Breweries, Tobacco Industries on the Brink of Disaster

Industrialists and economists have expressed apprehension that the 2023 Fiscal Policy Measures will spell doom for breweries and tobacco industries, writes Dike Onwuamaeze

The breweries and tobacco sub-sectors of the Nigerian manufacturing sector are currently faced with dire existential threat. The threat is coming from the 2023 Fiscal Policy Measures (FMP) that was released by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, via a circular on April 20, 2023. It will take effect from June 1, 2023.

The FMP contained increases on excise duties for beer and other alcoholic beverages as well as tobacco and single use plastics. It increased the excise on beer from N25 to N75 per liter in spite of the agreed excise on these products that was negotiated between the government and manufacturers in 2022 that was approved by no less an official than President Muhammadu Buhari to run till 2024.

These increases on the excise duties charged on beer, according to the President of Manufacturers Association of Nigeria (MAN), Mr. Francis Meshioye, is as high as 200 per cent while taxation on tobacco products is five times higher than those paid by other manufacturers. Meshioye described the new increase “as in increase on an increase” since there is already an approved increase for 2023.

“The rate of increase is exceptionally excessive and not consistent with best practice globally. This is coming against the backdrop of the huge tax burden on the tobacco and beverage sectors, with the tobacco industry being taxed five times more than the average for other industries,” Meshioye said.

He averred that, “this is not the time to impose additional increases in excise on manufacturers who are reeling under the depressive weight of Nigerian hostile and excruciating manufacturing environment due to the effects of scarcity of Naira, limited access to foreign exchange, galloping domestic inflation, and extensively diminished purchasing power of Nigerian consumers.

“These challenges have led to a massive decline of -169 per cent in profits before tax for the brewing sector in Q1 2023. Similarly, industry turnover for non-alcoholic beverages and tobacco declined by -15 per cent while gross profit and profit before tax declined by -31 per cent and -96 per cent within the same period respectively.”

The president of MAN stated categorically that, “the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs.

“In addition, the tobacco sector has actively begun to reduce its export production from Nigeria as it has over N39 billion trapped in the Export Expansion Grant incentive not yet released by the federal government to manage its operations.”

He, therefore, appealed to government to “suspend the 2023 FPM on excise duty and retain the 2022 to 2024 excise duty roadmap as approved in the 2022 FPM to foster stability in the affected sectors and their value chain in the interest of the national economy.”

He said that the increases in the 2023 FPM have put every planning into shambles that nobody gets his bearing right again. “So, it is not the best. It means that the government this time has failed to uphold its agreement. The most honourable thing is to uphold that agreement that it had with us.”

Without mincing words, the Director General of MAN, Mr. Segun Kadir-Ajayi, stated that, “the manufacturing sector is under siege.” According to him, the manufacturing sector’s contribution to the country’s GDP for more than 20 years has never gone beyond 12 per cent. “Now it is going to an all-time low of 9.0 per cent,” he said, which should be enough signal to any government to recognise the need to specially address the sector’s multifarious militating challenges.”

He also regretted that the federal government is targeting the best performing sub-sector of the country’s manufacturing sector with a virtually punitive excise regime that could led to its extinction.   

“One will actually imagine why the sub-sector that is contributing the most is being literally decapitated. And that shows the worry that we all have because it is inconceivable that we are having an increase that threatens to throw these businesses out of joint. This sector is going to suffer because of policy inadequacy to support its growth,” Ajayi-Kadir bemoaned.

He added that the new excise regime, “is going to put this sector in an uncompetitive position when compared with countries that surrounds us, especially in the advent of ECOWAS Trade Liberalising Scheme (ETLS) and AfCFTA. So, whichever way we look at it, it is a losing game for everyone if we do not reverse this ominous trend.”

The 2023 FPM also run against the principles of taxation that take into consideration of certainty, convenience, ability to pay and equity.

The spokesperson of the tobacco group who is also the Managing Director Nigeria and Cluster Manager West & Central Africa at British American Tobacco, Mr. Yarub Al-Bahrani, noted that the prevailing market realities, especially higher inflationary rate and the cash crunch, have eroded their financial projections, contracted there market share and created inroad for illegitimate products to be entrenched in the market.

Al-Baheani said: “We had massive suppression of sales during the cash crises. The industry is therefore on its knees and what we need is a period of stability so that the industry can recover. We are appealing for a reversal or an amendment to the roadmap that will be more moderate to save manufacturers and the economy.”

