CSEA’s Senior Research Fellow, Dr. Adedeji Adeniran and Research Associate, Joseph Ishaku participated in the Peer Review Workshop for the “State of the SDGs” report organized by the Southern Voice in Negombo, Sri Lanka on July 18-20, 2018. The meeting featured six research teams– Ghana, Nigeria, Bolivia, Peru, India and Sri Lanka- the launch of their country studies to feed into the upcoming ‘Southern Voice State of the Sustainable Development Goals’ Report. The research will focus on three Sustainable Development Goals (SDG 4 ‘quality education’, SDG 7 ‘affordable and clean energy’ and SDG 8 ‘decent work and economic growth’) in the Global South. The Southern Voice “State of the SDGs” initiative will provide evidence-based analysis and recommendations to improve the delivery of the Sustainable Development Goals (SDGs). As a collaborative initiative, the programme will compile a broad range of perspectives that are usually missing from international debates. CSEA’s research will focus on “Educational Performance in Nigeria: The Dimensions, Drivers, and Implication for SDGs”(SDG 4). The Southern Voice is a network of 50 thinks tanks from across Africa, Asia, and Latin America. It serves as a platform for the Global South to promote evidence-based dialogue on the Sustainable Development Goals (SDGs) and its impact on the South

Economic or trade unions all have something in common; to form a sizable market that can position its member states in a vantage standpoint needed to influence trade negotiations or expand the economic prosperity of its people through joint policy.  Economic unions or blocs are not necessarily formed to increase population size, promote consumerism or extend geographical space. They aim at enhancing market efficiency, promoting healthy competition, attracting foreign direct investment, expanding trade, promoting the economic interest of member states.

Instituted through the Lagos Treaty on the 28^th of May 1975, the Economic Community of West African States (ECOWAS) now has 15 members, occupies a geographical area of about 5,114,162 km² and market size of over 350 million people. With a combined GDP of approximately US$716.7 billion, ECOWAS possesses the required tools to improve West Africa economy. Forty-three (43) years down the line, some successes have been recorded, but yet the pace of influence and development have been slow. But we strongly believe that ECOWAS could be a catalytic entity for the emancipation of West Africa countries in the committee of Nations.

Custom, Manufacturing Capacity and Trade

Although within a trade bloc, the joint promotion of the regional welfare is emphasized, yet the member states with strong producing capacity tend to recoup most benefit.  While this is so, it could promote intense competition among member states thereby ensuring surplus output, varieties of good and services, and reduced prices for consumers. The ultimate result of these chains of actions will be expanded exports and foreign exchange inflow for member states. In 2016, the combined export value of ECOWAS was about US$101.4 billion, far below the export value of individual countries such as Turkey ($157.3 billion), Malaysia ($188.2billion) and some hosts.

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ECOWAS, 2016

While, it would have been expected that the member states trade more with each other, but the intra-trade trend shows that ECOWAS members trade less with each other, recording a yearly average of US$ 12.9 billion worth of goods and services from 2011 to 2016. There still exist some levels of barriers in trading with each other, an indication that the Economic/Trade Union did not result to Customs Union.  In addition to these, ECOWAS export to the outside world has been unstable and tumbling downward at a geometric pace, losing an average of US $10.5 billion every year and about the US $ 55.4 billion every two years. Examining the bloc’ s trade partners shows that about 83.7 percent of ECOWAS exports are to Europe and the Americas, about 16 percent en route to Asia and Oceania, with only 0.3% to the Middle East. The export composition still reflects the dominance of primary goods with little or no value addition.  All these are signals that the manufacturing capacity of the ECOWAS states are still lagging behind and the bloc needs a workable export strategy to create the needed prosperity and jobs among its member.

The Prosperity Joystick

ECOWAS states are not yet fully integrated economically. The bloc needs to focus more on economic integration through the following:

• Capital and Talent mobility: Despite the attainment of the ECOWAS passport, the inability to implement a vibrant custom and immigration union has been hampering free mobility among member states. The borders of member states are heavily armed with tank and armoury such that people and goods spending hours for documentation and It should be noted that without joint policing across the border, the free flow may not be fully achieved. This can be improved upon.
• Monetary integration: The existence of money brings in liquidity and easy flow of trade. With the US dollar as a third party currency, the full actualization of stress-free trade among members may not be completely achieved. But, the introduction of ECOWAS currency will necessitate joint monetary coordination and harmonization of macroeconomic policy among members.
• Friendly Investment Policy and Joint Trade Strategy: ECOWAS could facilitate FDI into West Africa and can support member states with research-based trade strategy, for instance, on the need to expand trade to the Middle-East region. This should also be considered for quick implementation" alt="" width="700" height="416" />

