Newsroom
The illicit tobacco trade in Ukraine, one of Europe's most prominent black markets for cigarettes, is sending shockwaves through the economies of neighboring countries, according to recent reports. As Ukraine continues to lose an estimated €640 million annually to this shadow industry, the repercussions are being felt across the European Union, where smuggled Ukrainian cigarettes are flooding markets and undercutting legal sales.
Despite a recent decline in Ukraine’s illicit tobacco market share—from a peak of 25.7% in October 2023 to 19.1% at the beginning of 2024 (Monitoring of illegal trade in tobacco products in Ukraine 2024. Wave 1 (kantar.com) )—the situation remains critical. Law enforcement agencies have intensified their crackdown, but experts warn that the illicit trade could quickly surge back to its previous levels without sustained pressure.
Cross-Border consequences
Ukraine's position as the second-largest market for illegal cigarettes in Europe, second only to France, has made it a hub for contraband that reaches well beyond its borders. In 2022, millions of packs of Ukrainian cigarettes were smuggled into the EU, with significant increases noted compared to previous years. This influx strains neighboring economies, particularly in countries like Hungary, Poland, Slovenia, and Slovakia, where smuggled cigarettes have substantially disrupted legal markets and led to considerable economic losses.
Hungary, for example, reported that smuggled cigarettes accounted for a significant portion of its illegal tobacco market last year. Other EU countries have similarly struggled with the increasing presence of these contraband products, underscoring the widespread impact of Ukraine's illicit tobacco trade on the region.
A struggle to contain the crisis
The Ukrainian government has been working to curb this illicit trade through high-profile raids and operations. In May 2024, the Bureau of Economic Security (BES) conducted 24 simultaneous raids on suspected illegal production facilities, seizing over one million packs of cigarettes and 18 tonnes of tobacco. These efforts have been bolstered by international pressure, with G7 ambassadors recently urging Ukraine to intensify its crackdown on illicit trade.
Despite these efforts, the scale of the problem remains daunting. Although the Ukrainian illicit tobacco market is currently reduced, it is still critically high. Experts believe that without further robust measures, the market could quickly rebound, posing ongoing threats to the Ukrainian economy and neighbors.
Economic impact
The illicit tobacco trade undermines legal businesses and drains significant tax revenues from government coffers. In Ukraine, the estimated budgetary losses from the illegal tobacco market stand at over UAH 23.4 billion (€600 mln). These losses represent missed opportunities for funding essential public services, such as unemployment benefits and veteran support programs.
In the EU, the influx of smuggled cigarettes from Ukraine is disrupting markets, especially in countries where tobacco prices are significantly higher. Poland's illegal tobacco market, though smaller than Ukraine’s, is still substantial at 4.2%, while Bulgaria's stands at 2.6%. The economic strain caused by this illicit trade has led to growing concerns among EU member states, calling for more coordinated efforts to tackle the issue.
International response
The international community, particularly the G7, has taken a keen interest in Ukraine’s efforts to combat illicit trade. In a strongly worded letter, the G7 ambassadors urged the Ukrainian government to establish a clear strategy and timeline for addressing the problem. They emphasized that tackling the illicit tobacco market is not just a domestic issue for Ukraine, but a matter of regional economic security.
Under pressure from its citizens and international partners, the Ukrainian government faces the daunting task of curbing this pervasive illegal trade. The stakes are high, with the potential economic consequences of inaction threatening to destabilize not just Ukraine’s economy but those of its European neighbors as well.
The road ahead
As Ukraine navigates its ongoing challenges, including the economic fallout from the war, the fight against the illicit tobacco trade remains a crucial front. The success or failure of these efforts will have significant implications, both for Ukraine's economic recovery and the region's broader stability.
For now, the illicit tobacco trade continues to be a major concern, with no easy solutions in sight. As authorities step up their efforts, the eyes of Europe will remain fixed on Ukraine, hoping for progress in a battle that has far-reaching consequences.
