer goods like Cadbury chocolates and Shell Plc’s petroleum products.

It also has extensive operations in tobacco manufacturing and distribution in some of the region’s most challenging markets, said Raoul Setrouk, an Israeli businessman and former Philip Morris International distributor, in a 2021 interview with OCCRP.  

“PMI, before the 2000s, had chosen to centralize all sensitive markets in this region through its partner Rashideen, so as not to appear in the foreground,” he said.

Setrouk, who now runs a company that investigates cigarette smuggling, had filed a lawsuit in New York state court in 2020, accusing PMI of intellectual theft and unfair competition.

He also claimed that Al Rashideen distributes cigarettes for Philip Morris International in “Algeria, Egypt, Jordan, the Gulf states and throughout Africa” and alleged that “most of the contraband and smuggled products found in European countries or in conflict zones originate from the very close Al Rashideen-PMI partnership.” Neither al-Hussaini nor Al Rashideen was named as a defendant in the suit.

The lawsuit was dismissed in 2021 by a judge who said the proper jurisdiction for the dispute was Switzerland, where the tobacco giant’s operations are based, and where Philip Morris International has sued Setrouk in a related dispute over intellectual property. In its motion to dismiss Setrouk’s lawsuit the tobacco giant did not address his smuggling allegations, but the company told French media in 2020 that Setrouk’s accusations were “unfounded”, and an effort to discredit the company to win an undeserved payout. In an interview, Setrouk said his allegations about Philip Morris International and al-Hussaini’s activities still stand and that he intends to pursue appropriate action after the Swiss case is resolved. 

Setrouk’s suit is not the first time Philip Morris International has been accused of smuggling its products. In 2004, the company agreed to pay $1.3 billion to settle a racketeering lawsuit with the European Commission and EU member states, who had accused it of colluding with organized crime groups to evade taxes and smuggle cigarettes on the European mainland.

Funding carcinogens 

One of the most important aspects of the privatization of Egypt’s tobacco industry is one rarely discussed by economists: health. An estimated 90,000 Egyptians died of smoking-related diseases in 2019.

It’s against this backdrop that some experts raise concerns about the desirability of privatising a tobacco company in the name of economic growth – and the role of the IMF in promoting this as good policy.  

While a government owning a tobacco company may seem like an irreconcilable conflict of interest, the alternative may be worse. A 2011 review of studies on the effects of privatisation of tobacco monopolies in the 1990s and early 2000s found that such changes in ownership pose “a major threat to public health”. 

That paper, co-authored by Gilmore, of the University of Bath, found that privatisation led to increases in smoking rates. It noted that privatised companies focused marketing particularly on women and young people, and that privatised tobacco companies were highly effective at lobbying to undermine tobacco control measures. 

"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."

In a response to The Examination, the IMF said that it did not distinguish between a cigarette maker and any other kind of company when advising governments to privatise as part of its loan packages. “The decision on what portfolio of state entities is offered up for divestment is the sole decision of the Egyptian authorities,” said an IMF spokesperson in a statement. 

But some observers say a distinction should be made between tobacco companies and other industries. “Why you’d want to make a company more efficient whose primary product kills half its customers is beyond me,” said Lawrence King, an economics professor at the University of Massachusetts Amherst, who researches IMF policies.  

Work from the early 2000s by the nonprofit Essential Action found that the IMF advocated for tobacco industry privatisations in six countries in the years after the collapse of the Soviet Union – even suspending a loan to Moldova for failure to sell its tobacco monopoly.

“That the IMF apparently considers tobacco industry privatisation good for the Egyptian economy is a myopic view that suggests it has not learned from its past mistakes,” said Gilmore.

Zero risk 

Smoking rates in Egypt continue to rise. Hassan Yehia, a 62-year-old retiree in Cairo’s Shubra district, told The Examination he began smoking at 12. He says he’s never thought of quitting, and adds that the government could be doing more to protect people from the harms of cigarettes, as there’s nothing stopping a new generation of children from starting. “There is certainly no control over the sale of cigarettes to those under 18,” he said.  

Meanwhile, Philip Morris International has long been active in fighting tobacco control in Egypt, and is heavily promoting its new generation of IQOS, a heated tobacco device, in the country. Though Egypt is a signatory to an international treaty that bans tobacco advertising, it was allowing the tobacco giant’s ads for IQOS to line the halls of Cairo’s international airport as of November 2023, promising “tobacco taste with no ash, smoke and less smell”.

"According to Ibrahim Imbabi, head of the tobacco division for Egypt’s Federation of Industries, both the identity of United’s ownership and the amount it paid for a cigarette license is 'a governmental issue and is classified'.” 

That same month, Philip Morris co-sponsored a “Harm Reduction” conference hosted by the Egyptian government, where a panel of Egyptian doctors and a Philip Morris consultant promoted the use of heated tobacco products and oral tobacco pouches as smoking cessation aids.

Indeed, Egypt’s tobacco control efforts are failing by the standard that matters: A WHO report published earlier this year projected that tobacco use rates among men in the country would rise from 48% in 2020 to 54% in 2030.

“You have a monopoly on an addictive product in a country of 110 million, people can imagine how insanely profitable this can be,” said Osama Diab, an Egyptian development economist at Belgian university KU Leuven, who researches the country’s relations with the IMF.  “There's almost zero risk." 

Egyptian reporters whose names are being withheld for safety reasons also contributed to this report.

Illustration by Rocco Fazzari for The Examination.

Editing and fact-checking:

(OCCRP): Deputy Editor in Chief for Investigations Peter Jones, Olena Goncharova.

(The New Arab): Investigative Editor Andrea Glioti.