Adebola is one of the most ebullient guys I have known in the course of work and life. But as we settled down to our usual watering hole last weekend, he was uncharacteristically moody. Was he struck by a personal tragedy? Why is a guy who is the sunshine of our weekends in such a dark and darkening mood?
And one had to ask. Hey, Ade, what’s happening? And Ade, a normally cheerful soul, could not quite gather himself to speak. And when he did, we understood. Adebola works in one of the big-name breweries. He works as an industrial statistician. His industry is under a grave and present danger. What the figures foretell, if the matter came to it, is a massive loss of jobs and disposable income for thousands, if not millions. In his words, save wise counsel prevails, we could all be losing our jobs and our lifestyles pretty soon.
Well, the brewery industry is a strange one. We are all familiar with its products. But not many of us who love a drink or two consciously know that it is actually an industry. Innocently, we all assume wine and the finer things of life are there and will be there to attend to our social needs. But for those in the industries, it is also a sweat and blood thing. Yes, they make a kobo profit or two serving us the nectar that is wine or beer, but that is under excruciating circumstances. In other words, the brewery and wine industries are like the rest, just industries. And it is already too tough doing industry in Nigeria. As if industry environments are not prohibitive enough, things are about to get worse, really ugly, for the brewery industry. That is the charge Adebola, a brilliant economic statistician, unfolded before us.
And the details quickly followed. Almost in his words. First, we all have understanding and solidarity with the broad federal government goals. Understandably, times are hard. And this is so both in Washington and Abuja and all the places in-between.
But you can’t reflate the economy by taxing the industries who are already battling macro and micro economic fragility. The numbers and revenues of the brewery sub-sector as well as the profits are collapsing. To worsen matters, the brewery sub-sector suffers high price sensitivity or elasticity. Being a recreational beverage, a slight price increase may trigger landslide buyer resistance. Presently, the brewery sub-sector is just digging in, hoping the economy will soon reflate, returning the good times. This alone makes the arithmetic of the new excise regime something that is bizarre, to put it mildly. It is perhaps the most unwelcome economic gambit in these industrially perilous and taxing times.
As things stand, the excise duty being paid by alcoholic beverages (beer, wines and spirits) is 20 per cent. And that is by the way high enough. And it has been that way for a long time now. In concrete terms, that comes to about N31 per litre. But, according to a proposed new regime by the Finance Minister, Honourable Kemi Adeosun, the new figures are N200.00 for spirits and N150.00 for wines. That comes to about 500 per cent increase.
First of all, the geometrical jump by 500 per cent amounts to a system shock in cash flow terms. And cash flow is like breath to the life of a business. This geometric shock alone can lead to industrial seizures, and all too possibly closures. And, God forbid, if that ever happens it is a matter of our national investment of more than N420 billion being washed away. Government will literally be cutting its nose to spite its face!
But if the closure of the sub-sector were all the cost, the tragedy would have looked just bad enough. If, however, one computed the direct and indirect costs and consequences, another picture emerges. It is like the nation is now being designed to be an abattoir for industries, especially the beverage manufacturing industries. In fact, the projection is that, if the present excise tariff goes into operation, the sub-sector will be forced to lay off workers in their thousands. Conservative estimates put the layoff figures at 30,000 directly and a million or more indirectly. And in this current season of rising unemployment, especially among our restive youth, it is obvious that is the least thing policy articulators should be entertaining. And to recall that youth unemployment drives crime brings us closer to the tally of the hidden costs of this excise regime.
Yet one has to ask, how did the ministry get it this wrong? It is all probably an “oversight.” It perhaps was driven by a patriotism that is not market-sensitive or savvy. That is a patriotism that sees industries wrongly. Contrary to our common national myopia, industries are centres of fervent patriotism themselves. The experience of prosperous countries tell this. Whether it is in China or America, industries are seen for what they are: joint players with government in the onerous task of ensuring prosperity for all. So, whether it is in Silicon Valley or Quanzhou, the tariff, excise and tax regimes are tailored to make manufacturers more productive. And it is all to the benefit of the nation. The point is that, for Americans, being an entrepreneur at Silicon Valley is as patriotic as being a General at West Point. And that is what it should be. They are all at their posts for the prosperity and strength of America. Therefore, being a manufacturer in Ota must be taken as patriotic as being any principal officer in the Three Arms Zone, Abuja. Finally, both the government and the entrepreneurs are in pursuit of our collective aim to be a rich and prosperous nation.
It is perhaps this mistaken anti-business slant of policy hands that led to the unilateralist error of wanting a hyperbolic rise in the excise order. The excise regime regrettably was designed without the input or engagement of the manufacturers and industry stakeholders. And these manufacturers are, like it is said of the army, the boots on the ground. The moral is: Anything done without consultation with the men who bear the brunt of the industrial frontiers will not serve any parties well. It will serve neither government nor the people well. Of course, it will see to the diminishing of the industry. Sad enough.
Additionally, if the sub-sector players were consulted, government would have been better advised. For instance, the unforced error of government in calculating the new proposed tariff order would not have occurred. What did government do? In calculating the proposed increase, government indexed costs on the prices of imported wines and spirits. The points are as follows: These are costs that are completely unrelated to the Nigerian economic order and landscape. To give one example, the costs of imported products reflect elements of their local labour costs. To index costs on such offshore figures is too theoretical, too off-the-mark, to serve any purpose.
So, how did the ministry get to proposing this largely punitive excise regime? Our suspicion is that it is the current cultural environment in Nigeria. Most Nigerians, unlike what happens in China, etc, don’t see businessmen and industries as entities who are in the same task of nation building. Nigerians don’t seem to know that corporate profitability is a measure of the strength and health of any nation. Understanding this will help wean government policymakers out of the idea that it is righteous to tax businesses like hell.
But there are saving graces. Ms Kemi Adeosun is arguably one of the sharpest minds and ministers around. Even more interestingly, she is by training and exposure the one to right this wrong herself. To err is human, to recompense, we guess, is ministerial. Simply, given her international exposure, she is the best man to fix the glitch.
In other words, one can say that Adeosun’s greatest brief now is to listen to the righteous cries of her primary constituency, the private sector, makers of our prosperity. She should listen to them, stave off the enforcement of the purported excise regime. She should also trigger regular dialogues with them as partners, and not as the other guys. After all, these are her ministry’s best representatives in the private sector. These are the peoples and industries who if, they don’t generate the jobs, will have government sweat blood to engage youths and combat crime. A tall order. So, in a sense, as it is in China, Europe, etc, these industrialists are there to make her job easier.
Of course, there is also the Senate. Already the Distillers and Blenders Association of Nigeria have written to the Senate. The Senate has been economically very forward-looking in its agenda. It is indicated they put up all the works to see that no industries, certainly not the already groaning DBAN, goes comatose because of immature policy exuberances. These industries are in their constituencies and are employers of their voters. And, just as the executive, the Senate is only as powerful as the industry that supports the economy.