| 'Multiple tax regime killing our
industries'
By LOUIS IBA
Monday, February 5, 2007
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•Okereke-Onyiuke, DG ,
Nigerian Stock Exchange
Photo: Sun News Publishing |
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MAZI Samuel Ohuabunwa, President/Chief Executive Officer,
Neimeth International Pharmaceuticals Plc, is worried with the decline in number
of manufacturing industries in Nigeria.
Everyone wants to go into imports
to make easy money; no one wants to be involved in long term projects. It’s
a bad culture, he says. But then, who wants to sink in money in a manufacturing
business when the operating environment will not permit him to break even and
make good profit?
Not even this high chief who graduated as a Pharmacists
from the University of Ife, (now Obafemi Awolowo University) in 1976 and holds
a post graduate degree from Columbia Unversity, New York, USA.
Ohuabunwa
joined Pfizer in 1978 as pharmaceutical sales representative and was appointed
area sales manager for Lagos/Ogun in 1980 and for the Eastern market in 1981.
He became national sales manager in 1982, group sales manager in 1985, marketing
manager in 1989 and pharmaceutical division director in 1990. He was promoted
regional manager (West Africa) and managing director, Pfizer Products PLC in June
1993 and was appointed chairman/chief executive officer, Pfizer Products PLC and
Pfizer Specialties Limited.
Ohuabunwa has had an impressive career as a pharmacist
and recently he was appointed the chairman, Nigerian Economic Submit Group, to
bring in his vast experience into the development of the Nigerian economy .
However,
based on his experiences in business, Ohuabunwa argues that, you don’t just
throw away money into the ocean in the name of investing in a manufacturing firm
because you have money to spend. Manufacturers, like other businessmen, seek profit
and governemt should provide the conducive atmosphere to invest, create employment,
pay taxes and contribute to the growth of the economy.
In this interview with
Daily Sun, Ohuabunwa recounts some of those challenges confronting
manufactures and marring their profit, especially in the Ikeja Industrial area
where he operates his business.
According to him, besides the general problem
of epileptic power supply, which is threatening the survival of all industries
in the country, manufacturers had the additional burden of coping with a draconian
multiple tax system.
Ohuabunwa listed such taxes which companies had to
pay to include: PAYEE, withholding tax, land use tax, Value Added Tax, sales tax,
fixed advertising tax, mobile advertising tax, national housing fund tax, and
the mandatory insurance and pension scheme which all companies must contribute
for employees.
"These are taxes you get receipts for," he said, while
explaining that other illegitimate taxes exist which companies had to pay to thugs
or hoodlums in order to be allowed to operate in an atmosphere of peace and tranquility.
And there is also the challenge of cloning – where products appear
to be perfectly faked in such as way that the quality is almost as good as the
original and consumers find it hard to distinguish. And while the cloners are
smilling to the banks, the real patent owners of the product are groaning as their
products remain unsold in warehouses.
He said when added to the crisis
in electricity supply, cloning and the numerous taxes eroded heavily on the profit
margins of manufacturing firm making it difficult to break even.
According
to him, about 90 companies have had to close their shops, while another seven
have relocated from the Ikeja industrial area, owing to the harsh operating environment.
"We
are groaning under the impact of a multiple tax system; some legitimate and others
illegitimate. And this has led to the closing down of 90 companies, while seven
have relocated to Ota, Ogun State where they feel the environment will be more
friendly," Ohuabunwa said.
"And there is also a new challenge
from people who clone. They fake the products in such a way that it’s hard
to know the real from the fake. The only way you know things are going bad with
you is when people claim to be buying your products, yet you still have stocks
unsold in your warehouse," he stated.
Ohuabunwa also spoke on the state
of the Nigerian economy especially in 2006.
Excerpts.
About
the company
Neimeth International Pharmaceuticals Plc came on stream
following the management buy-out of 60 per cent equity holding of Pfizer Inc.
New York, USA in Pfizer Products Plc. This Management-Buy-Out took place in May
1997 when Pfizer in pursuit of its global repositioning strategy, divested 60
per cent equity in Pfizer Products Plc in favour of the existing management. All
this took place under the leadership of Ohuabunwa-led management.
The name
Neimeth was chosen to honour Mr. Robert Neimeth, an American, who contributed
immensely to the establishment of Pfizer in Nigeria. He relentlessly used his
position to stop Pfizer’s early divestment from Nigeria as a result of his
belief in the economic potentials of Nigeria and its strategic importance in Africa.
He could rightly be said to be the "alien father" of Pfizer operations
in Nigeria, especially as a manufacturer.
He retired as President, Pfizer
International Pharmaceuticals Group in January 1997 and in May the same year,
Pfizer Inc. divested its shares in Pfizer Products Plc.
Prior to this divestment
and subsequent change of name to Neimeth, the company had operated in Nigeria
for 40 years, manufacturing, marketing, and distributing Pfizer brands of pharmaceutical
and veterinary products in tablets, capsules, ointment/cream, powder, injectables,
and oral liquid forms. During the 40-year period (1957-1997), the company established
the first pharmaceutical manufacturing plant in Nigeria at Aba, which was destroyed
during the Nigerian civil war. It then set up and opened the most modern pharmaceutical
plant in the West African sub-region in 1976 at Oregun, Lagos. These represent
great milestones for a company that started as a trading venture in 1957 at a
location in Ebute Metta, Lagos
With the divestment, however, Neimeth now
enjoys the flexibility to develop new alliances with other international companies
to increase its product portfolio, establish new business opportunities, as well
as develop its own brand of generic products to meet local healthcare needs. She
is also at liberty to develop her own new products from natural or synthetic varieties
for the enhancement of our healthcare delivery needs. This entails collaboration
with local researchers in specific disease areas.
