The Economics of Tobacco and Tobacco Control

Chapter 12
Tobacco Manufacturing Privatization and Foreign Direct
Investment and Their Impact on Public Health
The inflow of foreign direct investment (FDI) and the privatization of state-owned tobacco
enterprises have increased for two reasons: (1) the rising globalization of industry in
general and (2) the trend toward fewer government-owned business monopolies. This
chapter examines the forces that drive FDI and privatization and their impact on global
tobacco control efforts and public health. Specifically, this chapter discusses:
• The broad rationale for foreign stakeholders to invest in the tobacco industry,
including globalization trends, FDI policies, and economic factors—particularly in
low- and middle-income countries, where tobacco may attract the largest amount
of such investment
• The economic and political issues surrounding the privatization of state-owned
cigarette manufacturing industries
• The current global ownership status of tobacco industries, by World Health
Organization Region
• Public health concerns that arise from FDI and privatization trends, including the
multinational tobacco companies’ motivation to expand markets, the economic
and political leverage that influences tobacco control policies, and the impact of
increased production differentiation and pricing.
Country-specific cigarette consumption trends show that FDI and privatization of tobacco
enterprises are not inherently bad for tobacco control. When the privatization of stateowned
cigarette manufacturing industries occurs transparently and without obligations to
manufacturers, privatization removes the conflicts of interest from governments that own
their tobacco industries. Unfortunately, these conditions have not been the norm.
Countries that implement strong and comprehensive tobacco control policies following
privatization have been effective in reducing tobacco use. In contrast, tobacco use has
increased in countries without these policies. These results, in conjunction with the
economic and social trends that surround FDI and privatization, underscore the
importance of both public health policy and appropriate regulatory frameworks in the
ongoing evolution of global ownership and investment trends in the tobacco industry.
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