Revenue or Health: Dilemma of Curbing Indonesia's Tobacco Consumption
Widespread cigarette consumption among Indonesians (especially men) can have a negative impact on the country’s current demographic bonus. One of Indonesia’s strongpoints in terms of economic make-up is that it has a large and young, thus potentially productive, population. Indonesians in the productive age (15 to 64 years) outnumber those that are categorized as youth (below 15 years) and elderly (over 65 years). This large productive group should provide a boost to Indonesia’s economy in the next two decades.
About half of Indonesia's population is below thirty years of age. However, this demographic bonus can only be a valuable asset to the economy when it can be absorbed by the labour market, becomes more and more skilled and remains healthy because physical illnesses (such as heart diseases) bring along economic costs as well. This latter factor is a particular concern to Indonesia where about two-third of all men are smokers (only five percent of females smoke).
Indonesia is also one of the few countries (and reportedly the only Asian country) that has not yet ratified the Framework Convention on Tobacco Control (FCTC) of the World Health Organization (WHO). This treaty aims “to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke" through a set of universal standards stating the dangers of tobacco and limiting its use worldwide. The treaty's provisions include rules that govern production, sale, distribution, advertisement, and taxation of tobacco. Indonesia’s Minister of Health Nafsiah Mboi said that the government is currently still busy preparing the draft version and will need presidential approval first before it can be sent to the WHO. Obviously, Indonesia’s tobacco companies oppose this treaty as it will harm their profit figures.
Slowing or declining growth of the domestic tobacco industry is also a problem for the Indonesian government because it reduces state revenues (through excises and taxes) and impacts on other businesses as well, such as media institutions. These institutions acquire income through tobacco advertisements. Interestingly enough, several media institutions are owned by politicians and thus it is understandable that the government is hesitant to ratify the treaty quickly.
Meanwhile, Indonesian tobacco companies continue to report buoyant financial performances. Two tobacco companies are among the largest companies in Indonesia. HM Sampoerna is currently the country’s largest company in terms of market capitalization (IDR 300.24 trillion) on the Indonesia Stock Exchange (IDX), while Gudang Garam is positioned at number nine (IDR 92.74 trillion). Other important tobacco companies include Bentoel Internasional Investama and Wismilak Inti Makmur.
Production of cigarettes in Indonesia has increased steadily. In 2013, 348 billion cigarettes were produced, a 11.9 percentage growth from 2012 (311 billion). Indonesia is famous for its kretek (clove) cigarettes. About 85 percent of all smokers in Indonesia prefer kretek cigarettes to white cigarettes. Kretek consist of tobacco (70 percent) and ground cloves, clove oil and other additives (30 percent).