Morocco could be the Game Changer

The willingness of Morroco to join the union despite its geographical located in the North shows the presence of a pull “incentive-like” factor in ECOWAS not fully explored by the old members; the large market, massive labour or trade advantage. The country formally belongs to the Arab Maghreb Union (UAM) but has disagreements with the bloc, especially Algeria. In the past decade, Morocco trade with ECOWAS member states had grown up to US$ 1 billion in 2016. Nigeria, Côte d’Ivoire, Senegal, and Mauritania happen to be the biggest importers of Morocco goods such as foodstuffs, machinery and chemical goods. With a strong domestic manufacturing base, Morocco stands the chance of replacing some part of ECOWAS importations from Europe and Americas, while addressing its wider current account and trade deficit, in addition to improving its unstable economic growth. As the Manufacturers Association of Nigeria (MAN) continues to oppose the admission of Morocco into ECOWAS, such moves will not add to Nigeria’s productive capacity. Even as Morocco’s admittance will promote competitiveness, Nigeria will, therefore, need to reform its productive base to able to enjoy the benefit of the membership of any trade bloc it belongs to now or in the future.

In conclusion, as the economic pie grows big, everyone stands will have a bigger share. As the productive capacity of member states increases and trade activities with each other expands, more business opportunities will spring up, jobs and income in the region will increase. With the growing population in West Africa, this is partly what the ECOWAS needs to tame the Africa-Europe migration/refugee challenges and as well as achieve the sustainable development goals (SDGs).

CSEA hosted the 8th Download File">African Policy Circle (APC) Meeting in Abuja, Nigeria from 24-25 May, 2018. The meeting which met on the theme: “Forced Migration within and out of Africa: Innovative Solutions from African Civil Society and Think-tanks”, was supported by the Konrad Adenauer Stifung (KAS) and Global Public Policy Institute (GPPi).

The main objective of the meeting was to provide a platform for African think-tanks and civil society organizations to share knowledge and discuss strategies as well as develop actionable recommendations for policymakers to meaningfully address the problem of forced migration within and out of Africa.

Participants working on issues on peace and security, migration, development, policy research and human rights, participated in the meeting and deliberated on key issues whilst providing recommendations on forced migration within the African continent.

Nigeria recently Download File">approved new excise duty rates for tobacco products and alcohol beverages, which would be effective from 4^th June 2018. We discuss the new policy as it relates to tobacco products.

The new policy would maintain the current 20 percent ad valorem-based excise duty rate on tobacco products, and introduce an additional ₦1 specific tax on each stick of cigarette in 2018, which would increase the price per stick to ₦2 in 2019 and eventually ₦2.90 per stick in 2020. This corresponds to a gradual increase in excise duty rate of ₦58 per pack, spread over three years (Figure 1).

This article briefly describes the build up to this policy development; highlights the important contributions of Centre for the Study of the Economies of Africa (CSEA) to the stakeholder engagement process, and examines the potential impact of the policy change on public health and fiscal revenue.

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Prior to this policy development, Nigeria has had two notable tobacco control legislations. Specifically, the Tobacco Smoking (Control) Act of 1990 that sought to control smoking in certain areas and restrict tobacco smoking advertisement and the newer and relatively broader National Tobacco Control Act (NTCA) of 2015, which was an attempt to domesticate the Framework Convention on Tobacco Control (FCTC). Civil Society groups have been campaigning for the implementation of effective tobacco control measures in Nigeria, especially under the auspices of the National Tobacco Control Alliance (NTCA), which CSEA is a member. These advocacy efforts have gained momentum in recent times and received international support, partly in response to tobacco industry targeting of emerging market in Africa. Over the years, health concerns have been the primary basis of tobacco control advocacy in Nigeria.

Correspondingly, recent macroeconomic concerns have necessitated a new drive for government to seek innovative ways of mobilizing revenues. This provided the opportunity for tobacco control advocacy to take on another key dimension, in addition to the initial grounding on public health issues. Particularly, CSEA joined other tobacco control advocates to present tobacco taxation to the government as the most effective policy measure.

