Prevalence of Cigarettes in the UAE - Case Study Example

CIGARETTES Student’s name Code & Course Professor’s name University City Date Introduction Statistics indicate that the globe produces 5.5 trillion cigarettes on an annual basis. Smokers claim that they feel relaxed after smoking. These smokers amount to 1.1 billion people, which is slightly above 29% of the world’s total population. Among these, 61% suffer from diseases related to cigarette smoking (Jha & Peto, 2014).Cigarettes contain nicotine, an addictive drug that is closely associated with death in the long run. In UAE, 6.24 billion cigarettes are sold annually. The result is more than 1400 deaths annually from tobacco-caused ailments. On a daily basis in UAE, it is estimated that above 1107000 adults and 16600 minors smoke cigarettes (Al-Haquani & Rajat, 2011). Consumption of cigarettes and other tobacco products is currently a global disaster that will kill more than 10 million persons annually for a period of the next 30 years. Prevalence of Cigarettes in UAE The Middle East has a remarkably high tolerance to smoking compared to other global regions. In UAE, cigarette smoking is a common habit. During 2010, about 19.5% of the region’s populations were smokers, men being dominant.Youngsters in UAE re not left behind in this habit, with 25% of interviewed students claiming to have used tobacco prior to attaining 10 years (Khattab et.al, 2012). During 2000, the country imported about 22 million cigarettes. A pack of cigarettes was retailing at $ 1.90 for foreign brands and $1.44 for local brands. In the year 2012, the [pack was selling at $2.2 and $4 in 2014 (al-Haquani & Rajat, 2012). There is a 100% taxation on imported tobacco products in UAE, but there is no sales tax. Though consumption of cigarettes is still high, the government has regulated the consumption of the commodity while raising awareness on the dangers of tobacco consumption, leading to a decline in tobacco sales nationally. This increase in prices is aimed at curtailing cardio-vascular ailments in UAE while checking the number of youths purchasing cigarettes. CigaretteTrade in UAE The Middle East is a giant importer of cigarettes globally. Exports by the region from the US and the UK have subsided within the past five years. Consequently, exports from other Asian countries and the European Union have been on an upward trend. The imports have risen to 184 billion units since 2006 UAE has experienced expansions in cigarette exports and imports in the recent past. The country has a stable currency and a free trade area policy. Many investors are attracted by the UAE in terms of investments and shopping (Madachie et.al, 2013). The 21st century has especially witnessed growing cigarette entries into UAE to 44 billion in 2006 from 21 billion in 2001. Dubai, being the capital, has added advantages over the easily convertible currency and the country’s free area policy. It has the advantage of multiple competing private sectors as well as a flexible banking sector. Dubai sells the best cigarette brands from other countries such as the UK that export their brands into UAE. Other countries that export their cigarette brands into UAE include China, Ukraine, India and South Korea. Cigarette Smuggling Cigarettes are the leading smuggled legal products globally. Statistics argue that smokers use more than 600 billion smuggled cigarettes yearly. Since smugglers are solely interested in making profits, it proves difficult to curb illicit trade on cigarettes. The target of this form of trade is youngsters who have a low purchasing power but are offered these substandard cigarettes. The cigarettes are definitely unhealthy for the users with regard to their poor quality and unregulated carbon, tar and nicotine levels. The Middle East cigarrete smokers consume an estimated 23% of counterfeit and illicit cigarettes (Maziak et.al, 2013). The Middle East government, notably UAE, lose about $800 million annually to illicit cigarette trades. Major cigarette producing companies have been involved in illicit trading of cigarettes on a large-scale basis. Having proven guilty, they have paid billions of dollars as fines for trade malpractices, remarkably in 2008 and 2010. The companies are RJR (Partially owned by British American Tobacco), Rothman’s Benson and Hedges which is a multinational branch for Phillip Morris, Japan Tobacco International and Imperial Tobacco Canada (Fooks et.al, 2013). Japan International was also involved in cigarette smuggling to UAE in 2012 and is presently under investigation on the same. There exists an arguably an association between illicit tobacco business and high taxation. Existing differentials in cigarette prices make it possible for smugglers to make good profits since they are able to purchase cigarettes in low priced markets and resell them in highly priced markets (Guindon et.al, 2013). An introduction of high taxation on tobacco products creates negative consequences on the economy and the tobacco sector without weighing all the foundational variables. In essence, broad price differentialsmotivate cross-border illicit traders to undertake cigarette smuggling. During September 2015, ministers for health in the GCC region proposed a 100% upward review on taxation for all imported tobacco products. Subsequent to promoting illicit trade and smuggling of cigarettes, this move is a breeding ground for terrorism and organized crimes, as the illicit traders are more likely to fund such activities in comparison to legitimate businesspersons.Though there are global leaders in the tobacco industry such as Phillip Morris International and British American Tobacco, illicit tobacco trading is closely behind such leaders with regard to volumes.As mentioned earlier, cigarettes are the most smuggled legal commodities with respect to value.This form of trade is evidently close up to illegal sale of drugs, which is the largest from of smuggling worldwide (Daudelin et.al, 2013). In UAE, the 100% rate of taxation was aimed at generation of higher revenue from the sector while curtailing the consumption of cigarettes. This however has not been the result. In contrary, the move has widened the price gap in comparison to lowly priced markets like Yemen, Libya