Illicit alcohol trade undermines investments, job creation

Nigeria’s illicit alcohol trade is increasingly threatening investments, jobs and government revenue as counterfeit and smuggled products undermine legitimate businesses, prompting industry stakeholders to call for stronger enforcement, coordinated regulation and tougher measures to protect consumers and the economy, writes SAMI TUNJI

Nigeria’s battle against illicit alcohol is no longer a routine regulatory exercise or merely a campaign against fake drinks. It has become a test of the country’s ability to protect consumers, preserve investments, sustain jobs and ensure that legitimate businesses are not placed at a disadvantage for obeying the law.

Counterfeit wines and spirits, smuggled products, illegally refilled bottles and drinks produced in unlicensed facilities operate largely outside the tax and regulatory system. Their producers often avoid excise duties, customs charges, quality-control expenses and other costs borne by registered manufacturers.

For legitimate companies, the result is an uneven contest. They invest in factories, machinery, product testing, packaging, staff training, distribution networks and regulatory compliance, while illicit operators seek to profit from established brands without carrying the same financial obligations.

The scale of the problem was recently highlighted at a one-day stakeholder workshop organised by the Spirits and Wines Association of Nigeria in Abuja. The meeting brought together manufacturers, regulators and policymakers to discuss the growing threat posed by illicit trade.

Speaking after the workshop, SWAN President, Michael Ehindero, described illicit trade as “not just an industry issue but a national concern” that threatened consumer safety, eroded government revenue and distorted fair competition.

He said the discussions reinforced the need for stronger collaboration among government institutions, regulators, enforcement agencies and private-sector operators, adding that no single stakeholder could address the problem alone.

SWAN Director-General, Tony Okwoju, said the meeting moved the conversation beyond identifying the challenge towards practical measures, including stronger enforcement, improved regulatory alignment and greater consumer awareness.

According to figures cited by the association, illicit products account for about 40 per cent of wines and spirits sold in Nigeria, while the economy loses an estimated N428bn annually to smuggling, counterfeiting, tax evasion and illegal production.

At a time when the Federal Government is seeking to improve domestic revenue, expand manufacturing and reduce reliance on oil income, the illicit alcohol market raises a wider economic question. Can Nigeria attract long-term investment when criminal operators continue to enjoy a cost advantage over businesses that pay taxes, meet safety standards and create formal employment?

Compliance burden

Nigeria has one of Africa’s largest consumer markets, supported by its population, urbanisation, hospitality industry and extensive network of wholesalers, distributors, supermarkets, bars, hotels and restaurants.

Industry estimates place the spirits segment at about $2bn, while the sweet-wine category is valued at between $400m and $420m annually. Beer is estimated to account for about 55 per cent of the wider alcoholic beverages market, while spirits and wines represent about 30 per cent and 15 per cent respectively. The figures show the commercial importance of the sector.

The value chain extends far beyond alcohol producers. Manufacturers purchase bottles, labels, cartons, flavouring materials and other inputs. They employ factory workers, laboratory personnel, accountants, drivers, engineers, marketers and sales representatives.

Their activities also support logistics companies, distributors, advertising agencies, retailers, restaurants and entertainment businesses.

Legitimate manufacturers must register their products, submit to regulatory inspections, comply with production standards and pay applicable taxes and import charges. They also contend with Nigeria’s high energy costs, transport expenses, foreign exchange pressures and security challenges.

Illicit producers avoid many of these costs. Some counterfeiters refill used bottles with inferior drinks and reseal them. Others imitate popular brands, copy labels and packaging or produce beverages without regulatory approval. Smugglers evade customs duties, while unregistered producers remain outside the formal tax system.

Their products can therefore be sold at lower prices, not because they are more efficient, but because they transfer their costs to consumers, legitimate companies and the government.

For compliant manufacturers, the effect can be severe. Cheap counterfeit products reduce sales, weaken market share and make it harder to recover investments in machinery, branding, product development and distribution.

Companies may respond by postponing expansion, cutting production, freezing recruitment or reducing capital expenditure.

The damage also spreads through the supply chain. A factory producing fewer bottles requires fewer cartons, labels and transport services. Distributors move lower volumes, while retailers lose formal supply and promotional arrangements.

The government also receives less in company income tax, value-added tax, excise duties and customs revenue.

That is why the estimated N428bn annual loss has implications beyond the balance sheets of alcohol companies.

Each illicit bottle sold potentially displaces a legitimate transaction. It could represent VAT, excise duty or import revenue that does not reach the government. It may also transfer income from a licensed distributor or retailer to an underground network.

