In a circular dated 20-Apr-2023 and signed by the Minister of Finance, the Federal Government introduced new Fiscal Policy Measures (FPM) for 2023; this introduced additional taxes on previously approved rates for tobacco, alcoholic beverages, wines, and spirits ranging from 20.0 – 100.0%. On Tuesday 02-May-2023, the Manufacturers Association of Nigeria (MAN), together with the organized private sector kicked against the announced increase in excise duties. These new and higher excise duties are above the 2022 FPMs approved Roadmap for 2022-2024 and came as a surprise to industry players. These will be effective from 01-Jun-2023. The excise duty rate on non-alcoholic beverages was retained at N10.0/ltr.
Manufacturing activities account for a substantial proportion of economic activity in Nigeria’s GDP. In Q4-2022, it constituted 13.6% of economic activity. However, manufacturers have contended with headwinds in recent years evident by a slowdown growth to 8.9% y/y in Q4-2022 from 25.5% y/y in Q4-2021. Some of these headwinds include the impact of the Covid-19 pandemic and subsequent slowdown in economic activity, soaring inflation (CPI now at 22.0% y/y), inaccessible forex, and intermittent availability of fuel (diesel) which has increased operation costs.
The policy will have negative consequences on the country’s weak economic growth. The policy inconsistency will further disincentivise foreign direct investment in the sector. Also, we expect it to lead to a rise in finished goods prices as these costs will be transferred to consumers. Industry participants will take measures to cut costs with job cuts. We expect this to contribute to the unemployment rate, given that the sector is a significant employer of low-skilled labour. It is, therefore, necessary that policymakers engage with stakeholders, particularly the industries that are directly affected, to arrive at the best outcome.