Similarly, the Chief Executive Officer of Guiness Nigeria Plc, Mr. John Musunga, stated that the increase on affected excise duty is astronomical as, “we are talking about 200 to 300 per cent increases. That level of taxation is going to hurt consumers at the lower income bracket that may not afford N1,000 to have a bottle of beer. The government will lose on other lines of taxes because we will not be able to pay CIT.”

He added that the fiscal policy would open market for illicit manufacturers of spirits.

Lending his voice to the growing call for the suspension of the 2023 FPM, the Chairman of Nigeria Breweries Plc, Mr. Asue Ighodalo, implored the federal government not to destroy the productive sector of the economy in an illusionary pursuit of increased tax revenue. According to him, the government should sit with its economists and look at the tipping point where this increase would led to much lower taxes in VAT, company income tax (CIT), education tax, etc. because it appeared that government has not done the arithmetic.

He said: “That is the problem and we need to do serious thinking so that if it is revenue that government wants it will do so in a way to get revenue. It has to look at it holistically. In the last eight years we have an economy that is totally moribund. It is not by destroying the productive sector of an economy that you build an economy. If the guys (current administration) going out won’t do it, the incoming administration will look at it within its first one week.”

He warned that the government is introducing a policy whose unintended consequence would precipitate a sharp decline in the flow of foreign direct investment and orchestrate the closure of many manufacturing entities in the country.

“We are even going to lose on excise and some other taxes when we get to a certain point. It is a total loss for the economy. If you look at the figure today the excise is about N25 per liter and it is being quadrupled to N75 per liter. We will all close shop and go home.

“We are losing sight of something that is truly fundamental. No economy, none, develops, grows in this world without a strong, viable manufacturing sector that is contributing about 20 per cent of its GDP. None! If we think that we will help growth and employment at 9.0 per cent manufacturing contribution to GDP then we need to examine where we stand,” he said.

Ighodalo disclosed that the NB Plc has been looking at substantive investments in new brewery lines to be part funded by new money coming into the country. “That new money,” he declared, “is not going come again with what is going on. Right now we are struggling for our lives to stay stable and ensure that we do not stop production in certain breweries and ask staff to go.

“We are really struggling and we are cutting cost to the bare bone, and working so hard to make sure that we are surviving and delivering value.

“We are in surviving mode and moving away from expansion mode, growing mode and employment mode. And that is where everyone is. And nearly every industry in the country is in a survival mode. And government is making it difficult for anyone to stay long term.”

The question on the lips of the industry’s stakeholders is this: why should a government contemplate, introduce and adamantly pursuing the implementation of this fiscal policy? A Non-Executive Director at International Breweries Plc Nigeria, Mr. Michael Onochie Ajukwu, who provided an answer to this question, said: “The reason we have policies like this is because no one has interrogated the historical reason why certain industrial sectors (like tyre manufacturing and textiles) have disappeared in Nigeria.

“As an industry and community we are all facing fast diminishing circumstances. Consequently, when the government raises excise duty, it is only compounding an already very bad situation.

“Income level in view of current inflation index has gone down substantially and when you now add excise duty to it, it further compounded the problem. I want people to consume beer, but they still have to pay school fees, put food on the table for their families, so there is certainly going to be decline in volumes of sales.

“In a nutshell it is not a good path to go. As an industry group, we are not against increase but there has to be some consistency to allow for planning. There has to be time line given to allow for some adjustments. It behooves all of us, including the government, to take more sober look at the possible implications” of this new fiscal regime.”

Ajukwu noted that Nigeria has never really had what would be considered its fair share of FDIs flow given its economic potentials because of the simple reason that the country is in competition with the rest of the world for hard earned capital that goes to where it is best received.

“I am telling you that we have not seen much FDIs and if we continue this way we are not going to see anything,” he said, adding that because “we do not have capital domestically, we need foreign capital to come to this country to help galvanise the development of this country.

 “There is so much statement of Nigeria being a big market. It means absolutely nothing if the income levels are not there. The size will be an Albatross if the people do not have the purchasing power,” he said.

Ajukwu also said that the time has come for Nigeria to stop deluding itself that its large population would cause investments to gravitate to the country.

The director general of MAN also concurred. He said: “The narrative is that we will always get them because we have a huge market. We are in AfCFTA mode. African market is 1.2 billion and Nigeria is only 200 million people. If you are thinking that our population is going to direct FDI here, there is another 1.2 billion population out there and it will not make any difference where the goods are being produced.”