The central problem is that compliance begins to look like a commercial disadvantage.

A company that invests in safe ingredients, testing, workers, regulatory approvals and taxes competes against an operator that avoids those obligations. Such a system weakens the incentive for small businesses to formalise and discourages existing firms from committing further capital.

Prospective investors are also likely to examine whether product standards, trademarks and distribution systems are protected before building factories or expanding operations.

Where counterfeiters can copy packaging, refill bottles and sell smuggled products with limited risk of prosecution, legitimate companies face additional costs. They must spend more on product authentication, market surveillance, legal action, security features and consumer education.

Nigeria’s goal of becoming a manufacturing hub is therefore difficult to reconcile with a market in which illicit operators enjoy structural advantages over registered producers.

The problem is not limited to alcohol. Counterfeiting and smuggling also affect medicines, food, textiles, electronics and other consumer products. But illicit alcohol carries an additional danger because the contents of a counterfeit bottle can cause serious injury or death.

Jobs, revenue strained

The illicit alcohol economy is difficult to measure because it operates outside formal production, employment and tax records. SWAN’s estimate showed that about 40 per cent of wines and spirits consumed in Nigeria are illicit.

However, the underlying fiscal concern remains valid.

Alcoholic beverages generate revenue through VAT, excise duties, customs charges and corporate taxes. Registered businesses also make statutory payments linked to formal employment.

The Managing Director of the Alliance Against Counterfeit Spirits, David Francis, clarified that counterfeit products represent only a portion of the broader illicit trade.

Francis explained, “When we are talking about illicit trade and those headline numbers, that includes tax-evaded, smuggled and parallel products.

“Counterfeit is a subsection of that, with particular dangers related to unregulated production. Counterfeit is a smaller subset of the overall illicit market. It is important to bear that distinction in mind.”

Illegal producers and smugglers can evade several of these obligations at the same time.

The result is a narrower tax base. When a large segment of commercial activity remains untaxed, the government may place greater pressure on the visible formal sector to meet revenue targets.

This worsens the burden on legitimate companies, which pay taxes while also spending money to defend their brands against counterfeiters through investigations, packaging redesign, verification technology and litigation.

The employment impact may be less visible but equally damaging.

Illicit networks may create some informal activity, but such jobs are usually unrecorded, insecure and outside labour protections. They do not provide the same economic benefits as formal manufacturing jobs linked to structured supply chains, technical training and statutory contributions.

A regulated factory supports employment beyond its premises. Its demand for bottles, labels and cartons benefits manufacturers and printers. Its logistics contracts support drivers, warehouse workers and fleet operators.

Its marketing activities create business for advertising agencies, broadcasters and outdoor media companies. Its technical operations also provide jobs for engineers, laboratory scientists, accountants and managers.

When illicit products capture market share, job losses may not initially appear through large factory closures. They may occur gradually through positions that are not created, production lines that are not expanded, shifts that are reduced and investments that move elsewhere.

These lost opportunities are difficult to capture in unemployment data.

An investor who abandons a proposed factory does not publish the number of jobs that would have been created. A manufacturer that postpones an expansion may retain existing workers while quietly suspending recruitment.

The economic loss is therefore partly visible and partly represented by investments and jobs that never materialise.

Counterfeiting also creates reputational risks. Illicit operators often imitate the packaging and identity of recognised brands. If consumers fall ill after drinking a counterfeit product presented as genuine, the legitimate manufacturer may suffer public distrust despite having no connection to the drink.

Consumers may not easily distinguish between an authentic product and a refilled or imitated bottle. Once confidence is damaged, sales across the legitimate market may decline.

This makes public communication important. Regulators and the media must warn consumers about unsafe products without creating the false impression that all alcoholic beverages or all manufacturers are part of the problem.

SWAN has called on the media to keep illicit trade on the public agenda and demand accountability from enforcement agencies.

Consumer purchasing power is another factor. Inflation and declining real incomes may push buyers towards cheaper products. Illicit operators exploit this pressure by offering drinks below the prices legitimate producers can sustain.

That does not justify illegality, but it shows that enforcement alone may not eliminate demand.

Consumer education must therefore explain the risks associated with unusually cheap products, broken seals, altered labels and purchases from unverified sellers.

Enforcement beyond raids

Nigeria has several agencies with responsibility for product regulation, taxation and border control, including the National Agency for Food and Drug Administration and Control, the Nigeria Customs Service, the Standards Organisation of Nigeria, tax authorities and the police.

