The Tobacco Curse: Why Belarus Smokes and Smuggles Cigarettes
More than 65% of Belarusian university and high school students smoke, according to recent estimates from the Ministry of Health.
While smoking is declining across Europe, a growing number of young Belarusians are turning to cigarettes due to lax regulations and low prices. Cheap cigarettes from Belarus are also being smuggled into Western Europe, involving thousands of Belarusians who regularly engage in criminal activity.
Why do cigarettes in Belarus remain among the cheapest in Europe?
Raising the cost of tobacco products – by levying an excise tax on consumers – is a simple and effective measure to combat smoking among both youth and adults.
A tobacco tax could produce economic as well as social and health benefits. At the end of the day though, the Belarusian government is reluctant to tax tobacco because of the profits it reaps from manufacturing and exporting tobacco products.
Belarusian Youth are the Biggest Smokers in the post-Soviet Space
Overall rates of smoking in Belarus are comparable to those in other post-Soviet states. But Belarus leads in the prevalence of smoking among young people. This suggests that the state has not done enough to discourage new smokers from joining the legions of the nation's smokers.
According to the World Health Organisation (WHO), raising taxes on tobacco products is one of the most efficient ways of combating tobacco consumption. This measure is especially effective among young people, who tend to have lower incomes and are not yet addicted to nicotine.
WHO estimates that if all countries raised taxes on tobacco by 50% per pack, governments would earn an extra $101 billion in revenue, while decreasing the number of smokers by 49 million.
WHO recommends the tax be equivalent to at least 75% of the retail price. This policy is currently in place in 26 out of 53 countries in the Europe, including those EU countries that border Belarus (Poland, Latvia, Lithuania, and Estonia). Not a single post-Soviet country has raised taxes on tobacco products to this level, however.
Belarus offers perhaps the cheapest cigarettes in the EU neighbourhood. They cost about 13 times less than in other European states. For example, in 2012, the price for a pack of Philip Morris' Marlboro ranged from $1.50 in Belarus to $17.80 in Norway, according to a report by KPMG LLP.
Smugglers Can Earn up to 1000% in Profits
In the last ten years, as the price gap have significantly narrowed between EU countries and as Belarusian prices have remained low, the country has become the largest source of illegal tobacco in the EU.
According to a KPMG study commissioned by major global tobacco companies, Belarus’ total volume of illegal C&C cigarettes exported to the EU was around 6.9 billion cigarettes in 2013. For sake of comparison, Russia accounted for a mere 3 billion illegal C&C cigarettes over the same period of time.
The KPMG study also found that the highest levels of illegal trade incidences are found in Latvia (28.8%), Lithuania (27.1%), Ireland (21.1%), Estonia (18.6%) and Bulgaria (18.2%).
It is no coincidence that three of these five countries border Belarus. Smuggling from countries like Belarus, where a pack of cigarettes costs just over one euro, allows smugglers to earn profit margins of up to 1000%.
The Real Costs of Cheap Tobacco
Poland is another popular destination for illegal tobacco from Belarus. Passengers on a short train ride from Grodno, Belarus to Bialystok, Poland can easily illustrate just how bold some ordinary citizens can become when given sufficient financial incentives.
As soon as the train starts on its way, about two-thirds of “passengers” rush to unscrew parts of the floor, seats, and ceiling to hide their stock of illegal cigarettes. Cigarette packs can also be easily taped to passengers’ bodies. (The law permits two packs per person.)
At the border, customs officials uncover only a small portion of the hidden loot; the rest is taken out in Bialystok and sold. The few unlucky smugglers who are caught red-handed are fined, but the fine is unlikely to deter them from trying again.
The local newspapers frequently publish amusing stories about the ingenuity or the foolishness of tobacco smugglers.
These stories speak of secret compartments, double underwear, and packages with mini-antennae sent floating down the Neman river, which runs along 18 kilometres of the Belarusian-Lithuanian border.
Of course, the volume of cigarettes smuggled by these “desperate” citizens is peanuts when compared to the volumes transported by criminal gangs via more sophisticated methods.
