British American Tobacco, the second-largest tobacco company in the world revealed its decision to close its manufacturing plant in Latvia’s capital Riga in the beginning of October and dismiss 223 workers. According to BAT, the shutdown is a result of constant tax increases within the last two years and booming black market of bootleg cigarettes.

The company’s spokesperson said that decision has been a difficult one; however, by estimating the production volumes within the first six months of the current year with the identical period in 2008, BAT experts found out that the production volumes have dropped by 64 percent.

British American tobacco as well reported that the plant uses only a quarter of its capacity, mainly because of decreased consumption due to flourishing black market of cheap cigarettes, which accounts for approximately 40 percent of aggregate tobacco market in Latvia.

“Current economic reality is that we have to shut down the plant and lay off employees, since each tax hike results in the risk of further development of black market and drop of sales of legal products, which leads to reduction of legal job positions,” said chairman of BAT Latvia, Peter Halacz, during a news-conference.

Increases in tobacco taxes within the last years led to dramatic increase of cigarette prices in legal market and triggered growth of illegal market. During the recent years legal market has sunk by 40 percent, hitting the discount segment especially hard.

“The general economic downturn in Latvia has deepened the negative effect even more. Currently a great part of smokers, particularly those with low incomes, turned to black market in order to save money, buying cheap illegal products and therefore, hurting the legal industry and economy as a whole,” the BAT Latvia executive officer said.

The shutdown of the plant will be another major headache for the government that has not done almost anything to crack down the black market, despite BAT Latvia, which one of the largest taxpayers in the country paying $70 million in taxes to the national treasury, warned the officials about growing danger by illegal cigarette sales.

Anete Valters, BAT Latvia spokesperson mentioned that the Latvian government finally started to apply comprehensive efforts, citing the recent legislation reducing the number of cigarettes imported from neighboring countries on legal basis from 200 to 40, saying that it has been the first important measure to crack down the black market of bootleg cigarettes.

Although BAT asserted that illegal cigarettes are the major reason for shutdown of the Riga plant, in reality, the plant traditionally produced cigarettes for export. Approximately 60 percent of all manufactured cigarettes were intended for export to European countries. Brand produced in the Riga plant included Vogue, Kent and Viceroy.

The BAT spokesperson admitted that manufacture from the factory in Riga would be transferred to other factories located in the European region.

The cigarette-making plant, situated at 58 Miera, was launched almost a century ago, in 1912. Its previous name was Rīgas Tabakas Fabrika.

British American Tobacco is a multinational corporation, owning 49 plants in 41 countries and manufacturing approximately 715 billion cigarettes last year.

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