Ethiopia’s Legal Cigarette Market Collapses 67%, Illicit Trade Surges After Tax Hikes : Study

EBR_News Mar 12, 2026

Ethiopia’s legal cigarette market has contracted by an estimated 67 percent between 2019 and 2025, while illicit volumes more than doubled following aggressive excise tax increases, according to a new study commissioned by the National Tobacco Enterprise (NTE) and conducted by Oxford Economics Africa.

The report, titled “Cigarette Market Dynamics in Ethiopia After Changes in Excise Policy and Rates,” analyzed market developments from 2019 through October 2025, covering two major policy shifts: the introduction of a mixed excise regime in early 2020 and a subsequent increase in the fixed rate component in June 2024.

Prior to 2020, Ethiopia levied a 75 percent ad valorem excise tax based on production costs. The new regime implemented in Q1 2020 introduced a mixed system comprising a 30 percent ad valorem rate based on factory gate prices plus a fixed charge of 8 birr per pack of 20 sticks. This pushed the average excise per pack up by more than 200 percent, according to the study.

The fixed rate component remained stable until June 2024, when authorities raised it to 20 birr per pack, resulting in a further 150 percent increase in average excise per pack between 2023 and 2025.

Legal market volumes fell sharply following each tax increase. From 278 million packs in 2019, legal volumes plummeted 39 percent to 168 million packs in 2020, then declined another 15 percent in 2021. After a brief recovery in 2022-23, volumes fell again in 2024 and continued declining through 2025, reaching an estimated 91 million packs for the full year.

The illicit cigarette market, already substantial before 2020, expanded dramatically following the tax changes. Illicit volumes surged 73 percent in 2020, reaching 285 million packs by 2021. After temporary declines in 2022-23, illicit volumes rebounded sharply following the June 2024 excise increase, rising 22 percent in 2024 and a further 19 percent during the first ten months of 2025 to reach an estimated 338 million packs for the full year.

According to the report, Ethiopia’s illicit cigarette market comprises nearly 50 different brands on average annually, with significant volatility as some brands exit and new ones enter illegally. The top five illicit brands Business Royal, Ghamdan, Gold Mount, Gold Seal, and Shamlan accounted for 45 percent of illicit volumes on average during 2021-2025, with their combined share rising from 37 percent in 2023 to 53 percent during 2025 YTD following the latest excise hike.

The legal market’s share declined from 65 percent in 2019 to 33 percent by 2021. While legal regained some ground in 2022-23, reaching 49 percent in 2023, the post-2024 excise increase reversed those gains dramatically. By 2025 YTD, the illicit market commanded 78 percent share, with legal holding only 22 percent a 43 percentage point gain for illicit trade over the entire study period.

Legal retail prices rose 51 percent in 2020 following the new excise regime, then increased 59 percent in 2024 and another 80 percent during 2025 YTD. In contrast, weighted average prices for the top five illicit brands remained near the lower bound of the illicit price range, suggesting a deliberate strategy to maintain and expand market share.

During 2022-23, when price differentials between legal and illicit segments narrowed to negligible levels, the legal market regained share. The differential widened sharply after the 2024 excise hike, coinciding with legal losing 9 percentage points in 2024 and an additional 18 points during 2025 YTD.

The government has lost substantial revenue both from declining legal volumes and tax evasion through illicit trade. Cumulative excise tax revenue losses from illicit cigarettes are estimated at 27.7 billion birr during 2020-2025 YTD. When including VAT, total foregone tax revenue reaches 40.5 billion birr over the same period equivalent to approximately 4 percent of total tax revenues collected in 2024.

Annual tax losses from illicit trade alone rose from an estimated 3 billion birr in 2020 to 10.5 billion birr during 2025 YTD. Combined excise and VAT losses reached 15.6 billion birr in 2025 YTD, up from 4.3 billion birr in 2020.

The study warns that the shrinking duty-paying market segment threatens both the legal industry’s contribution to economic activity and employment, as well as government revenues. The findings suggest that aggressive excise increases without adequate enforcement against illicit trade may be producing unintended consequences opposite to policy objectives.