Smuggling cheats governments and tobacco companies out of billions in profits. Aside from financial losses, cigarette smuggling carries social costs that disproportionately fall on communities living close to the EU border. Studies show that illicit trade fosters broader criminality, from stolen property to corruption to murder.
Who Invests in Belarusian Tobacco?
Even though cigarette companies lose some sales through smuggled cigarettes, they can also benefit financially when investing in factories located in countries with low tax rates. These factories are used to produce brand-name products that are then sold abroad. Because of the low tax rates on tobacco products, Belarus has become an important link in the tobacco sales chain.
There are two major manufacturers of cigarettes in Belarus: the “Neman” Tobacco Factory in Grodno and the Belarusian-American joint venture “Tabak-Invest.”
Both factories have attracted big-name international investors. British American Tobacco reportedly invested 20 million Euros in “Neman”, while Japan Tobacco International is manufacturing its cigarettes via “Tabak-Invest”. In April of this year, the British company Tobacco International Enterprises agreed to invest 4.5 million Euros in “Neman” as well.
According to its 2014 budget estimates, the Belarusian Ministry of Finance projected US$400 million in excise tax revenue from tobacco products. Higher tobacco taxes would further raise revenues for many years to come, even if they would decrease the rates of smoking over time.
In some cases where a country has raised tobacco taxes, the price increases have actually increased the prevalence of smuggling cheaper cigarettes into the country, diverting money that would otherwise flow to governments in the form of tax revenues.
In Belarus, however, the situation appears to be rather different, since cigarettes are smuggled out of the country into the neighbouring EU. Raising tobacco taxes are thus likely to reduce rather than increase smuggling – a win-win scenario for government coffers and the healthcare system.
Belarusian Volunteers Join Ukraine Conflict on Both Sides
Earlier this month the Belarusian media put out a story on the Belarusian military unit Pahonia, which is training in the Valyń region of Ukraine in order to join Ukrainian army.
Fighters did not reveal their names, fearing potential KGB pressure, but Ukrainian officials say many Belarusians have contacted them to join the unit.
Some Belarusians were also detected on the other side of the conflict. While they did not form any special unit and are trying to keep their involvement under wraps as Belarus' KGB has already initiated a number of criminal cases against them for being mercenaries.
At the same time it seems that Belarus is urgently trying to learn lessons from the Ukrainian conflict, while also seeking to retain full control of the situation domestically ahead of 2015 presidential elections.
This month the government ramped up its anti-terrorist legislation, while Lukashenka’s speeches have become increasingly loaded with security issues. He has been urging the authorities to strengthen Belarusian sovereignty on the basis of a strong economy and a heightened level of international authority.
Belarusians Ready to Fight for Ukraine
Since the outbreak of hostilities in Ukraine, some Belarusian citizens have sought to personally join in on the military conflict in Ukraine. Ukrainian TV channels occasionally show stories of a Belarusian unit in the Valyń region of Ukraine training and preparing for combat in the country's south-east.
The unit has a name Pahonia and trains Belarusians who want to fight against the separatists. According to head of the Valyń City Council, Ihor Guź, the unit has been formed as part of an initiative of the Right Alliance youth organisation, which has cooperated with Belarusian oppositional youth groups and individuals for many years.
All of the volunteers who have joined are younger than 30 years old and many actively work with Belarusian NGOs. Belarusians do not dare reveal their names as to prevent repression against them and those associated with them at home. The Malady Front, an opposition organisation, confirmed that some of its members have made their way to Ukraine. “After we announced the unit's formation, about 50 people showed up and contacted us to join it. Sure, there are members of the Belarus KGB among them, but we will figure out a way of how to deal with it [later],” Ihor Guź said.
In an interview with the Rosbalt news agency, an anonymous Pahonia fighter explained that they crossed the Belarus-Ukraine border legally, and if they are questioned on their return home at border what they were doing in Ukraine, they will answer they simply reply that they were working in Kyiv.
“We don’t tell anyone about it, people would not understand. Only our closest relatives know that we went to war,” the Pahonia volunteer said.
