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Newly Imposed Excise Duty of N10 Per Litre On Carbonated and Non-Alcoholic Drink Will Hurt Demand and Lead To Job Loss – LCCI and NLC

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The Lagos Chamber of Commerce and Industry (LCCI) and Nigeria Labour Congress (NLC) reject the federal government’s newly imposed excise duty of N10 per liter on all Non-alcoholic, carbonated and sweetened Beverages.

Excise duty is a tax imposed on the manufacture, sale, or consumption of some selected products such as alcoholic drinks, tobacco and petroleum products.  it is an indirect tax, causing the manufacturers or producer to recover their loss by raising the price of their goods.

At the public presentation of the approved 2022 FGN budget last week, the minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed said, “there is now Excise Duty of N10 per liter imposed on all non-alcoholic, carbonated and sweetened beverages. This is to discourage excessive consumption of sugar in beverages which contributes to diabetes, obesity, etc.

“The new ‘Sugar Tax’ introduced is also to raise excise duties and revenues for health-related and other critical expenditures. It is in line with the 2022 budget priorities.”

This new development was not welcomed by LCCI and NLC, the two bodies request the government to reconsider its decision as this newly imposed excise duty will have an adverse effect on the economy. Reminding the federal government of the two giant tyre manufacturing companies, Dunlop and Michelin, which were forced to relocate to neighboring countries as a result of epileptic power supply that dragged on their cost of production.

It is believed that a similar situation might play out, resulting in the relocation of non-alcoholic and carbonated companies to neighbouring countries.

In a statement released last week, the Director-General of LCCI, Chinyere Almona, said the newly imposed excise duty on carbonated and non-alcoholic drinks would have a ripple effect on the demand and prices of affected commodities which will affect domestic producers and in turn result in job loss dues to the potential reduction in production activities.

Chinyere said, “the federal government has announced it will charge an excise levy of N10 per litre on all non-alcoholic carbonated sweetened beverages to discourage excessive sugar consumption and boost revenue.”

“The immediate concerns are the likely increase in prices which may lead to a decrease in demand and, consequently, loss of jobs due to a reduction in production activities.

“The prohibition on imported drinks should be better enforced to protect domestic production from unfair competition in the face of the high cost of production in Nigeria.”

This policy will increase the price of carbonated drinks across the country and “impose immense hardship on ordinary Nigerians who easily keep hunger at bay with a bottle of soft drink and maybe a loaf of bread.”

Speaking further, the LCCI recommended an upward review of the budget allocation to the country’s health sector.

“We, however, recommend that the realized revenue from these levies be channeled into improving the country’s grossly inadequate health infrastructure. The allocation to the health sector in the 2022 federal budget of N463bn should be reviewed upward to the region of a trillion naira invested into the sector in the next ten years.

“And beyond the levying of taxes on carbonated drinks to force a reduction in consumption, we urge the various public health agencies to regulate the production of sugary drinks to reduce their negative effect on human health.” The chamber said.

According to Chinyere, adopting the new excise duty is inevitable if the federal government insists to enforce the new “sugar tax”. She said, “If the President insists he wants it, we have to oblige him,” she said.

In a statement released by NLC and signed by Comrade Ayuba Wabba, the union said its concern about the newly imposed excise tax is the mass hunger that would result from the potential increase in the retail price of soft drinks which will be beyond the reach of many Nigerians.

The union further explained that the increase in the price of non-alcoholic and carbonated drinks would push some Nigerians to resort to consumption of substandard and unhygienic drinks as substitutes for carbonated drinks which will put them at risk of serious health challenges.

If this happens, it will negate the federal government’s objective to discourage over-consumption of sugar and check obesity.

NLC full statement:

On the 31st of December 2021, President Muhammadu Buhari signed into law the Finance Act. Some of the provisions of the Finance Act include the imposition of excise duties on locally produced non-alcoholic, carbonated, and sugary drinks.

The reason offered by the government for this decision was to discourage the consumption of sugar by Nigerians as it has led to an upsurge in obesity and diabetes. In a letter dated 27th November 2021, the Nigeria Labour Congress wrote to the President and Commander-in-Chief of the Armed Forces of Nigeria, President Muhammadu Buhari, GCFR and the leadership of the two chambers of the National Assembly pleading that government should suspend the implementation of the excise duties on non-alcoholic, carbonated and sugary drinks.

The Congress provided a number of very cogent reasons why the government should not go ahead with the decision to impose fresh taxes on soft drinks. One of the reasons we advanced was that the re-introduction of excise duties on non-alcoholic, carbonated and sugary drinks will impose immense hardship on ordinary Nigerians who easily keep hunger at bay with a bottle of soft drink and maybe a loaf of bread.

