With effect from June 4, consumers of locally produced wines and spirits in the country may have to pay more for the products, unless the Federal Government changes its mind on the upward review of the excise duties on them. The review is sequel to the recommendation of the Tariff Technical Committee of the Federal Ministry of Finance which President Muhammadu Buhari has signed. Although the increase is to be effected in phases over a three-year period (from 2018 to 2020), the current excise at 20% for spirits amounts to N31 per litre while the new excise released by the Minister of Finance, Mrs Kemi Adeosun, amounts to N200 per litre for spirits and N150 per litre for wines. This is over 500 per cent increase at a go; it is not good for any business.
Quite expectedly, the producers of these products have cried foul, and urged the government to take a second look at the review. The producers reacted under the aegis of the Distillers and Blenders Association of Nigeria (DIBAN), a sub-sectoral group of Manufacturers Association of Nigeria (MAN). Of course they are not expected to keep quiet or fold their arms when a policy that threatens to destroy their over N420 billion installed capacity/investment has just been signed by the president. Even though their hair was shaved in their absence (as they claimed they were not consulted before the review was done), they are not completely averse to government’s intention to rake in more money from the subsector; all they want is for the percentage rise in duties to be reduced so that they can continue to be in business to contribute their quota to the nation’s economy as well as meet the social/entertainment requirements of their consumers.
Ordinarily, one could say why shouldn’t government impose prohibitive duties on wines and spirits, if only to discourage people from taking them? But, irrespective of whatever anyone may say, the industry is contributing some money to the government’s coffers. Not only that, many people take wines and spirits for relaxation. And really, they help in reducing stress and are indispensable at social functions. At any rate, there is nothing inherently bad in drinking either wines or spirits. It is only too much of it, just like anything else, which is bad. But more importantly, the issue is about a government policy that may inadvertently end up killing the subsector just like similar policies had done in the past.
When excise duties are raised astronomically as in the present scenario, the logical consequence is for the producers to pass the increase to consumers. Definitely, when the cost becomes prohibitive, some of the consumers will have to forego the local distilled spirits and wines for the unregulated local alternatives. Because even nature itself abhors a vacuum, there will be an increase in the demand for paraga, ‘Sapele water’, and what have you, which are produced without consideration for hygiene or safety standards. Alternatively, the country will become a dumping ground for imported wines and spirits, some of which are even of inferior quality. Lest we forget, 78% of spirits consumption is driven by low price products typically consumed in the low-income market. Ultimately, some of the producers may close shop while others may have to drastically scale down their operations.
Where does that leave a country just exiting recession and one which requires massive job creation? The wines and spirits industry alone has created about 250,000 direct and indirect jobs. Have we given a thought to the family cohesion, social stability and economic wellbeing of at least five million people that are likely to be jeopardised? We do not need to cut our nose to spite our face.
What we should be looking for is a way of adding to the existing jobs and not formulating policies that will throw more otherwise engaged workers into the saturated unemployment market. Already, the devil has too many such hands to engage since they cannot be gainfully engaged. That explains the rising crime wave nationwide. We need not compound this.
So many otherwise thriving firms have had to close shop or relocate to other countries either due to government’s policies or the general inclement business environment here. Companies like Dunlop Nigeria Plc, Michelin, among others, have had to take away their manufacturing arms out of the country due to these reasons, and that meant attendant job losses, and drop in revenue even for the government. Just as some of these companies invested heavily before being forced to leave, the local distillers too have in recent times made significant investments to grow capacity as well as achieve backward integration. For instance, Guinness Nigeria has since 2015 made capital investments worth over N3billion in low-cost production and packaging plants. Atlantic Distilleries too constructed Nigeria’s first ethanol plant with a production capacity of 10 million litres per annum, which consumes approximately 240 tons of cassava per day. Likewise Euro Global that invested in a N3 billion ethanol plant with a planned capacity of 120,000 litres of daily ethanol production. What happens to all of these in the event that the demand for their products fall?
What the Nigerian government should be doing now is promoting policies and programmes that encourage local entrepreneurs and not one that compound their woes or discourage them. We need to remind ourselves that doing business in the country is unlike doing business in many other countries, including some of the African countries that we regard as backwater, but which have since settled a basic infrastructure such as power. Power supply is still epileptic in Nigeria; that the companies in the wines and spirits industry have survived in spite of the numerous challenges is a testimony to their resilience. There is no point overstretching that strength.
We cannot be obedient to ECOWAS’ policy at the expense of our own struggling economy. This is much more so that the top 80%, excise duty rate parity for spirits and wines are x3.03 and x2.3 times the excise duty rate of beer, respectively, whereas the regional averages is x2.0 for wine and x1.7 for spirits across Africa. Why then would Nigeria’s case be different?
It is unfortunate that one could not immediately tell the ministry/ministries that were represented on the Tariff Technical Committee of the Ministry of Finance because this is not a matter to be left in the hands of accountants alone. For accountants and finance people generally, what they are looking at is basically the bottom-line. This particular matter transcends the Federal Ministry of Finance. It should involve the ministries of labour and productivity, trade and investment, perhaps even agriculture, at least, so that the necessary cross-fertilisation of ideas that would have led to a more robust debate would have shaped the outcome. It is also not one to be left in the hands of religious bigots who are likely to see spirits and wines as forbidden fruits and would therefore dance themselves lame that fewer people will have access to the items now that the punitive excise duties have been imposed on them.
If there had been a robust exchange of ideas, some issues might have been better thrashed out. As things stand, it appears the overriding consideration that decided the new excise regime for locally produced spirits and wines is revenue drive. It needs not be so. Spirits and wines, unlike beer, are more elastic; therefore, any disproportionate price shocks will negatively impact consumption. Moreover, given our porous borders and the illicit market, price increase driven by higher excise duty may result in loss of government revenue (contrary to the fabulous projection that propelled the upward review); increase in illicit consumption and significant health risks, thus being counter-productive in the long run.
The point being made is that the government has to do some balancing act in this matter to achieve its aims. As a matter of fact, it has to handle the issue with utmost caution to avoid unintended consequences.
The way forward therefore is for the Federal Government to review downward the excise duties, irrespective of whether the president has signed the report that gave birth to them or not. That is the only logical thing to do, especially in the face of compelling arguments that have been advanced. There is no doubt that the government needs more revenue; but this should be done with a human face and not at the expense of legit businesses that are braving all odds to stay afloat in the country. There are many rich Nigerians out there who are not paying taxes; the government should further spread the nets to get them captured. VAIDS appears to be doing some of this magic; it should be more rigorously pursued.
A review of the duties is even more compelling given that the wines and spirits’ producers were not taken into confidence in drafting the report. They deserve an opportunity to have their say even if the government ultimately has its way.