Tobacco taxation can save millions of lives, reduce poverty, and raise revenues for financing development. Tobacco taxation is popular among policy makers because of its dual positive effect on public health and government revenue (a win-win policy option). Moreover, realized tax revenues can be earmarked to fund key social programmes which generates grassroot support.

The confluence of sustained and dynamic tobacco control advocacy and current government motives resulted to the policy development in discussion.

It is important to paint the picture of Nigeria’s tobacco market in order to develop an appreciation for the new tobacco policy. Available Download PDF">data shows that 5.6 percent (4.7 million) Nigerian adults aged 15 years or older used tobacco products: 10.0 percent (4.2 million) of men and 1.1 percent (0.5 million) of women. Consequently, tobacco related diseases account for about 17,500 deaths per year: about 207 men and 130 women per week. The economic losses associated with tobacco use are estimated at US$ 591 million. 18.4 billion Cigarette sticks were consumed in 2015, with an average pack of cigarettes costing approximately ₦183.50 in 2017. Despite the huge costs caused by tobacco, tobacco excise tax remained very low for a long time, at 20 percent ad valorem rate charge on Unit Cost Analyses (UCA). This corresponds to a tax burden of just 6.5 percent compared to the WHO-recommended 75 percent.

These signal the urgent need to implement effective policies that curb the rising smoking prevalence rates and associated impacts. Tobacco taxes are considered to be the most effective tobacco control measure, hence the importance of this new tobacco tax policy. In what follows, we outline the public health and fiscal revenue implications of the policy.

Public Health and Fiscal Revenue Implications of the Recent Tobacco Tax Policy

In order to examine the impact of the change in tobacco tax policy on public health and government revenue, we carried out a Tobacco Tax Simulation Model (Download File">TETSiM). The TETSiM is an advanced excel-based simulation tool developed by the University of Cape Town’s Economics of Tobacco Control Project, but was adapted and empirically applied by researchers at CSEA to fit the local setting. Using TETSiM, we are able to calculate the effect of this policy on public health (measured as reduction in cigarette consumption) and government revenue (measured as revenue from excise tax on cigarettes only) over the next three years, 2018 – 2020.

We show the effects of this policy in four possible scenarios that accounts for economic growth (calculated using Download File">World Bank’s GDP growth projections for 2018, 2019, 2020) and tobacco industry response (increase, decrease, leave industry /net-of-tax price unchanged). The data input used for this model were mostly derived from national sources including the Nigerian Customs Service, National Bureau of Statistics, and Global Adult Tobacco Survey (GATS) among others. Other key data such as price and income elasticities were collected from secondary literature. See appendix for model data input and key model assumptions.

1. On Public Health

The results of the model show that the quantity of cigarettes consumed by smokers in Nigeria will fall over the next three years. Cigarette consumption will fall by a larger percentage when the tobacco industry (consisting of producers, wholesalers and retailers) passes on the excise tax burden[1] to consumers; without decreasing the net-of-tax price[2] on cigarettes. The present study shows that if the tobacco industry takes up the excise tax burden by decreasing the net-of-tax price by 10 percent, the quantity of cigarettes consumed in Nigeria would fall by 3.0 percent by 2020 (from 920 million cigarette packs in 2017 to 892 million cigarette packs by 2020) (Figure 2). However, if the tobacco industry increases the net-of-tax price on cigarettes by 10 percent, cigarette consumption in Nigeria would fall by 9.7 percent by 2020; from 920 million cigarette packs in 2017 to 831 million packs for cigarettes by 2020 (Figure 2). If the industry leaves the net-of-tax price unchanged, cigarette consumption will only fall by 3.4 percent (to 879 million cigarette packs). Given the oligopolistic market share of the tobacco industry in Nigeria, it is therefore more desirable for the tobacco industry to over shift the tax burden to consumers by increasing its net-of-tax price -- as this will have the largest impact on public health.

How does this happen? An increase in the excise tax should reflect as an increase in the price of cigarettes if the tobacco industry transfers the excise tax burden to cigarette consumers. This would then lead to a reduction in cigarette consumption via a decrease in the growth of: i) the number of the adult population that smoke cigarettes (i.e. smoking prevalence), and ii) the number of cigarettes remaining smokers smoke (i.e. smoking intensity).

