Ode to tycoon who almost smoked BAT out of business - Beaking Kenya News

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Sunday, 9 June 2019

Ode to tycoon who almost smoked BAT out of business

Businessman Wilfred Murungi
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Before tobacco tycoon Wilfred Murungi died this week, what troubled him most was the impending forced sale of his properties to settle a Sh2.9 billion tax claim demanded by the Kenya Revenue Authority.
Mr Murungi fought hard to save his venture and he got little, if any, political support over all these years. A few weeks before his death, an industrial go-slow was reported at his factory – at a time when he was ailing. Business had been bad, support waning and the court cases had drained him.
Mr Murungi’s Mastermind Tobacco, the makers of Supermatch brand, had been forced to file a consent in court indicating that the pioneer indigenous cigarette maker in Kenya was willing to dispose of 12 properties in order to raise Sh1.54 billion as partial payment of one of the biggest tax claims to a local entrepreneur. He would do anything to succeed.
It was also reported by his handlers that at the tail-end of his life, Mr Murungi was willing to offload 51 per cent of Mastermind shareholding to the global giant Phillip Morris, the makers of Marlboro, hoping to resuscitate his venture. Although Phillip Morris is a global company, it has limited African footprint in only South Africa and Senegal and Mr Murungi hoped that he needed such muscle to survive this callous market.
Ever since he quit as an engineer with BAT Kenya Limited to set up Mastermind Tobacco in the late 1980s – first in Nakuru and then, when the business did well, in Nairobi – Mr Murungi had to fight survival wars in the cut-throat tobacco industry: He fought the government, fought BAT, and fought for a slice of tobacco-growing zones, with different outcomes.
The entrepreneur had entered the industry at a tricky time when an American academic Prof Allyin Taylor had published an article in the Journal of Law and Medicine arguing, for the first time, that the World Health Assembly of WHO had a legal mandate to assist member-states in strengthening their laws to control the health effects of smoking. Then, the anti-tobacco campaign gained currency and he could not advertise his products.
By this time, the East African market was dominated by a giant British monopoly that had been the face of cigarette production in the region from 1907 when they set up a base in Mombasa – before building a factory in Nairobi in 1957 to serve the region.
For years, BAT – with a 20 per cent government shareholding then - promoted the growing of tobacco to ensure a steady supply of raw tobacco leaf with a chain of farmers, stores and extension officers. As a monopoly, BAT did well. Extremely well – and when pushed to the corner, its officials are alleged to have bribed local politicians and bureaucrats to survive. That was until 2013 when its former employee, Paul Hopkins told BBC's Panorama that he was BAT’s “Commercial Hitman” and handed to the British Serious Fraud Office recordings of conversations between Gary Fagan, BAT’s director for East and Central Africa, and a company lawyer, Naushad Ramoly, discussing bribes.
“BAT is bribing people, and I'm facilitating it,” Mr Hopkins had claimed. But BAT has consistently denied Mr Hopkin’s allegations and SFO has not concluded the matter, yet.
This was the environment in which Mr Murungi had built his fledging tobacco industry shortly after the liberalisation of the economy and the entry of imports. It was also the time another US company, RJ Reynolds, had introduced Aspen and Camel brands into the market and had hoped to build a factory in East Africa. It was fought out of the Kenyan market, leaving Mr Murungi to fight BAT alone.
Murungi first ran into headwinds, as expected, from BAT which claimed that Mastermind was infiltrating its zones in Bungoma and South Nyanza; arguably the best tobacco zones in Kenya.
So vicious was the war that BAT was once accused in Parliament of “behaving as if it was the government”. As the controversy heightened, the government intervened and carved out the tobacco-growing regions into zones for the two companies; giving BAT the most productive zones and forcing Mastermind to develop its tobacco industry from marginal tobacco-growing areas.
The core of the dispute was that Mastermind had not established a reliable network of tobacco supplies, and BAT felt the company was leeching, nay piggy riding, on its network of contracted farmers – and not paying for it. But farmers were, indeed, happy with Mr Murungi. He paid them better prices and on time. It was also a political issue.
On July 5, 1991, the then agriculture minister, Elijah Mwangale, zoned the tobacco growing areas for the two companies. While the best tobacco came from Bungoma, Busia and Migori, it was also grown in marginal areas such as Kitui, Murang’a, Kirinyaga, Mandera, Isiolo and Siaya.
With that a motion was tabled in Parliament by Joseph Malebe asking the government to formulate a policy that would permit and encourage free and fair competition in the tobacco industry.
“The minister, in his zoning was controlling the tobacco business and also favouring BAT company which has been milking this country in the form of foreign exchange,” Mr Malebe claimed. “When the zoning favours BAT, then we are favouring the exploitation of the economy of this country by expatriating the wealth of this country away.”
So vicious was the trade that the provincial administration was asked to supervise to whom the farmers sold their produce. With the provincial administration in South Nyanza said to be leaning on BAT, the MP said “definitely you cannot rule out the question of graft and corruption, which are the things we are trying to fight in this country”.
It was the first time that BAT had met its match – a former employee. Before Mastermind started its factory in Nakuru, the price of a kilogramme of tobacco leaves was Sh15. Mastermind offered farmers Sh24, triggering a fight.
Publicly, BAT had not asked for protection from any competition and the government’s decision to give Mr Murungi’s company only 3 per cent of tobacco growing zones while BAT was left with 97 per cent was dismissed as “an evil decision” by MP Peter Habenga Okondo.
“In 1970, the BAT fought another company here known as Rothmans until it was out of the market. We never saw anybody going to help it at that time. Why is it now being supported?” posed Mr Okondo.
It was the same sentiments from Maurice Makhanu who claimed that BAT had a tendency to push out competitors having successfully blocked Rothmans’ rise. “I am happy that Mastermind has come up with a very good system of grading tobacco to ensure that no farmer’s tobacco is thrown away. In fact, the company’s field officers are very courteous to farmers because they know that the farmer is very important.”
But that was half the problem. Later, Mr Murungi was forced to source his tobacco from as far as Uganda and the Democratic Republic of Congo.
In June 2012, Uganda banned the transit of the Supermatch brand of cigarettes to South Sudan, Democratic Republic of Congo, Sudan, Rwanda, Burundi and Chad through Uganda. This followed a trade dispute over Supermatch trademark dispute between Mastermind and Leaf Tobacco Commodities Ltd of Uganda.
The BAT whistle-blower, Paul Hopkins, would later claim in the BBC corruption expose that they did some dirty work against Mastermind. That included paying kickbacks to some Kenya Revenue Authority officials to make numerous tax demands and damage its reputation.
“We paid the KRA guy, the right KRA guy a shed load of money. He issued all the tax demands. I mean we have tax demands now,” says Mr Hopkins in a leaked recorded telephone conversation with then BAT Kenya boss Gary Fagan.
While KRA denied the claims and asked those with evidence of any wrongdoing by its officers to present such information to the anti-graft agency for investigation -- what we know is that this was the last straw on Mr Murungi’s venture. BAT has always dismissed these claims.
That Murungi had no peace in running a private tobacco company in Kenya is now well documented. But what he went through silently is perhaps the untold story of the tobacco industry. It is the story of a Kenyan who tried hard to set up a local giant and got little support.
Whether he dodged taxes or not, the jury is out there. Fare the well, Engineer.

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