15/12/2008 (All Africa.com) - The recently announced introduction of excise duty of five per cent on soaps and detergents, in addition to the existing VAT of five per cent would have adverse effect on the industry generally.

The removal of soap noodles and flakes from import prohibition listed under chapters 3401 and 3402 attracting a duty of 20 per cent had been welcome by majority of soap makers in the country.

However, some major manufactures had invested huge sums of money on machines to produce noodles for self use and to sell locally to small soap producers or other end users.

These machines may soon become idle, with consequential loss of manpower in the industry as it may be much cheaper to import noodles than to produce them locally. The 'big boys' in this industry have the financial power to bulk import noodles at a substantially reduced cost against a small processor bringing in a few tonnes at time.

The lifting of the ban on importation of palm oil would help this industry in the production of noodles to make soap. The vegetable oil makers would have ready import to plough their trade and save thousands of workers from unemployment. Several vegetable oil plants have shut down in the last few months. It is, however, better late than never. Whether these plants can be back into production is anybody's guess.

The current(November 2008) landed cost of imported palm oil with duty paid is far below N 100,000 a tonne. As at early October crude palm oil locally was being sold over N210,000 per tonne.

This shows clearly how unreasonable farmers had betrayed government trust with artificial monopoly created for them. Instead they had taken the nation for a ride. Over night local palm oil middle men are now running from pillar to post and very soon their products will be going for a song.

The ban on importation of soaps, detergents and cosmetics has made the industry develop at a much faster pace and companies with obsolete machines have either shut down due to their plant being uneconomic to operate or have replaced their entire lines at substantial cost.

World class multinational players in the cosmetics, soap and detergent industry have watched the Nigerian situation closely and realised they may be missing out of the action. Some of them have been embarrassed to see some of their products being smuggled into the country thereby soiling their images as law abiding corporations and spoiling their reputations.

To remain relevant here or as a face saving device or to have part of the action, while pushing at the right quarters for lifting the ban on importation of finished products, many have gone ahead to have their products registered with NAFDAC and have their contracts produced by Nigerian plants.

Even companies in Indonesia and Malaysia where majority of the smuggled soaps are manufactured have joined the process of registering with NAFDAC to go into contract production in the country by supplying all the inputs as the next best thing as legal re-entry into the Nigeria market.

There is local value added as well as enhanced capacity utilization of machinery and equipment, employment opportunities, improved turnover and create wealth. This is positive for the country. Our available manpower is better utilized and technical skills are retained.

The pace of industrialisation in this sector of the economy will slacken if the ban on importation of finished products is lifted. Millions of small scale producers of cosmetics and soaps in the villages, hamlets, towns and cities all over the country will be thrown into the unemployment market. It will be a shame for all the gains made so far. The skills have been taught to the masses to be independent and self-employed.

These multinationals in a situation they find their subterranean moves to have the ban lifted check mated, may decide to bring in machinery into Nigeria if and when their market share is large enough to start their operation here. It will be a welcome development. Nigeria with a population of close to 150 million people has a market large enough not to be completely ignored. It will create employment for Nigerians.

The lifting of the ban on importation of soap noodles and putting palm oil under OGL (free importation) would create additional work force and manpower utilization in the manufacturing sector of our economy. Products from the country will find ready markets in the ECOWAS sub-region. We are now in a position to compete favorably with products from other parts of the world in the region. Palm oil producers in the region are now concentrating their operations in Nigeria and offering their produce at favorable prices in direct competition with Far East suppliers. This is an eye opener and the Nigerian farmers should tour the ECOWAS region to find out what they are doing wrong so as to catch up with the rest of the world before it is too late.

The introduction of excise duty of five per cent on cosmetics, soaps and detergents while at the same time contemplating lifting the ban on importation of finished products would be counter productive and in extreme bad taste. The reasons are quite simple and clear. Even with the official ban in place a sizeable quantity (over 10 per cent for soaps and detergents, 20 per cent for cosmetics) of these products are smuggled into the country and find their way into our major markets in Kano, Maiduguri, Lagos. Supermarkets, high streets, villages are all awash with foreign cosmetics, soaps and detergents. The continuous raids and confiscations by NAFDAC officials have not deterred them from their nefarious activities.

It will not be in the interest of local cosmetics, soaps and detergents manufacturers to press the Federal Government to allow duty free inputs importation, because that may be an invitation to all comers to import these inputs for other purposes (including money laundering), etc. It will become a trader's paradise.

The excise duty is an additional burden on manufactures. The net payment to government would increase from between 2.5% and 3.5% to 7.5% and 8.5%. These margins are difficult to bridge and have to be passed on to the consuming public by raising the prices of products sold.

However, there is constraint on how far up prices can go without resistance from the public. As a result some manufacturers may be forced out of production and shut down. In the present worldwide economic depression, especially in Nigeria, it will not be the best solution for solving our unemployment problem.