The Manufacturers Association of Nigeria (MAN) has said that the increase in excise rate on beverages and tobacco and the introduction of a tax on Single Use Plastics (SUP) will lead to a sharp decline in export and spur job losses in the coming months.
The duty charge was part of a new policy introduced in the Finance Act, which was signed into law by President Muhammadu Buhari in December 2021, alongside the 2022 Appropriation Bill.
The association had met with the Minister of Finance Budget and National Planning and were assured that there would be no increase beyond the pre-scheduled increase of 2023 as provided in the excuse duties roadmap in the 2022 Fiscal Policy Measures (FPM).
The association said the exponential increase in excise in the 2023 FMP, therefore, came as a shock to the industry and described this as “an increase on an increase” since there was already an approved increase in place for 2023.
Speaking during a press conference on Tuesday at the MAN office in Lagos, Segun Ajayi-Kadir, the director-general, MAN said the manufacturing sector has been struggling with crashing sales, mainly attributable to the sustained naira scarcity, adding that a continuing decline in sales volume will necessitate production cuts and a re-evaluation of investments in the sector.
According to Ajayi-Kadir, if sales proceeds can no longer sustain business overheads and operating expenses, businesses will be forced to scale down their operations which will result in factory closure, job losses, a decline in exports and much more.
He noted that data from the National Bureau of Statistics (NBS) showed that the inflow of foreign direct investment (FDI) into Nigeria fell by 33 percent in 2022, while the unemployment rate stands at 33.3 percent and rising.
The DG said these indices will worsen if the increase in the 2023 FPM is applied.
According to him, the impacted industries support other businesses within their value chain, cutting across agriculture, logistics, bottling, labelling and packaging businesses, as well as distribution, wholesale and retail businesses, catering for over 950,000 direct and indirect employees. He said over 37,000 sorghum farmers rely on the brewing sector for their livelihood.
“A crash in sale volumes and consequent cuts in production will severely impact these businesses in the value chain, which will have a multiplier effect on the national economy. For instance, transactions with suppliers in the sector declined by over N260 billion by the end of 2022, when compared to 2021,” he said.
The DG also said the increase was coming at a time when the manufacturing sector is immersed in an unprecedented crisis and an acute recession, due to extraordinary challenges, namely: sustained scarcity of naira (which has led to a crash in consumer purchases); limited access to foreign exchange (which has led industry to purchase foreign exchange from the parallel market, thereby increasing costs); high inflation (further driving up cost of operation and prices of products) and a struggling economy.
These extraordinary challenges, he said, have significantly impacted the industry.
“For instance, the brewing sector suffered a massive decline of -169 percent in profit before tax in Q1 2023. Also, the industry turnover for non-alcoholic beverages and tobacco declined by -15 percent, while gross profit and profit before tax declined by -31 percent and -96 percent within the same period, respectively.
“The naira scarcity and limited access to foreign exchange have exacerbated the continuing impact of systemic challenges such as high cost of operations, the multiplicity of taxes, limited electric power supply and infrastructural challenges.
“For instance, the Nigerian manufacturing sector recorded a 36 percent downturn in profit margins from 2021 to 2022 and over 400 percent increase in energy costs, further constraining the growth of the sector,” Ajayi-Kadir explained.
Data from the National Bureau of Statistics (NBS) showed that the inflow of foreign direct investment (FDI) into Nigeria fell by 33 percent in 2022.