The Fourth Largest Market in the World
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Tobacco Control 1999;8:89–91 89 Tob Control: first published as 10.1136/tc.8.1.89 on 1 March 1999. Downloaded from INDUSTRY WATCH The fourth largest market in the world Introduction on tobacco than they did on clothing and foot- The rich aroma of kretek clove cigarettes is one wear, on meat, or on medical and educational of the most evocative scents of Indonesia. But needs combined, and twice as much as they behind this redolent smoke haze few people spent on festivals. The poorest households contemplate the economic aspects of spent more on tobacco than they did on fish, Indonesia’s tobacco industry. Tobacco is the meat, and eggs combined.”7 In early 1998, Indonesian government’s largest source of rev- industry investment analysts Morgan Stanley enue after oil, gas, and timber,1 recouping Asia Ltd estimated cigarette production and around US$4 billion in excise in 1996,2 about sales in Indonesia would not be significantly 10% of the Indonesian government’s total tax aVected by the economic crisis.10 More revenue.3 Tobacco tax is an easy, reliable form recently, ING Barings Securities predicted that of taxation, a steady, internal revenue, unlikely the largest cigarette company, Gudang Garam, to suVer from any external shocks, and unlikely would be one of the most likely Indonesian to create any sudden crisis, in contrast to the companies to survive the crisis.11 instability of oil revenue and other export- orientated products which are subject to the Advertising and health information vagaries of international markets. The dangers of smoking are not well promoted As the second largest employer after in Indonesia. Yet most clove cigarettes 3 kretek government, direct and indirect employment have been found to contain around four times estimates for the Indonesian tobacco industry as much nicotine and tar as the strongest 2 4 range from 4.3 million to 17 million workers Marlboros.6712 Kreteks are made up of a in farming, trading, transportation, and adver- mixture of cloves and tobacco, usually about tising, as well as those directly involved in two-thirds tobacco and one-third cloves, plus 5 manufacturing. The Indonesian government an undisclosed mix of additives called “sauce”. is critically dependent on the industry, as a In addition to the enormous levels of tar and means of sustaining employment levels, and for nicotine, research on the clove oil, eugenol, http://tobaccocontrol.bmj.com/ taxation revenue. As a result, opposition to conducted by the American Health Founda- the industry is discouraged and cigarette tion, has shown that it causes extensive lung advertisers have free reign: “If NGO’s [non- damage when smoked.13 Yet the lack of health government organisations] get too verbal, they information about kreteks even extends to get warned that tobacco industries are vital to active misinformation. As recently as 1989, an 6 the nation’s development.” article in the Business News magazine stated that kreteks could prevent heart disease and 6 Young smokers cancer. Packaging on another brand claimed the cigarette increases longevity and improves Any visit to Indonesia will reveal the huge 14 number of Indonesians, particularly men, who health. Health warnings such as “Smoking can harm your health” were introduced on smoke. Male participation estimates range 3 37 cigarette packets in 1991, but these remain from 50% to 85%, and “since 1970–72, per on September 30, 2021 by guest. Protected copyright. adult consumption of cigarettes (all forms) has small and unobtrusive. more than doubled, from 500 to 1180 per In 1996, at the tailend of Soeharto’s regime, adult”.3 In the short to mid-term these rates Indonesia’s health minister confirmed that “the government had no intention of trying to are only likely to increase because, as a report 15 produced with the assistance of the Indonesian regulate smoking through legislation.” The government enthusiastically noted in 1991: tobacco industry was the ninth biggest advertising spender by product category in “Prospects for further market growth are con- 16 sidered good. Consumption levels per head of 1996, and as PT Sampoerna, one of the larg- population are low by international stand- est Indonesian tobacco companies, confidently ards....Ahigh proportion of Indonesia’s noted in their 1995 annual report: “Being such population is in the younger age groups, mean- an important economic component and the ing that the potential population of smokers fact that the industry and the government will be growing rapidly in the next decade at have, all in all, a good working relationship with least.”8 each other in the past, makes it doubtful that In 1985 a Jakarta study found that 49% of the government will radically change (for the worse) its current policies towards the industry boys and 9% of girls aged 10–14 were daily 17 smokers.3 By contrast, a 1995 Indonesian as a whole.” health department survey (perhaps conserva- tively) estimated that 22.9% of urban 10 year Tobacco companies in Indonesia olds, and 24.8% of rural 10 year olds smoke.9 In contrast to the tobacco industry in other It is uncertain to what degree the economic countries, Indonesia’s industry is not crisis has aVected these participation rates but, dominated by multinationals. Multinational in 1980, Indonesian households “spent more participants in the industry include Philip 90 Industry watch exposure to litigation and potential lawsuits as Tob Control: first published as 10.1136/tc.8.1.89 on 1 March 1999. Downloaded from do their American counterparts.”17 Post-Soeharto, corruption and nepotism in Indonesia have become an openly acknowl- edged problem. Interestingly, however, only two of the Soeharto family members have directly participated in the lucrative tobacco industry. The first of these was Tommy Soeharto, who controlled the BCCP clove monopoly. To give an example of the sort of corporate regime that exists in Indonesia, at one stage BCCP paid clove farmers US$2 per kilogram for their cloves, and then resold them to the tobacco companies for between $6.50 and $7.50.26 This monopoly was recently can- celled as part of the IMF “reforms”. But the clove farmers are still unlikely to receive the amounts that the tobacco companies paid to Tommy Soeharto. These companies, being in a stronger position to bargain, will most likely be the beneficiaries of this new, “free” market. The other Soeharto family member involved in the industry is Soeharto’s cousin, Sudwikat- mono. Sudwikatmono recently formed a partnership with Australian Rothmans Hold- Putera Sampoerna, Indonesian tobacco billionaire, ings Ltd, to “help the Company improve its surrounded by his symbols of success. knowledge of the Indonesian market.”19 In their 1997 annual report, Rothmans were Morris, PT BAT Indonesia (70% owned by enthusiastic about what then seemed to be a UK BAT Industries Ltd)18 and Rothmans judicious alliance. In addition to his ties with (95% owned by the Australian Rothmans Soeharto, Sudwikatmono also controlled the Holdings Ltd),19 but as estimates from a importation and distribution of overseas 26 number of sources reveal, in early 1998 these films. companies together only held about 15% of the In the past the director of a Philip Morris Indonesian market.8122021 aYliate has acknowledged that payoVs “are http://tobaccocontrol.bmj.com/ Although there are between 155 and 363 necessary for corporate survival and profitabil- 12223 ity,” and “were essential to get favourable legis- tobacco companies in Indonesia, only four 27 major ethnic-Chinese Indonesian companies— lation enacted.” Such an approach is a feature Gudang Garam, Djarum, Sampoerna, and of Indonesian corporate and political culture. Bentoel—dominate the remaining market And while Philip Morris is an enormously powerful company in its own right, it also has share. To give an idea of exactly how profitable powerful Asian connections. Philip Morris the Indonesian market is for these companies, director Rupert Murdoch also owns Star TV in 1997, of the seven known Indonesian Indonesia,28 which runs the subscription billionaires (US$), three were tobacco network Indovision. Indovision is owned by barons.24 25 Bimantra Citra, a company belonging to + Rachman Halim and the Wonowidjojo fam- 29 Soeharto’s second son Bambang. The on September 30, 2021 by guest. Protected copyright. ily (the publicly listed Gudang Garam political influence devolving from Murdoch’s brand) were worth US$4.9 billion in connections and ownership of such a powerful November 1997, after the massive fall in the medium,30 ensures that Philip Morris is strate- value of the rupiah. gically positioned to increase its market share + Budi Hartono and family (Djarum brand) in Indonesia through its liaison with Bentoel’s were worth US$1 billion with 20% market subsidiary PT Tresno, which produces share of kreteks in early 1997. Marlboro cigarettes22: “The untapped markets + Putera Sampoerna (figure) and family of Asia, a region that easily accounts for a third (publicly listed—their brands include Dji of the world’s cigarette consumption . [con- Sam Soe, A-King, A-Mild, A-International) tain consumers] that barely know more than a were worth US$1 billion in November handful of our many fine brands....”31 1997, again after the drop in the rupiah. For all these tobacco companies, Indonesia Employment in the industry represents an attractive business environment, Little research has been carried out on despite the current economic crisis. There are employment conditions in the industry. few of the restrictions tobacco companies are Women in all areas of Indonesia’s industrial experiencing in Western markets, a practically sector are subject to appalling working unrestricted advertising and marketing regime, conditions with extremely detrimental health and the prospect of far less troublesome eVects, for minimal pay.32 In the traditional long-term profits.