and Iraq, considerably raising the levels of lucrative cigarette smuggling among such borders. Effect of Illicit Cigarettes to Health Counterfeit cigarettes, despite being substandard and illegal production procedures, are considered unhealthier to consumers in comparison to those produced legally. This is however not clear since the ill health of a smoker is not entirely caused by cigarette ingredients but also by smoking habits and the level of inhalation. This however does not dismiss the dangers of smoking illicit cigarettes. They are ununiformed and substandard products. Though some of them are manufactured using good quality tobacco, there are probably others that are produced using toxic substances such as carbide and sulphur (Van Walbeek et.al, 2013). In a survey conducted in the UK, 78% of cigarette consumers argued that there is a notable difference between genuine and counterfeit cigarettes (Peto et.al, 2013). They considered counterfeit ones as harsh, hard to draw, differently tasting and smelling. In another survey in Scotland, youngsters reported sore throats, chest infections and colds upon consuming counterfeit cigarettes. The dangers of counterfeit cigarettes are not only in their level of toxins but also in their throw away prices. Such prices make cigarettes affordable to many people hence increasing consumption (Van walbeek et.al, 2013). Research indicates that eradication of illicit trade in UAE would correspondingly result to 4000 lesser deaths associated with consumption of tobacco. Cigarette Market Failure Arguably, cigarette smoking is a legal affair for all adults. It is assumed that adults have perfect knowledge about the free market they are involved in. as such, prima facie, there exists no valid reason for the UAE government to interfere with this sector, or claim to intervene due to health risks to the smokers and non-smokers ( Kannel et.al, 2000). For the government to have solid reasons to interfere with cigarette smoking there must be valid and substantial market failures in the sector. It is undeniably evident that cigarette consumers in the Middle East and UAE gain considerable value from cigarette consumption which is reflected by their perpetual paying for the commodity. Smokers claim to gain stress relief from consumption of cigarettes, satisfaction and pleasure and a sense of sophistication and maturity (Obaid et.al, 2014). Continued smoking especially after addiction ensures that smokers have the benefit of avoiding the challenges of withdrawing from nicotine. From an economic perspective, market failure is caused by inefficiencies during allocating resources to a free market (Blecher, 2014). This perspective further argues that cigarette consumers have a private drive to consumption and have a perfect knowledge for the free market, which allows for efficiency in allocating resources in the sector. It is therefore arguably true that if these smokers know the risks involved while they pay for the cigarettes while enjoying the benefits, then there is no validity of government’s interference in this market. However, there are a number of reasons which challenge the above assumptions in the UAE economy. There exist three main market failures in this specific economy. They are; incomplete information concerning health risks involved in cigarette consumption, Limited information related to nicotine addiction and costs inflicted on other people, notablynonsmokers and the society. Incomplete Information on Health Risks Most people who smoke today would have made a different decision if they had been provided with adequate information concerning the health risks involved in smoking of cigarettes. The result of this incomplete information is underestimation of risks involved in adopting this habit. Given that most people make decisions based on known risks with respect to risky consumptions, incomplete information has misled most smokers. In UAE, there are two fundamental reasons for incomplete information. First, the tobacco sector, besides not providing relevant information to consumers, has distorted or hidden the information from them (Taggart et.al, 2012). Secondly, there exists a long interval between the onset of smoking and the beginning of an obvious ailment. This leads to an obscured interrelationship between the two aspects by cigarette consumers. Since there are no financial motivations for tobacco companies to provide the necessary information, they go ahead and hide the information from consumers or mislead them. The companies have in the past been involved in product promotions and advertisements that praise their cigarettes brands, especially among the youth. Concerning the long interval between onset of smoking and contraction of disease, evidence indicates that in the 1960s, only one of four smokers was likely to die from a tobacco-related disease. Currently, one of two smokers is likely to die from such disease in the long run. This is an indication that there would have been much under-estimation in the past compared to currently. Countries that do not provide such meaningful data for their citizens have therefore been active in provision of incomplete information about cigarette smoking. Inadequate Information Regarding Addiction Cigarette smokers are physically addicted to nicotine while they are at the same time psychologically addicted to the behavior of smoking. Once addicted, the cost of smoking in almost unbearable to most smokers, while even those who quit smoking are highly likely to resume smoking when exposed to stress. Most young people, due to inadequate information, have less regard for the cost of cigarette smoking in future(Caponetto, 2012). The addictive nature of nicotine and the early onset of smoking are highly significant to the tobacco market especially in UAE. A survey conducted among students in UAE showed that most young smokers believe that they would quit smoking in a period of less than five years while only one actually quits after the same period. Even in the face of the so-called rational addiction, myopia among young people cannot be ignored. Young people and children are more shortsighted concerning the future risks of cigarette smoking compared to older people (Chaloupka, 2012). The tobacco