Belarusian combatants say they decided to help the Ukrainians in their fight against Russia because Belarus may face the same threat in the future:
When Georgians said that Ukraine will be the next, nobody believed them. Lukashenka is quite smart, but Moscow will do away with him sooner or later. And we hope our Ukrainian brothers will help us just as we help them now. We are not being paid any money here.
Aide to Minister of Internal Affairs of Ukraine Anton Herashchenko confirmed that “there indeed are Belarusian citizens who want to fight against the terrorists in Ukraine. Ukrainian legislation does not allow for the use of foreign units, but they can easily obtain Ukrainian citizenship.”
Earlier, Semion Semenchenko, the leader of the Donbas volunteer battalion reported that 15 Belarusians joined them in order to fight against pro-Russian forces.
DNR Combatants Face KGB Pressure
As Belarus remains a nation divided over whether its future is with the EU or Russia, it is hardly surprising that Belarusian nationals have been appearing on the other side of the conflict as well.
Earlier this month Ukrainian security services reported that it detained a citizen of Belarus. Allegedly, he came to Odessa together with some Russians with an order from Russian intelligence services to destabilise the situation in the region. They established contacts with local radical groups, distributed leaflets and inspired anti-government protests.
In May, Ukrainian Security Service detained Belarusian citizen Alieh Šabalin, who was accused of carrying out preparations for a terrorist act. Despite this and other individual incidences of collaboration with pro-Russian forces, no organised units of Belarusians on the side of the separatists have yet to appear.
Natallia Krasoŭskaja became perhaps the most famous Belarusian in the pro-Russian camp. A few videos of her have appeared online, videos where she claims she is from Barysaŭ, Minsk region, and came to Ukraine back on 5 May to support the separatist forces.
Showing her Belarusian passport and addressing Lukashenka, she proclaims in one video that the Donetsk People's Republic has the backing of the Belarusian people.
However, the Belarusian authorities appear to not be all that enthused with this brand of flagrant pro-Russian patriotism. As Krasoŭskaja notes out in a later dispatch, the Belarusian KGB called her mother to inform her that they have filed a criminal case against her. She added that other Belarusian nationals in the DNR paramilitary army have also gotten word that criminal cases were opened against them.
It seems that Belarus is desperately trying to learn as much as possible from the conflict between Russia and Ukraine. This month the government amended its anti-terrorist legislation which includes a section on financing terrorism, increased penalties for the recruitment of mercenaries as well as for training individuals with the purpose of having them participate in terrorist acts.
On 22 April, Lukashenka in his annual address to the nation ordered Belarusian security services to closely monitor and control those who promotes the “Russian issue” in Belarus and immediately curb these kinds of discussions, regardless of who starts them. And as the cases surrounding the Belarusian paramilitaries working on the side of the DNR has shown, the KGB is indeed carrying out its orders.
Publicly though, Lukashenka continues to maintain a diplomatic balance by utilising ambiguous and unclear statements whenever speaking about either side of the conflict. His rhetoric mainly involves urging all sides to end the armed conflict and restore Slavic unity.
Speaking at the Kupalle annual festival in his native village Aleksandryja on 6 July, Lukashenka stated that “Slavic unity has seriously fractured, and we should do our best to achieve peace in Ukraine.” He used similar words on 10 July at the opening of the Slavic Fair cultural festival in Viciebsk.
Both sides are both seeking to draw Belarus further into their camp. At the opening ceremony of the Slavic Fair, the Ukrainian ambassador to Belarus Mikhail Ezhel read a letter of greeting form Ukrainian president Poroshenko.
At the same time, Lukashenka has been increasingly frequently raising the issue of national security in his conversations with Belarusian officials. “The weak are abused, and the strong are respected in the new geopolitical reality, so we must be strong politically, and even more so economically,” he said at a gathering with Belarusian diplomats.
The Belarusian leadership, for its part, continues with its balancing act on the foreign affairs front, while trying to retain complete control of the situation domestically.
The fear of combatants returning, who may come back home as agents of foreign influence, is forcing the Belarusian authorities to their tighten up security measures.
Before the 2015 presidential elections, Lukashenka is not going to allow for hardly any political liberalisation, especially in an environment that is so highly volatile.