UAE

Smoking ban: increase in price of cigarettes next, health experts say

The impact of the smoking ban implemented this week may be muted because the legislation was not accompanied by an increase in cigarette prices, experts say.

Rasha Elass

January 09, 2010

The impact of the smoking ban implemented this week may be muted because the legislation was not accompanied by an increase in cigarette prices, experts say. Although the price of some cigarette packs already reflect a tax of between 30 and 45 per cent, this is still below average for the GCC. Tax data is provided by Tobacco Atalas (TA), a collaborative research effort by the American Cancer Society and the World Lung Foundation.

Studies released in 2007 by the US-based Centres for Disease Control found a strong correlation between cigarette prices and smoking prevalence, particularly among young smokers. According to these findings, every 10 per cent increase in the price of cigarettes corresponds with a seven per cent decrease in youth smoking rates. Tobacco tax policies in the EU and North America where a pack of cigarettes can cost Dh40 (US$11), more than the price of a fast food meal have relied on this measure to discourage smoking over the past decade.

But in the UAE, the TA data indicate, the real price of cigarettes has dropped over the past decade. "I know for expatriates, if cigarettes were more expensive they would smoke less," said Dr Micheline Bombaert, a general practitioner at Al Hamra Centre in Abu Dhabi. According to a World Health Organisation report published in 2009, a sweeping ban on smoking in public places is only one in six steps to a comprehensive, country-wide anti-smoking policy.

Raising the price of tobacco products and reaching the young before they pick up a smoking habit are essential, it said. The UAE has some of the cheapest cigarettes in the region available for Dh2 per pack even cheaper than cigarettes in impoverished places such as Sudan and the Gaza Strip, according to the WHO. The average cost of a pack in the UAE is about Dh7. Some local experts say tobacco prices in the UAE should at least triple to discourage some smokers, even if for many young Emiratis price is not a factor.

"People who have access to money will buy it regardless of the price," said Dr Nabil Debouni, a consultant surgeon and medical director at Lifeline Hospital. "Mainly, the people I'm most concerned about are locals. Young Emiratis." relass@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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