Investment Case for Tobacco Control in Georgia The case for investing in FCTC implementation February 2018

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Summary findings – Base scenario (1/2) 11,400 Georgian citizens die annually because of tobacco-related diseases, out of which 9,300 annual deaths due to smoking 2,100 annual deaths due to second hand smoke exposure Total annual direct and indirect costs associated with tobacco-use: GEL 824.9 million This is equivalent to an annual loss of 2.43% of GDP

Summary findings – Base scenario (2/2) Of the GEL 824.9 million total economic cost of tobacco use… Annual direct healthcare expenditures: GEL 327.3 million Annual indirect costs: GEL 497.6 million Annual economic losses/indirect costs associated with tobacco-related premature mortality: GEL 104.1 million Workplace costs of smoking: GEL 393.5 million* Excess absenteeism – GEL 76.3 million Excess presenteeism – GEL 73.9 million Smoking breaks – GEL 243.3 million * Variance isn’t available for workplace costs

Summary findings – Intervention scenario (1/2) Without implementing four priority FCTC interventions/measures*, over 15-year period: 171,300 Georgian citizens will die prematurely from tobacco-attributable diseases Tobacco-attributable healthcare costs will reach a cumulative GEL 4.9 billion Total economic costs from tobacco will reach GEL 12.4 billion *(i) increasing taxes, (ii) complete ban on indoor smoking, (iii) banning advertising, sponsorship & promotion, (iv) labeling and packaging

Summary findings – Intervention scenario (2/2) Investments in four FCTC measures/interventions* now: will save 53,100 lives and have positive impact for future well-being of Georgian citizens will result in GEL 3.6 billion total economic gains over 15 years For every GEL 1 invested in key FCTC interventions now: Georgia receives total economic gain of GEL 161 over the first 5 years and GEL 357 after 15 years *(i) increasing taxes, (ii) complete ban on indoor smoking, (iii) banning advertising, sponsorship & promotion, (iv) labeling and packaging

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Two major components of the investment case Modeling of direct and indirect costs Institutional context analysis National FCTC investment case

FCTC Investment Case model – Component one: Base scenario Estimate mortality and morbidity from tobacco-related diseases. Estimate the total economic costs (direct and indirect costs) associated with tobacco-related diseases STEP  STEP 

Tobacco Investment Case model – Component two: Intervention/policy scenario Estimate the effects of various tobacco control policies and interventions on the mortality, morbidity, and total economic costs (direct and indirect) associated with tobacco-related diseases Estimate the financial costs of implementing the tobacco control policies and interventions modeled, both individually and collectively. Quantify the Return on Investment (ROI) for the various tobacco control policies and interventions modeled, both individually and collectively. STEP  STEP  STEP

Estimated Impacts for Tobacco Interventions and Policies in Georgia FCTC Intervention/Policy Relative Change in Smoking Prevalence: First 5 Years Relative Change in Smoking Prevalence: 6-15 Years Relative Change in Smoking Prevalence: 15 Years Raise cigarette taxes (FCTC Art.6) -18.2% -9.1% -27.3% Smoke free policies (FCTC Art.8) -5.4% -0.8% -6.2% Advertisement ban (FCTC Art. 11) -10.0% -2.0% -12.0% Packaging and labeling (FCTC Art.13) -6.0% -3.0% -9.0% All Interventions Combined -33.0% -12.4% -45.4%

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Total annual economic cost of tobacco use in Georgia Total annual economic burden of tobacco use in Georgia is almost GEL 824.9 million* which is equivalent to 2.43 % of GDP *health expenditures + economic losses due to premature mortality and disability + costs to employee

Annual Direct Costs (more apparent) and indirect costs (less apparent) Total tobacco –attributable healthcare expenditures: GEL 327.3 million Visible part: 40% of total burden Total economic burden of tobacco use is GEL 824.9 million = healthcare costs + economic losses due to premature mortality + costs at workplace Total tobacco-attributable indirect economic losses (premature mortality and workplace costs) GEL 497.6 million Hidden part: 60% of total burden

Economic cost of tobacco: healthcare expenditures Tobacco is responsible for 13% of Georgia’s GEL 2.5 billion total healthcare expenditure GEL 327.3 million total tobacco-attributable healthcare expenditures GEL 118.7 million tobacco-attributable government healthcare expenditures

Workplace Costs of Smoking to employees and employers Total workplace costs of smoking: GEL 393.5 million Absenteeism GEL 76.3 million Presenteeism GEL 73.9 million Smoking breaks GEL 243.3 million

