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Mixed Reactions Trail Excise Duty Hike on Alcohol, Tobacco

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  • Mixed Reactions Trail Excise Duty Hike on Alcohol, Tobacco

Finance and economic experts on Monday expressed mixed reactions on the implementation of a new excise duty rates on alcoholic beverages and tobacco products.

Under the new excise duty rates approved by President Muhammadu Buhari in March, which came into effect on Monday, consumers of alcoholic beverages and tobacco are to pay more for the products.

In order to implement the newly approved excise duty rates for tobacco, the government said in addition to the 20 per cent ad-valorem rate, each stick of cigarette would attract a N1 specific rate (N20 per pack of 20 sticks) in 2018; a N2 specific rate per stick (N40 per pack of 20 sticks) in 2019 and a N2.90k specific rate per stick (N58 per pack of 20 sticks) in 2020.

For beer and stout, the government said these would attract 30 kobo per centilitre in 2018 and N0.35k per centilitre each in 2019 and 2020.

Wines will attract N1.25k per centilitre in 2018 and N1.50k per centilitre each in 2019 and 2020.

For spirits, the government approved N1.50k per centilitre in 2018, N1.75k per centilitre in 2019 and N2 per centilitre in 2020.

Speaking in separate interviews with our correspondent, some of the experts said that the increase in rates would stifle further investments in these sectors of the economy, others noted that the hike was long overdue.

Those who spoke on the issue were a developmental economist, Odilim Enwagbara; the President, Business Renaissance Group, Mr. Omife Omife; and a former Director-General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu.

Odilim said the hike in excise duty for alcoholic beverages was long overdue.

According to him, alcoholic beverages and tobacco are classified under luxury goods, adding that those who want to consume such products should be willing to pay more taxes.

He stated, “It is long overdue because we have to do that to make them pay more, because the government needs to generate revenue from those areas that may generate problems for the economy in terms of health problems.

“And so, to discourage consumers from taking these products, you will have to tax them more and that is the practice all over the world.

“They are luxury goods and if you are really rich, then you should be able to afford the cost of drinking alcohol; and if you want to indulge in smoking, then you must be willing to pay extra for it notwithstanding the health implications.”

When asked if the move by the Federal Government to increase the duty on these products would have a negative impact on the manufacturing sector, Enwagbara ruled out such a possibility.

“I don’t think it will have any negative impact on the manufacturing sector, because a company can diversify its portfolio from producing what is harmful to the people and the economy to other production lines,” he stated.

But Ekechukwu said that increasing excise duty on alcoholic beverages and cigarettes at a time when the government was working hard to reduce inflation rate was not well articulated.

He noted, “When this excise duty becomes operational, a few things will happen. Firstly, smuggling of these products from neighbouring countries into Nigeria will start.

“Secondly, there will be fake products all over the Nigerian market. Thirdly, it will create additional inflation and work against the fight to reduce our inflation rate as these cost will be passed over to consumers.”

Ekechukwu added that the policy might result to job losses as companies would strive to reduce their cost of production in order to maintain profit.

“The reasons adduced for increasing the tariffs are not plausible and not economically reasonable. The revenue we intend to generate there from will be lost through the foregoing demerits,” he added.

Speaking in the same vein, Omife called on the Federal Government to reverse its decision as the policy was capable of affecting investments in the manufacturing sector.

He said with the new tariff regime, firms in the sector would face high risk of possible shutdown, especially in the low price segment, which accounts for 78.65 per cent volume of the spirits and wines segment.

He noted that the new excise duty would also penalise average Nigerians as they would no longer be able to afford the new prices that include the exorbitant excise duty.

Omife added, “The wines and spirits industry is one of the few surviving sectors of the Nigerian economy and all patriots and men of good conscience should strive to ensure that the sector flourishes.

“Nothing should be done to endanger the sector. It is apparent that the announced astronomical increase in excise duty by the Minister of Finance is bound to endanger the sector if not reviewed and rescinded.”

He said given the challenges of border control and illicit market, the attractiveness of the price increase driven by higher duty would result in smugglers bringing in unregistered and untaxed products.

This, according to him, will result to loss of revenue to the government.

“The astronomical increase in the tariff is counter-productive and will lead to massive job loss, turn the country into a dump yard for foreign products, further pauperise Nigerians and stifle growth in an otherwise resilient sector of the economy,” he added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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South Africa’s Inflation Rate Holds Steady in May

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South Africa's economy - Investors King

South Africa’s inflation rate remained unchanged in May, increasing the likelihood that the central bank will maintain current borrowing costs.

According to a statement released by Statistics South Africa on Wednesday, consumer prices rose by 5.2% year-on-year, the same rate as in April.

The consistent inflation rate is expected to influence the decision of the six-member monetary policy committee (MPC), which is set to meet in mid-July. The current benchmark rate stands at 8.25%, a 15-year high, and has been held steady for six consecutive meetings.

Central Bank Governor Lesetja Kganyago has repeatedly emphasized the need for inflation to fall firmly within the 3% to 6% target range before considering any reduction in borrowing costs.

“We will continue to deliver on our mandate, irrespective of how our post-election politics plays out,” Kganyago stated earlier this month in Soweto. “The only impact is what kind of policies any coalition will propose. If the policies are not sustainable, we might not have investment.”

While money markets are assigning a slim chance of a 25-basis point rate cut in July, they are fully pricing in a reduction by November.

Bloomberg Africa economist Yvonne Mhango anticipates the rate-cutting cycle to begin in the fourth quarter, supported by a sharp drop in gasoline prices in June and a rally in the rand.