Our concern is the mass hunger that would result from the slightest increase in the retail price of soft drinks owing to the imposition of excise duties as it would be priced beyond the reach of many Nigerians. Congress was also alerted by the complaint of manufacturers of soft drinks in Nigeria that the re-introduction of excise duties would lead to a very sharp decline in sales, forced reduction in production capacity, and a certain roll back in investments with the certainty of job losses and possibly shut down of manufacturing plants.

Nigerians would recall that this was also the complaint of tyre manufacturing companies such as Dunlop and Michelin which was overlooked by the government until the two companies relocated to neighboring Ghana. A similar situation is playing out with the soft drinks manufacturing sub-sector. Government should pay attention.

With 38% of the entire manufacturing output in Nigeria and 22.5% share representation of the entire manufacturing sector in Nigeria, the food and beverage industry is the largest industrial sub-sector in our country. The food and beverage sub-sector has generated to the coffers of government N202 billion as VAT in the past five years, N7.3 billion as Corporate Social Responsibility and has created 1.5 million decent jobs both directly and indirectly.

There is thus no gainsaying the fact that the industry is a golden goose that must be kept alive. The health reason proffered by the government as a reason for the reintroduction of the excise duties seems altruistic. Yet, we are amiss why the government did not place the excise duties on sugar itself as a commodity rather than on carbonated drinks.

The truth of the matter is that an additional increase in the retail price of carbonated drinks would put more Nigerians at risk of serious health challenges as many people would resort to consuming sub-standard and unhygienic drinks as substitutes for carbonated drinks.

The appeal to rescind the re-introduction of excise duties on non-alcoholic drinks becomes even more compelling when the projected immediate revenue expected from the policy is weighed against the potential long-term loss to both manufacturers and the government. The beverage sub-sector will lose 40% of its current sales revenue.

This translates to a loss of N1.9 trillion. While the government will only make total projected receipts of N81 billion from the proposed reintroduction of the excise duties. The government also stands to lose N197 billion in VAT, Company Income Tax and Tertiary Education Tax as a consequence of the expected downturn in overall industry performance should the excise duties be effected as being planned.

In light of the foregoing, we ask the National Assembly to quickly amend the sections of the Finance Act that re-introduced excise duties on non-alcoholic and carbonated drinks. We also ask the government to extend COVID-19 palliatives and support incentives to the Food and Beverages industry to cushion the shock and hemorrhage that the industry is trying to recover from.

Finally, we demand that Government should engage Employers in the subsector and Organized Labour in sincere discussions on other options that can deliver a mutually satisfying win-win solution to this issue. We hope that the current situation will not be allowed to degenerate into a breakdown in industrial relations in the sector and generally in the country.

Comrade Ayuba Wabba, mni

President

January 2022

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Economy

Nigeria’s Growth Forecast Lowered to 3% for 2025, Higher than Most Emerging Markets

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IMF global - Investors King

The International Monetary Fund (IMF) has projected a 3% growth rate for Nigeria in 2025, slightly down from the 3.1% forecasted for 2024.

Despite this slight decline, Nigeria’s projected growth remains higher than that of many emerging markets as detailed in the IMF’s latest World Economic Outlook released on Tuesday.

In comparison, South Africa’s economy is expected to grow by 1.2% in 2025, up from 0.9% this year. Brazil’s growth is projected at 2.4% from 2.1% in 2024, and Mexico’s growth forecast stands at 1.6% for 2025, down from 2.2% in 2024.

However, India is anticipated to see a robust growth of 6.5% in 2025, although this is slightly lower than the 7% forecast for 2024.

The IMF’s projections come as Nigeria undertakes significant monetary reforms. The Central Bank of Nigeria has been working on clearing the foreign exchange backlog, and the federal government recently removed petrol subsidies.

These reforms aim to stabilize the economy, but the country continues to grapple with high inflation and increasing poverty levels, which pose challenges to sustained economic growth.

Sub-Saharan Africa as a whole is expected to see an improvement in growth, with projections of 4.1% in 2025, up from 3.7% in 2024. This regional outlook indicates a modest recovery as economies adjust to global economic conditions.

The IMF report underscores the need for cautious monetary policy. It recommends that central banks in emerging markets avoid easing their monetary stances too early to manage inflation risks and sustain economic growth.

In cases where inflation risks have materialized, central banks are advised to remain open to further tightening of monetary policy.

“Central banks should refrain from easing too early and should be prepared for further tightening if necessary,” the report stated. “Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually to allow for necessary fiscal consolidation.”

The IMF also highlighted the importance of avoiding fiscal slippages, noting that fiscal policies may need to be significantly tighter than previously anticipated in some countries to ensure economic stability.

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Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

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Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

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Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

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Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

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