Asides the change in tobacco excise duty rate, the change in tobacco excise tax structure/system (which now includes a specific tax portion) is also desirable, as it will give less room for cost manipulation by the tobacco industry. Therefore is more likely to yield the desired reduction in cigarette consumption when compared with a tobacco excise tax system that is purely ad valorem.

Nevertheless, a complete change from ad valorem to specific tax system is more desirable. Ideally, the higher the price of cigarettes under a specific tax system, the greater the reduction in cigarette consumption and the greater the benefits for public health.

While the new excise duty on tobacco products (which amounts to about 17% excise tax burden) is a step in the right direction, its effect on cigarette consumption and public health would be minimal relative to the excise duty on tobacco products recommended by the World Health Organization (WHO). The WHO-recommends a tobacco tax policy amounting to 75% excise tax burden; this would yield a larger decrease in cigarette consumption relative to the recent tobacco tax policy. Thus, the government should aspire for more radical tax policy for tobacco products.

In the meantime, efforts must be made by the government to ensure that unintended consequences from the new excise tax policy, such as an increase in illicit trade[3], is minimized. Particularly, improving border control and monitoring mechanism through track and trace system is important. The track and trace system is a mass serialization solution that prints a unique identifying code onto each cigarette production after it has been packaged. This will allow consumers and government officials to distinguish illegal cigarette products from the legal cigarette products, and help resolve the illicit trade problem.

Total Cigarette Consumption by 2020 (in million cigarette packs)" alt="" width="408" height="272" />

The results of our TETSiM show that excise tax revenue to the government from cigarette tax revenue will increase significantly over the next three years. The present study shows that excise tax revenue to the Nigerian government, from cigarette production, will increase significantly. Based on the present model, the government will generate more than thrice the current excise revenue whether or not the tobacco industry passes on the tax burden to consumers, since the excise tax is levied on cigarette production not on consumption. Specifically, the model result show that the Nigerian government will collect an excise tax revenue of at least N37.3 billion from cigarette production by 2020, irrespective of industry response (Figure 3). This projected excise tax revenue would even be higher under the tobacco tax policy recommended by the WHO.

However, it is possible that the government may lose a portion of the projected excise tax revenue due to illicit trade. Therefore, it is important to monitor for unintended consequences from the new tobacco tax policy. Particularly, the track and trace system for tobacco products in Nigeria should be promptly initiated to address any potential illicit trade problem.

Figure 3: Projected Excise Tax Revenue from Cigarette Production between by 2020 (in billionNGN)  

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CSEA participated at the World Conference on Tobacco or Health in Capetown, South Africa

Conclusions and Recommendation

Government’s efforts in involving relevant stakeholders in reaching this celebrated policy position is laudable and needs to be sustained. However, despite the clearly identified policy motives of improving public health and generating fiscal revenues, there are unintended consequences that may emerge, which should not be easily discounted. Specifically, the expected effect of the new policy on prices of tobacco products can create a setting for illicit trade in tobacco to thrive. Therefore, the government needs to follow up policy implementation with rigorous monitoring, evaluation and border control. Furthermore, this policy needs to be backed by complementary tobacco control measures that limit the growth of illicit trade, such as tighter border controls.

Moreover, the level of political will for tobacco control shown by the present administration is a motivation for CSEA to continue to generate evidence on crucial tobacco related issues, especially relating to unintended policy impacts, such as on inflation and illicit trade in tobacco products. Other issues captured in CSEA’s ongoing tobacco control research include understanding the level and dimensions of price dispersion in the cigarette market; cigarette affordability; incidence of tobacco taxes; and earmarking of tobacco tax revenues.

Tobacco taxation, though hailed as the most effective tobacco control measure, is only one of the numerous other evidence-backed tobacco control measures. These other measures are nicely captured in the Download File">WHO’s MPOWER acronym. To guarantee holistic socioeconomic benefits of tobacco control beyond just realizing tax revenues, these measures need to be integrated into a strategic tobacco control programme that the government must be committed to pursuing.

[1] Excise tax burden: The percentage of retail price that consists of the excise tax (i.e. )

[2] Industry price (or Net-of-tax price): This is the price of a pack of cigarettes after all taxes (VAT and excise) has been subtracted. This is the price set by the industry, depending on their manufacturing costs and desired profit margin.

[3] Illicit trade is the sale of products that were either smuggled, counterfeited, or evaded taxes.

Appendix:  Data Input and Mode Assumptions

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