industry, instead of offering this information, provides incentives such as free cigarettes to youngsters with the main aim of leading them to addiction so that they can become reliable customers. Smuggled and illicit cigarettes that are cheaper in price also increase the purchasing power of young people, leaving them deeper in the trap of addiction. External Costs In any given transaction, the involved producers and consumers bring about costs or benefits to others. In the cigarette concept, there exist three types of externalities namely physical, Monetary and caringexternalities.Physical externalities from cigarette smoking include health risks exposed to nonsmokers by smokers such as diseases and eventual death (Coleman et.al, 2010). Apart from health effects, there are also other effects such as smoke residues, unpleasant smells and risks of fires. Children born to smoking mothers are underweight and have higher chances of contracting other diseases. Adults and children exposed to tobacco also face various health risks. Financial externalities are costs originating from smokers but are partially paid by nonsmokers. In countries where the government finances health care, there is the burden of paying health care for cigarette smoking victims such as newborns by smoking mothers. At homes, the maintenance costs for smokers as well as other costs that may be brought about by smoking such as fires are financial externalities (Park et.al, 2012). In UAE, the government spends about 10% of its healthcare funds on tobacco related illnesses annually. Caring externalities are also referred to existence value. Globally, people agree to pay for other people’s wellbeing, even without knowing them and without any accrued benefits for themselves. These costs are most evident from the public health spending. Children are also most cared for in comparison to adults (Bonneux, 2012). Although people are willing to pay for these costs, they may give up in the end especially when they realize the health implications involved in caring for smokers. Benefits of the Tobacco Industry to UAE The GCC countries have a common tariff for external products. UAE being among these countries does not levy VAT and corporate tax for local products. This policy has a general custom of 5% on items, 50% on alcohol while tobacco is currently being taxed at 100% (Chaloupka, 2012). This is a bold move is aimed at increasing revenue for the government while curtailing the consumption of cigarettes especially by young people and children. The policy also has the benefit of reducing cardiovascular diseases associated with tobacco-consumption. Economic Impacts of Tobacco in UAE The disadvantages of smoking cigarettes in UAE do not stand isolated from those in other countries. Cigarettes have the same effect on smokers and nonsmokers globally. To begin with, a manufactured cigarette contains more than 4,000 harmful elements. Among these are carcinogenic substances, Hydrogen Cyanide, Tar, DDT, Arsenic, Ammonia, Carbon Monoxide and Nicotine (Benowitz et.al, 2014). Nicotine is a very addictive compound which affects multiple body parts simultaneously. Smoking is therefore a health risk, exposing smokers to misery, grief, pain and sickness (Ortegon et.al, 2012). With continued high smoking levels, the UAE government faces large medical costs for tobacco-related sicknesses as well as other costs such as decreased productivity among the country’s labor force due to the effects of cigarette smoking. Cost to the Smoker During 2014, a person who consumes 20 cigarettes a day in UAE spends about $2900 annually. Since 2003, the price of cigarettes has gone up by more than 80% making its affordability to go down by an estimated 22%. Above all, smokers gamble with their health. Studies have indicated that more than half of long time smokers will eventually die from the habit, after contracting a tobacc0-related disease, including the deadly lung cancer. The other two major killer diseases are coronary heart disease and chronic obstructive lung disease (Edlin, 2012).Thesediseases arelong-term, meaning the smoker will have to stop working, which leads to reduced productivity and high dependency. There is also a high chance of early retiring of smokers as a result of the chronic disease (Feenstra et.l, 2001). During the period between 2012/2013, there were about one million admissions in UAE hospitals as a result of disease resulting from smoking. Cost to the Society Research has indicated that UAE spends $12.9billion annually inclusive of treating diseases caused by smoking. Which stands at $2billion annually. Other costs to the society include cost of fires by cigarettes and lighters, social costs of caring for old smokers, sick-offs relating to smoking diseases, wastage of time for business as smokers take breaks for the habit and loss of productivity as a result of premature deaths (Bouneux et.al, 2012). Recommendations The GCC countries seem to have failed in the fight to curtail cigarette and tobacco consumption in the region. UAE in particular, having raised the custom duty of tobacco to 100%, faces much worse situations in the future. The creation of price differentials will enable illicit cigarettes and cross border smuggling to thrive. The youth and children will be more exposed to cheap cigarettes from the black market while terrorism and organized crimes will be on the rise due to increased profits by the illicit traders. The government should therefore review its current taxation [policies as a result of fluctuating global fuel prices. Relying on fuel alone as a source of revenue will not work well for the government. The main recommendation would be to lower the custom duty imposed on cigarettes to a considerable amount. The government should then introduce VAT to its citizens to avoid overreliance on custom duty. This will lay a foundation for a gradual increment in tobacco taxation. Conclusion The UAE government is in the spotlight for curbing this deadly menace. Firstly, reflection into the market failure of the industry has been significant. Smokers need adequate information concerning the health concerns and risks they are exposed to upon indulging to smoking. 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