Current burden of tobacco: annual premature deaths and disability in productive age (30+) in Georgia Tobacco imposes a significant impact on workforce in productive age Tobacco-related mortality Life years lost Years lived with disability 11,400 total annual deaths from tobacco use 2,100 annual deaths from second hand smoke Annual tobacco-related premature deaths result in 189,000 years of life lost 19,600 years lived with disability each year

Debunking tobacco industry myth of ‘smokers helping country’s economy’ Total tax revenue from excise taxes on cigarettes compared to manufacturer/retailer revenue from cigarette sales and consumer spending on tobacco products, 2014 750 million 359 million 1.1 billion Total amount spent by the consumer Manufacturer/retail revenue from cigarette sales Excise tax Government revenue from cigarette sales The 750.5 million GEL in 2014 represents an estimate of the total amount of cigarette revenue that tobacco manufacturers and retailers collected from cigarette sales. Considering that cigarettes are manufactured and packaged outside of Georgia, most of this money left the country and went to multinational corporations, we can estimate about 750.5 million GEL would be "leaking" out of the economy The total amount spent by consumers on cigarettes in 2014 was about 1.1 billion GEL. If no one in Georgia smoked, or purchased cigarettes, it is possible that Georgian consumers could spend approximately 1.1 billion GEL on other products, goods, and services what can result in a larger share of the sales revenue remaining in the Georgian economy.

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Cost of inaction: Tobacco-attributable direct healthcare expenditures Without implementing the four priority FCTC interventions, in 15 years tobacco-attributable healthcare costs will reach ~ GEL 4.9 billion Type of healthcare expenditure Current Tobacco-attributable healthcare expenditure Cost of inaction over 5 and 15 years of period GEL spent now (millions) Cumulative Amount Spent Over 5 Years (millions) Cumulative Amount Spent Over 15 Years (millions) Government healthcare expenditures GEL 118.7 GEL 593.4 GEL 1,780 Out-of-pocket healthcare expenditures GEL 187.6 GEL 937.9 GEL 2,813 Other healthcare expenditures GEL 21 GEL 105.3 GEL 315.9 Total GEL 327.3 GEL 1,637 GEL 4,910

Impact of investment: Tobacco-attributable direct healthcare expenditures

Cost of inaction: Tobacco-attributable total economic losses Without implementing four priority FCTC interventions, in 15 years tobacco-attributable total economic costs will reach ~ GEL 12.4 billion Cost per type of losses Current Tobacco-attributable economic losses Cost of inaction over 5 and 15 years of period GEL spent now (millions) Cumulative Amount Spent over 5 Years (millions) Cumulative Amount Spent Over 15 Years (millions) Total Healthcare expenditures GEL 327.3 GEL 1,637 GEL 4,910 Premature mortality due to tobacco use GEL 104.1 GEL 528 GEL 1,625 Economic loss to employers and employees GEL 393.5 GEL 1,967 GEL 5,902 Total GEL 824.9 GEL 4,132 GEL 12,437

Impact of investment: Costs saved from individual FCTC measure over 15 year-period

Impact of investment: ~GEL 3 Impact of investment: ~GEL 3.6 billion total economic gain through FCTC implementation

Impact of Investment: Implementing FCTC will save up to 53,100 lives Four FCTC priority Intervention package Over 15 Years of Period Cumulative number of lives saved Lives saved per GEL 1000 Raise cigarette taxes (FCTC Art.6) 35,000 13.3 Smoke free policies (FCTC Art.8) 14,000 3.9 Advertisement ban (FCTC Art. 11) 21,000 10.8 Packaging and labeling (FCTC Art.13) 16,000 8.5 All interventions combined 53,100 5.3 Investments in comprehensive tobacco control measures now, would have positive impact for future well-being of citizens of Georgia

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Current State of implementation and new tobacco control legislation WHO FCTC Interventions* Status of Tobacco Control Measures in Georgia New Tobacco Control Legislation   Article. 6 Increasing taxes on tobacco products** Excise taxes is equal to 54% of the retail price of the most sold brand of tobacco 12% annual excise tax increase regulated by the Tax Code of Georgia. Article. 8 Complete bans on smoking in indoor public places Smoking is banned in all public places, but is not well enforced in cafes, bars, and pubs. Starting May 2018, smoking will be prohibited in all closed areas other than residential areas, penitentiaries and mental health institutions. Article. 11 Labeling and packaging Plain packaging is not mandated for tobacco products. Health warnings occupy 30% of the pack and there are no pictograms. Starting May 2021, the size of health warnings will increase, pictograms introduced and plain packaging will be required. Article. 13 Bans on tobacco advertising, sponsorship and promotion   Banned advertising on TV & radio, but not on other form/s of direct and indirect advertising and promotion. Starting May 2018, all forms of tobacco promotion will be banned. *Provisions listed in this table cover measures amended in the new tobacco control legislation and interventions used in the investment case model ** taxes are regulated by the Tax Code and aren’t included in the new tobacco control legislation. This provision was used in the investment case model