NAFDAC has carried out raids and investigations involving counterfeit and illegally produced alcoholic beverages. Its mandate covers the regulation of the manufacture, importation, distribution, sale and use of regulated products. The PUNCH recently reported that the National Agency for Food and Drug Administration and Control uncovered and dismantled two illegal production outlets involved in the counterfeiting and adulteration of alcoholic beverages in Lagos State, seizing products valued at about N350m.

The challenge is that illicit alcohol cuts across several institutional responsibilities.

A single counterfeit operation may involve an unlicensed factory, fake labels, trademark violations, diverted industrial chemicals, tax evasion, smuggling and organised distribution.

No single agency controls every part of that chain.

Criminal groups can exploit weak coordination among institutions. A suspicious shipment detected at the border may not be quickly linked to an inland production facility. A factory closed after a raid may reopen in another location.

A distributor arrested with counterfeit goods may also be treated as an isolated offender instead of a link in a wider network.

Raids remove products from the market, but they do not always change the economics of the crime. Where profits remain high and the likelihood of prosecution is low, seizures can be regarded by criminal operators as a business risk.

SWAN’s demand for stronger legislation, faster prosecution and permanent enforcement coordination therefore deserves attention.

However, tougher punishment alone will not solve the problem.

Penalties must be supported by proper investigations, credible evidence and an effective judicial process. Severe sanctions have little deterrent value when cases are poorly investigated or remain unresolved for years.

The Senate recently considered the Counterfeit Medical Products, Fake Drugs and Unwholesome Processed Foods Bill, which proposed prison terms of up to 15 years for serious offences, financial penalties, asset forfeiture and compensation for victims.

Although the proposed law focuses largely on medicines and food products, it offers a relevant policy example.

A stronger legal framework for illicit alcohol could provide substantial fines, permanent closure of illegal factories, forfeiture of assets after due process and heavier punishment for repeat offenders or cases involving injury and death.

International experiences also show the importance of coordination.

The Dominican Republic suffered hundreds of deaths linked to methanol-contaminated alcohol between 2019 and 2021. The country subsequently strengthened cooperation among customs officials, police, health authorities, commerce agencies and private-sector operators.

Its response included tighter monitoring of industrial methanol, intelligence sharing and coordinated enforcement.

India has faced similar problems following repeated deaths caused by illicit liquor. Authorities in Punjab called for stronger regulation of methanol, mandatory buyer registration and closer monitoring of the movement of high-risk chemicals.

Punjab also moved towards using QR codes and barcodes to trace alcohol from distilleries and warehouses to retail outlets.

Nigeria could consider a comparable system, but technology alone would not be enough. Counterfeiters can copy visible codes, while poorly managed databases may be compromised.

A credible tracking system should combine secure identification with factory inspections, distributor registration, chemical monitoring, random testing and accessible consumer verification.

The Chief Executive Officer of Naija Liquor, Joseph Aito, earlier announced the deployment of a groundbreaking artificial intelligence technology to tackle Nigeria’s escalating problem of counterfeit alcoholic drinks.

For Naija Liquor, the counterfeit alcohol crisis presents not just a business challenge but a public health emergency. As an e-commerce platform operating directly in this space, the company has witnessed firsthand the damaging effects of fake alcoholic products both on legitimate businesses and on consumer health.

“The pervasive issue of counterfeit drinks is a profound challenge that touches everyone,” Aito said. “People work hard for their earnings, and they deserve to buy genuine products. For Naija Liquor to thrive and earn consumer trust, we realised early on that we must lead the fight against this serious problem.”

Nigeria needs a system that records who imports or produces industrial alcohol, who buys it, the quantities supplied and the purpose for which it is used. Any unexplained diversion should trigger a joint investigation by regulators and law-enforcement agencies.

Manufacturers can also support enforcement by sharing information about fake labels, bottles, seals and suspicious distribution routes.

However, enforcement must remain publicly led, transparent and subject to legal safeguards. Industry participation should not allow companies to target competitors or influence regulation for commercial advantage.

The objective is not simply to protect corporate profits. It is to create a market in which lawful businesses can compete, consumers can trust what they buy and investors can make decisions based on predictable rules.

Nigeria can continue relying on occasional raids and press statements, or it can treat illicit alcohol as an organised economic activity requiring coordinated intelligence, prosecution, traceability and transparent measurement.

The second option will demand funding, stronger institutions and political commitment. Its benefits, however, would extend beyond the drinks industry.