The rand has appreciated more than 3% since Friday, following the ANC’s agreement to a power-sharing deal with business-friendly opposition parties and the re-election of President Cyril Ramaphosa.

In May, the annual inflation rates for four of the twelve product groups remained stable, including food and non-alcoholic beverages.

However, transport, alcoholic beverages and tobacco, and recreation and culture saw higher rates. Food prices increased by 4.3% in May, slightly down from 4.4% in April, while transport costs rose by 6.3%, up from 5.7% and marking the highest rate for this category since October 2023.

The central bank’s cautious stance on monetary policy reflects its ongoing concerns about inflation.

Governor Kganyago has consistently voiced worries that the inflation rate is not decreasing as quickly as desired. The MPC’s upcoming decision will hinge on sustained inflationary pressures and the need to balance economic stability with fostering growth.

As South Africa navigates its economic challenges, the steady inflation rate in May provides a measure of predictability for policymakers and investors alike.

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Ghana Reports Strong 4.7% GDP Growth in First Quarter of 2024

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Ghana’s economy showed impressive growth in the first quarter of 2024 with the Gross Domestic Product (GDP) expanding by 4.7% compared to the same period last year, according to Government Statistician Samuel Kobina Annim.

This represents an increase from the 3.8% growth recorded in the previous quarter and should provide a much-needed boost to the ruling New Patriotic Party (NPP) as the nation approaches the presidential elections scheduled for December 7.

The positive economic data comes amidst a challenging backdrop of fiscal consolidation efforts under a $3 billion International Monetary Fund (IMF) rescue program.

The government has been working to control debt through reduced spending and restructuring nearly all of its $44 billion debt.

This includes ongoing negotiations with private creditors to reorganize $13 billion worth of bonds.

The latest GDP figures are seen as a vindication of the NPP’s economic policies, which have been under fire from the main opposition party, the National Democratic Congress (NDC).

The opposition has criticized the government’s handling of the economy, particularly its fiscal policies and the terms of the IMF program, arguing that they have imposed undue hardship on ordinary Ghanaians.

However, the 4.7% growth rate suggests that the measures taken to stabilize the economy are beginning to yield positive results.

Analysts believe that the stronger-than-expected economic performance will bolster the NPP’s position as the country gears up for the presidential elections.

“The growth we are seeing is a testament to the resilience of the Ghanaian economy and the effectiveness of the government’s policies,” Annim stated at a press briefing in Accra. “Despite the constraints imposed by the debt restructuring and IMF program, we are seeing significant progress.”

The IMF program, which is designed to restore macroeconomic stability, has necessitated tough fiscal adjustments.

These include cutting government expenditure and implementing structural reforms aimed at boosting economic efficiency and growth.

The government’s commitment to these reforms has been crucial in securing the confidence of international lenders and investors.

In addition to the IMF support, the government has also been focused on diversifying the economy, reducing its reliance on commodities, and fostering sectors such as manufacturing, services, and technology.

These efforts have contributed to the robust growth figures reported for the first quarter.

Economic growth in Ghana has been uneven in recent years, with periods of rapid expansion often followed by slowdowns.

The current administration has emphasized sustainable and inclusive growth, seeking to ensure that the benefits of economic progress are widely shared across all segments of the population.

The next few months will be critical as the government continues its efforts to stabilize the economy while preparing for the upcoming elections.

The positive GDP growth figures provide a strong foundation, but challenges remain, including managing inflation, creating jobs, and ensuring the stability of the financial sector.

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World Bank Commits Over $15 Billion to Support Nigeria’s Economic Reforms

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The World Bank has pledged over $15 billion in technical advisory and financial support to help the country achieve sustainable economic prosperity.

This commitment, announced in a feature article titled “Turning The Corner: Nigeria’s Ongoing Path of Economic Reforms,” underscores the international lender’s confidence in Nigeria’s recent bold reforms aimed at stabilizing and growing its economy.

The World Bank’s support will be channeled into key sectors such as reliable power and clean energy, girls’ education and women’s economic empowerment, climate adaptation and resilience, water and sanitation, and governance reforms.

The bank lauded Nigeria’s government for its courageous steps in implementing much-needed reforms, highlighting the unification of multiple official exchange rates, which has led to a market-determined official rate, and the phasing out of the costly gasoline subsidy.

“These reforms are crucial for Nigeria’s long-term economic health,” the World Bank stated. “The supply of foreign exchange has improved, benefiting businesses and consumers, while the gap between official and parallel market exchange rates has narrowed, enhancing transparency and curbing corrupt practices.”

The removal of the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022, was particularly noted for its potential to redirect fiscal resources toward more impactful public investments.

The World Bank pointed out that the subsidy primarily benefited wealthier consumers and fostered black market activities, rather than aiding the poor.

The bank’s article emphasized that Nigeria is at a turning point, with macro-fiscal reforms expected to channel more resources into sectors critical for improving citizens’ lives.

The World Bank’s support is designed to sustain these reforms and expand social protection for the poor and vulnerable, aiming to put the economy back on a sustainable growth path.

In addition to this substantial support, the World Bank recently approved a $2.25 billion loan to Nigeria at a one percent interest rate to finance further fiscal reforms.

This includes $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing, and $750 million for the NG Accelerating Resource Mobilization Reforms Programme-for-Results (ARMOR).

“The future can be bright, and Nigeria can rise and serve as an example for the region on how macro-fiscal and governance reforms, along with continued investments in public goods, can accelerate growth and improve the lives of its citizens,” the World Bank concluded.

With this robust backing from the World Bank, Nigeria is well-positioned to tackle its economic challenges and embark on a path to sustained prosperity and development.

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