Avoid losses and strengthen economy The new tobacco control legislation will increase Georgia’s GDP and revenues and sustainably save lives Adopt Georgia made a leap in WHO FCTC implementation by adopting new tobacco control legislation Normative acts and regulations to be adopted Implement From May 2018 the law enters into force (plain packaging - 2022) To address challenges and accelerate WHO FCTC implementation, multisectoral action – engagement of sectors beyond health – is required Avoid losses and strengthen economy Cost of inaction is far greater. By 2032 tobacco attributable healthcare costs alone will be more than GEL 4.9 billion Fully implementing four FCTC interventions between now and 2032 will have substantial economic growth and will encourage sustainable development of Georgia

Increasing taxes on tobacco products: argument against illicit trade Cigarettes cost more per pack in neighboring countries Azerbaijan, Armenia, and Turkey. EU AA - Article 283 The Parties shall develop their cooperation and harmonise policies in counteracting and fighting fraud and smuggling of excisable products. This cooperation will include, inter alia, the gradual approximation of excise rates on tobacco products, as far as possible, taking into account the constraints of the regional context, and in line with the World Health Organisation Framework Convention on Tobacco Control. To that end, the Parties will look to strengthen their cooperation within the regional context  Increased tobacco taxes may not lead to cross-border smuggling of cigarettes into Georgia

New tobacco control legislation is a step towards greater EU integration The Georgia-EU Association Agreement obliges Georgia to harmonize legislation with European regulatory frameworks by 2020 Promote equity Strengthen economic growth Reduce healthcare costs Full implementation of the new tobacco control legislative package will

Full enforcement of new law can accelerate sustainable economic growth in Georgia (i) Multisectoral tobacco control policies will contribute to reducing out-of-pocket healthcare expenditures. Household spending on tobacco products and expenditures due to tobacco-related ill-health, is money not used to support children’s education. Strengthened tobacco control can help close gaps in gender-related policy, programmes and research, while countering the tobacco industry’s self serving appropriation of female empowerment and masculinity. Source: UNDP and FCTC secretariat, Discussion Paper ‘the WHO Framework Convention on Tobacco Control an accelerator for sustainable development’

Full implementation of new law can accelerate sustainable economic growth in Georgia (ii) Tobacco control can help avoid the economic losses due to tobacco-use while ensuring smoke-free workplaces. Tobacco control can also support tobacco growers in shifting to more sustainable, safe and lucrative economic activities. Improved health from tobacco control can confer important opportunities in education, labour and other domains which can reduce inequalities. Tobacco control policies will strengthen trade and business relationships with strategic partner countries, especially in the context of Georgia-EU association agreement. Source: UNDP and FCTC secretariat, Discussion Paper ‘the WHO Framework Convention on Tobacco Control an accelerator for sustainable development’

Outline Summary Findings Methodology Current Tobacco Burden Savings from Investments Moving forward – New tobacco control law Recommendations 1 2 3 4 5 6

Recommended priority tobacco control measures for improved implementation of the new tobacco control law (i)    Increase tobacco taxation to reduce the affordability of tobacco products (FCTC Art. 6). Consistent enforcement of the complete ban on smoking in indoor public places (FCTC Art. 8). Enforcement of the new tobacco control legislation and all provisions (normative acts and Government orders) by all parts of the Government to meet obligations under the WHO FCTC Art. 71 (e) cooperate in preventing and combating illicit cross-border traffic in goods, including in tobacco products; Article 283 The Parties shall develop their cooperation and harmonise policies in counteracting and fighting fraud and smuggling of excisable products. This cooperation will include, inter alia, the gradual approximation of excise rates on tobacco products, as far as possible, taking into account the constraints of the regional context, and in line with the World Health Organisation Framework Convention on Tobacco Control. To that end, the Parties will look to strengthen their cooperation within the regional context.

Recommended priority tobacco control measures for improved implementation of the new tobacco control law (ii)    Strengthen policies on labeling tobacco packaging with effective health warnings (FCTC Art. 11). Improve availability and accessibility to comprehensive smoking cessation services (FCTC Art. 14). Implement a complete ban on tobacco advertising, sponsorship and promotion (FCTC Art.13).

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