The making of a big player in tobacco

Ten years ago, the founders of Zimbabwe's Savanna Tobacco happened upon a derelict threshing plant. From these humble beginnings, the company has grappled with political and economic uncertainty to grow into a major player holding almost half of the Zimbabwean cigarette market and provides a livelihood to 250 people.

"The initial capital was raised through ingenuity," says Adam Molai, the company's executive chairman. "We came across a previously liquidated threshing plant on the outskirts of Harare, which was being sold at almost 10% of its value. We then had the place thoroughly cleaned and reorganised, and were able to bring in equity partners who were willing to pay the full actual market value."

The equity partners handed the fledgling company a Z$200-million cheque, which was used to buy the plant. This plant, at its full market value, was later used as collateral for a working capital facility from Stanbic Bank.

Savanna employed 66 people and started processing and packaging cigarette stems, which were sold to factories around the world.

But, following changes to the Zimbabwean land tenure system in 2000, one of the Savanna shareholders los t his farm.

Molai says this prompted the company to speak to the government about changing the tobacco marketing system, as the crop was only sold through an auction process.

"We were able to show government that with the transformation of the land tenure system, new farmers would not have the capacity to raise capital from banks, as they would not have title deeds," says Molai. "Thus it was imperative, as a forward-looking exercise, to dualise the tobacco marketing process to include contract farmers."

But this proposal faced significant opposition, with one of the initial allegations being that the company would provide a mechanism for "white commercial farmers" to externalise their earnings.

The auction system forced a level of transparency which the contract system was viewed as negating. Molai says the opposition caused a two-year delay.

"A process to work with government and the Reserve Bank of Zimbabwe (RBZ) to ensure that the feared leakages did not happen, was embarked upon - culminating in the awarding of our licence in 2002," he says.

This set the stage for the Zimbabwe Tobacco Growing Company, which sourced its tobacco from a combination of farmers.

The company attracted the attention of British American Tobacco (BAT), which became its partner in a joint venture that was ultimately rebranded Northern Tobacco. But the partnership soured when Savanna began cigarette manufacturing.

Savanna opted to sell its share of the company to BAT when its directors identified an opportunity to produce cigarettes for the export market, using the tobacco it was already processing.

The first cigarette production equipment arrived in 2003, leading the following year to the launch of the Pacific Blue brand of cigarettes.

"In 2004, through a structured finance facility we were able to raise a Z$5-million loan and equity to further capacitate our expansion into cigarette production," says Molai.

Savanna thereafter launched two more brands, Pacific Storm and Pacific Mist, extending its footprint across southern Africa.

A major test for the company presented itself in 2005. RBZ required exporters to surrender 50% of foreign currency earned in return for Zimbabwean dollars.

"With our high requirements for foreign currency, this would have seen us going out of business within a period of less than four months," says Molai. "We would then have had insufficient foreign currency to meet our import requirements."

Savanna established a mechanism to outsource manufacturing plants to companies.

Molai says this innovation became a saving grace for many exporting companies in Zimbabwe, because it was subsequently adopted as monetary policy.

ZRB governor Gideon Gono introduced the system in 2005 in response to job losses brought on by manufacturers operating "well below" their normal capacity, as input shortages and severe contractions in demand for locally manufactured products took their toll.

Savanna's perseverance in the face of all these stumbling blocks paid off when its Pacific Storm brand won a silver medal, and the Pacific Blue brand a bronze medal, at the 2006 Monde Selection.

The Monde's professional jury tests consumer products from around the globe for quality and makes awards.

"To achieve a bronze and silver medal, especially since we are not exporting products to the US and Europe, is a huge accolade," says Molai. "We were rated by European agencies, which have the highest quality rating parameters of any environment."

However, says Molai, "Our business mantra and focus is Afro-centric. We have always emphasised that product development focuses purely on the continent, thereby creating a portfolio of products aimed at bringing dignity to our African consumers."

Savanna does this through supplying packed cigarettes to the bottom of the pyramid, which has previously been ignored.

The company has invested US$13-million in flow-wrap packaging, enabling the packaging of two, five or 10-pack cigarettes. This has negated the need for lower-income customers to purchase loose cigarettes from street vendors.

"This is unhygienic and demeaning, while also exposing them to various tropical diseases prevalent across Africa," says Molai. "A recent typhoid outbreak in Zimbabwe has been spread through vendors selling unhygienic and unpackaged products. Our innovation has really been well received as an African solution to an African problem, but with first-world packaging standards."