Illegal cigarette dealers cost Kenya tobacco industry 4,700 jobs

Kenya's tobacco industry is facing mounting pressure from illegal cigarette dealers, with the formal sector losing thousands of jobs and billions of shillings in economic value as untaxed products take an increasingly large share of the market.

A new report estimates that the number of jobs sustained by the regulated tobacco business dropped by 4,700 between 2022 and 2025, falling from 80,000 to 75,300 as more consumers turned to cigarettes sold outside the legal supply chain.

The findings are contained in a study by Kantar Insights East Africa, commissioned by British American Tobacco (BAT) Kenya, which links the shrinking workforce to the growing circulation of cigarettes that evade taxes and fail to meet regulatory requirements.

The losses have affected several parts of the industry, including tobacco growing, leaf processing, cigarette production, wholesale trade and formal retail. The businesses operating in these areas provide livelihoods for thousands of households and support other enterprises involved in supplying and distributing tobacco products.

BAT Kenya Managing Director Sidney Wafula said the illegal market was taking a toll beyond cigarette manufacturers, warning that its expansion was weakening legitimate enterprises and cutting into the industry's contribution to the economy.

“The growth of illicit trade is not just a challenge for the tobacco industry. It affects jobs, legitimate businesses, government revenue and the wider economy. We need coordinated enforcement and effective measures to ensure that products entering the market comply with the law,” he said.

The scale of the problem is reflected in the changing balance between legal and illegal cigarette sales.

According to the report, illicit products controlled 45.1 per cent of the Kenyan cigarette market in 2025, compared with 54.9 per cent for legally taxed cigarettes.

The illegal segment has gained ground from a market share of 34.1 per cent in 2021, while the regulated market has surrendered 11 percentage points during the same period.

Kenya consumed an estimated 4.24 billion cigarette sticks in 2025, with 2.33 billion coming from legal suppliers and 1.91 billion supplied through illicit channels, according to Kantar.

The figures indicate that illegal cigarettes are increasingly competing with established manufacturers and distributors, threatening businesses that operate within the country's tax and regulatory framework.

The study also raises concerns about the quality of employment supported by the two segments, noting that the formal industry generates more formal jobs relative to its output than the illegal market.

Although informal traders may continue earning money from the sale of illicit products, the report says such activities do not generate tax revenue or support social security contributions.

“While people may still earn income, this activity is not taxed and does not contribute to social security schemes,” the report says.

The decline in employment has been accompanied by a drop in the tobacco industry's overall economic contribution, which fell from Sh89.5 billion in 2022 to Sh73.2 billion in 2025.

Kantar estimates that the country lost Sh37.7 billion in cumulative gross value added over the three-year period as economic activity was displaced by illegal cigarette businesses.

The sector's contribution to agricultural gross domestic product has also weakened, dropping from approximately three per cent in 2022 to about 2.2 per cent in 2025.

In assessing the industry's economic impact, the report considers three areas: direct, indirect and induced contributions. These include activities carried out by manufacturers and retailers, spending on supplies from farmers, packaging companies and transporters, as well as money spent by employees within the wider economy.

This means the growing illegal trade is also putting pressure on businesses that do not manufacture or sell cigarettes directly but depend on the formal tobacco industry for income.

Farmers supplying tobacco leaf, logistics companies, packaging firms, wholesalers and retailers are among those exposed to the changing market conditions.

The report attributes the expansion of illicit cigarette sales to several factors, including the widening price gap between legal and illegal products, established informal distribution networks, porous borders and gaps in systems used to track products.

These challenges have made it easier for illegal cigarettes to compete with taxed products, further reducing the market share of legitimate businesses.

The findings paint a picture of an industry losing its economic footing, with declining employment, reduced agricultural contribution and shrinking business activity occurring alongside the rapid growth of the illicit cigarette market.