From this article in the Harare's Financial Gazette via AllAfrica.com.
SAVANNA Tobacco Company is expected to acquire a 4,5 million euro cigarette processing plant before the end of September that would increase output at its factory by more than 50 percent, The Financial Gazette heard this week.Savanna challenges status quo in tobacco industry
A producer of four Pacific brands namely Breeze, Storm, Blue and Mist, Savanna has witnessed phenomenal growth in the past three years, ending the previous year at two billion cigarettes from 500 million units in 2005.
Executive chairman, Adam Molai, said further growth was anticipated, surprisingly underpinned by the effects of the global financial crisis as “people smoke their problems away”.
He said there is a correlation between the recession - triggered by the credit crunch in the United States - and the growth of the tobacco industry.
“As the recession continues people smoke their problems away. That is why we are looking at additional capacity,” he said.
“We are finalising the acquisition of new equipment for additional capacity. Last year we invested two million euro in a new line that added 400 packets of cigarettes output per minute. We are finalising the acquisition of another line to add another 800 packets of cigarettes per minute. That will mean another four million euro investment. Our current capacity is two billion sticks per annum. But with the additional capacity we will be able to produce 4,5 billion cigarettes.”
With this projected growth in output the industry could be having a new market leader in Savanna Tobacco and yet the company is only less than a decade old.
Savanna entered the industry in 2002 when Molai and his partners acquired a tobacco threshing plant near the former Boka Tobacco Auction Floors in Harare.
The next year they installed a secondary department and in May 2004 the first cigarettes rolled off the production line.
While The Financial Gazette could not immediately ascertain the numbers at Savanna’s main competitor, BAT, analysts said it is quite possible that output at Savanna could have overtaken that at the Zimbabwe Stock Exchange-listed cigarette manufacturer.
Last week Savanna said it had entered the tobacco contract farming schemes to increase the flow of the processed golden leaf into its manufacturing plant.
About US$3 million has been earmarked for the project during the 2009/10 farming season.
The previous year, the tobacco processing and export concern funded farmers to the tune of US$1,5 million.
Tobacco farming has been in turmoil in Zimbabwe with output expected to fall to 40 million kgs this marketing season from more than 250 million kgs in the late 1990s.
Indigenous farmers who entered tobacco farming in large numbers following the haphazard land reforms of 2000 have struggled to secure key inputs and implements to maintain the levels set by white commercial farmers who were chased off the farms.
The slump in tobacco output and its threat on downstream and upstream industries has forced companies such as Savanna to fund the struggling farmers of the golden leaf directly.
Banks have been unable to fund the industry because of uncertainties over the security of tenure for tobacco farmers and the systemic liquidity crunch that has left institutions skating on thin ice.
Demand for processed tobacco is however, rising across African and the Savanna chairman, Molai, said the continent offers huge growth potential for his company.
“I can safely say that we have transformed ourselves into arguably the biggest tobacco processing company in Zimbabwe. In 2005 we were producing 500 million sticks per annum but we increased that capacity to two billion sticks by the end of 2008,” said Molai. “We have embarked on a contract-growing scheme. This season we contracted tobacco worth US$1,5 million and we are hoping to enhance the contract-farming scheme during the 2009/10 seasons to between US$2,5 million and US$3 million,” he added.
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