• Thursday, July 18, 2024
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Nigeria’s $1.4bn soft drink market to slow on Excise Tax

Nigeria’s $1.4bn soft drink market to slow on Excise Tax

The Federal Government’s Excise Duty of N10 per litre on all non-alcoholic, carbonated, and sweetened beverages may threaten the growth of the industry that has maintained steady growth since 2016.

According to a BusinessDay analysis of the off-trade sales for carbonated beverages in Nigeria by Euromonitor International, a London-based market research company, sales have been rising from $713.6 million in 2016 to $1.4billion in 2021. Similarly, its volumes have also risen to 1.6 billion litres from 1.4 billion litres.

Carbonated beverages are popularly known as soft drinks like Coca-Cola, Pepsi, Sprite, Bigi, Fanta, etc. Most players in the industry say that the Excise Duty might cause a dip in sales and volumes as beer makers are also complaining of high Excise Duty.

“The Excise Duty of N10 might make them increase it to between N160 and N180 from N150. I don’t support it because the money is not going to the beverage companies but the government, thus making their sales to be lower,” Ibrahim Ahmed, an inventory manager at Coca-Cola Nigeria, said.

Ahmed said further that lower sales would make the companies less profitable thereby making them lay off staff.

Food and beverage contributed the highest (38%) of the total manufacturing sector to the GDP. It comprises 22.5 percent of manufacturing jobs and generates more than 1.5 million jobs, according to the Manufacturers Association of Nigeria (MAN).

In 2019, Nigerian households spent N551.2 billion on non-alcoholic drinks, N205.5 billion on sugar, sweets, and confectionery, and N150.3 billion on alcoholic drinks, a National Bureau of Statistics (NBS) report shows.

Muda Yusuf, a former director-general of Lagos Chamber of Commerce and Industry (LCCI), said, “The introduction of Excise Duty is ill-timed, insensitive and most inappropriate given the prevailing harsh economic and business conditions.

“The millions of micro-enterprises in the soft drinks’ distribution chain will be adversely impacted by the imposition of the Excise Tax. This is detrimental to the job creation and poverty reduction commitment of President Buhari.”

Similarly, Segun Ajayi-Kadir, director-general at MAN, said in a recent statement that introducing the duty would easily reduce production capacity, causing manufacturers to struggle to meet investor commitments as well as cause investors to take investments to other countries.

Read also: Soft drink tax to boost Nigeria’s fight against obesity, diabetes

He also added that a decrease in production levels or the ability to purchase raw materials would result in reduced profits for the supply chain players in the non-alcoholic beverage sector.

Excise Duty is a form of tax imposed on the production, licensing, and sale of goods. Before the announcement of this new Excise Duty, there have been rumours that the government would introduce it in 2019.

According to the government, the new tax will help discourage excessive consumption of sugar in beverages that contributes to a number of health conditions including diabetes and obesity. And help raise excise duties and revenues for health-related and other critical expenditures.

“It is not a crime to increase price but when government over-burdens people with taxes, it will reduce volume and thus affect profitability at the end and government may not realise the budget target on taxation,” John Isemede, former director-general, National Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA), said.

Over the past five years, soft drink makers have been competing for sales by increasing the quantity of products without increasing their prices due to weak purchasing power of consumers.

But last year, soft drink markers increased their prices twice due to a surge in international sugar prices, a major ingredient in the production of carbonated drinks.

“Consumption of soft drinks will reduce, making them opt for cheaper alternatives. So the producers are losing in two ways, the volumes and the extra price that they are charging,” Ayorinde Akinloye, a consumer analyst at United Capital plc, said.

The carbonated soft drink market commands a unique hold on the food and beverage sector in the Nigerian economy.

Despite the huge popularity of the juice and drink market, the unique tasting appeals of carbonated soft drinks and its many arrays of flavours have always been a strength other drinks cannot match.

Nigeria’s fast-growing population brings with it a continuing demand for soft drinks, especially as the climate is quite hot.

According to Euromonitor International, the country ranked fourth globally in the volume of soft drink sales recorded in 2016.