By Benadeta Mwaura - Reporter
Kenya, 24 July 2026 - British American Tobacco (BAT) Kenya has posted a modest increase in half-year earnings, but the results expose a deeper challenge confronting Kenya's tobacco industry: the rapid expansion of illicit cigarette trade, which the company says now accounts for nearly half of the domestic market and costs the government billions in lost tax revenue every year.
The Nairobi Securities Exchange-listed tobacco manufacturer reported a 2% increase in profit before tax to KSh4.4 billion for the six months ended June 30, 2026, compared to KSh4.3 billion during the same period last year. Net revenue grew by 5% to KSh12.3 billion, largely supported by a rebound in export sales and rising demand for BAT's modern oral nicotine pouches.
Despite the improved earnings, the company says its core domestic cigarette business continues to weaken as consumers increasingly turn to cheaper untaxed products amid rising living costs.
BAT Kenya Managing Director Sidney Wafula described the performance as resilient despite mounting industry headwinds.
"Despite a challenging operating environment marked by the continued rise in illicit cigarette trade, the company delivered resilient performance during this period. These results reflect the agility of our business in navigating an increasingly complex and dynamic environment," Wafula said.
The company's biggest concern remains the surge in illicit tobacco products entering the Kenyan market.
According to BAT, third-party research indicates that illegal cigarettes accounted for approximately 45% of the domestic market by the end of 2025, up sharply from previous years. The company estimates this deprives the Kenyan government of nearly KSh12 billion annually in tax revenue, while hurting legitimate manufacturers, distributors and farmers across the tobacco value chain.
The findings mirror concerns repeatedly raised by industry players and tax authorities that smuggled cigarettes, often sold without excise duty, health warnings or regulatory oversight, have become increasingly attractive to price-sensitive consumers.
While domestic cigarette sales weakened, BAT benefited from recovering export markets and growing acceptance of its smoke-free nicotine products.
Sales of modern oral nicotine pouches, introduced commercially in Kenya in mid-2025, continued gaining market traction during the reporting period, helping diversify revenue away from traditional combustible tobacco products. Export sales also recovered after a difficult 2025, cushioning the decline in local volumes.
However, these gains came at a cost.
Operating expenses rose 7% to KSh8 billion, driven by higher raw material costs, investments in the company's expanding multi-category portfolio and compliance with Kenya's enhanced graphic health warning regulations. Operating profit consequently increased by only 1% to KSh4.3 billion.
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BAT also linked weaker domestic cigarette demand to declining consumer purchasing power.
The company said persistent inflation, combined with elevated fuel prices linked to geopolitical tensions in the Middle East, has squeezed household incomes, prompting many smokers to either reduce consumption or switch to significantly cheaper illicit brands.
This trend reflects broader pressures across Kenya's consumer goods sector, where manufacturers have reported slowing demand as households prioritize essential spending amid the high cost of living.
Despite the difficult operating environment, BAT's board approved an interim dividend of KSh 10 per share, maintaining the same payout as last year and signalling confidence in the company's cash-generating ability.
The company says it will continue investing in reduced-risk nicotine products while advocating for evidence-based regulation that supports tobacco harm reduction.
Beyond BAT's financial performance, the results reignite debate over Kenya's tobacco control and tax enforcement policies.
Successive excise tax increases have sought to discourage smoking while boosting government revenues. However, industry players argue that without stronger border surveillance and market enforcement, higher taxes can unintentionally expand the market for illegal products.
The situation presents policymakers with a difficult balancing act: protecting public health through tighter tobacco regulation while ensuring enforcement keeps pace with increasingly sophisticated illicit trade networks.
For BAT Kenya, the numbers tell a story of resilience. For regulators, however, they raise a more pressing question, whether Kenya's fight against illicit tobacco is keeping pace with a black market that now rivals the legal industry in size.