Thus enormous opportunities
and potentials are now open to Neimeth for business expansion and growth. The
company is now better placed to meet her new vision/mission having shed the compulsion
to align with Pfizer’s global vision, which does not necessarily take cognisance
of key disease areas in our developing world or environment.
Manufacturers
and multiple tax problem
I believe that for any manufacturing company
to thrive, it needs a couple of things. First, besides capital, they must have
access to raw materials – that’s the basic input they need and they
must be able to transform this input to finished goods. And that’s the production
process –in Nigeria that’s what we worry most about. But the next
thing is that such a company must be able to move the goods to the consumers –
that’s the distribution. The entire chain involves a lot of interactions.
All these have to be put in place for things to work for the company. But in Ikeja,
Lagos State what is slowing down businesses is the issue of multiple taxation.
Every manufacturing company is weighed down by so many taxes it pays to government.
We pay so much to the federal government, state governments and local
councils. We pay PAYEE, company tax, withholding tax, VAT, land use charge, advertising
tax, parking tax, mobile advert tax, fixed advert tax. These are what we pay to
government. But then we still have to make the mandatory pensions contribution
to staff under the new pension scheme; we also contribute to the national health
insurance. The once I have mentioned are the taxes that you get receipts for when
you make payments. But there are other taxes that you pay and you don’t
get receipts and people are just helpless. Take what they call omonile for instance.
You have already paid large amount to government to buy a plot of land
for a development project and you mobilise to site to start work only for a group
of miscreants to confront you and demand extra payments before you can start the
project. And they are others that confront you when you want to load or offload
your product to pay and everyone accepts them as area boys.
And you begin
to wonder what happens when one company is paying all these taxes. All these monies
come from a company’s account and you image how a company can break even
and make profit under such a tax environment. You are not even talking about the
problem of electricity, which everyone accepts adds to the cost of production,
making Nigerian manufactured goods too expensive to compete in the international
market.
It’s a big problem because for you to accommodate all the
taxes and remain in business, you might be compelled to increase the prices of
your goods. And when you increase your prices in an environment where there is
so much poverty then it’s a double problem because you find out that people
are not buying your products anymore. And when no one is buying your products,
then there is trouble and what do you do? Two things: You either lay off workers
and manage the little you have or you shut down the plant. And then, who wants
to lay off people and send them back into the employment market. It’s not
a pleasurable thing to do.
The rate of unemployment is already too high
and people are trying to see how to reduce it. Sadly, no body is talking about
all the problems in our tax system. These are the problems we have doing business
in Ikeja. And I can tell you that so far about 90 companies have closed shops,
while another seven have relocated to Ota, Ogun State where they feel the environment
is more conducive for them.
Value Added Tax (VAT)
In
2006, the general public and the National Assembly rightly rejected the proposal
to increase VAT rate from five per cent to 10 per cent. However, recent pronouncements
of the Federal Ministry of Finance appear to favour the increase to assuage the
revenue loss resulting from the social disruption in the Niger Delta. The latest
effort is now shrouded in a veil contention that the Ministry of Finance could
fix the rate as it deems fit.
We maintain that the planned increase is
ill timed and will adversely affect the economy. Our depressed economy requires
that we boost the purchasing power and add value to the life of the average citizens.
Being a consumption tax, it amounts to a direct increase in the cost of goods
and services and will further impoverish the ordinary consumer. In the same vein,
the cost outlay of manufacturing inputs will increase and translate to higher
prices for local products. The later will worsen the uncompetiveness of our products,
swell the level of unplanned inventory and aggravate the problem of low capacity
utilization and inflation.
The negative implications of an increase far
outweigh the anticipated gains.
We, therefore, call on the Federal Government
to refrain from subverting the citizen’s rejection of the increase as expressed
through their representatives in the National Assembly and a wide range of stakeholders
and informed opinions. The fact that the actual VAT receipts for year 2006 was
above budget is an indication that the tax is performing. We opine that efforts
should be focused on the efficient administration of the VAT in order to maximize
collection and optimize compliance.
Cloning
When we
talk about challenges as manufacturers, we also talk about competition. And competition
comes in form of external and internal. There are people who deal only with imports
and they compete with local manufacturers. In the pharmaceutical industry, there
are more of these people because NAFDAC has created a level playing field for
anyone who is interested in doing genuine business. So, you find people from Europe,
America, India in the Nigerian pharaceutical market and the competition has increased.
We are trained to do that; to compete with our brands and woo consumers. This
is good. But the problem starts when people bring in goods and they don’t
pay taxes or duties and they take undue advantage of the system and are making
money. This is bad as the local manufacturer will find it hard to compete. But
there is another challenge which is not as healthy as the ones I have just mentioned.
It is called cloning.
It is difficult to deal with. These people take
a product and do a substandard version of the product. These are geniuses because
they produce exactly your type of product. I mean exactly what you do. The only
difference is that somebody else is taking the glory. You are doing the advertising,
you are doing the promotion, but they are taking the credit. And you may not notice
this on time. But you go to hospitals and they tell you, oh! We are using your
product, it is good. You go to the pharmacy, and they tell you, oh! You have a
good drug, we are using it. You even go to your doctor and he says he is using
your product.
But then, you go to your warehouse and your products are
still there unsold. And you start asking what is going on. That is what cloning
has done to our business. They make exactly what looks as your own and they sell
it and make money, while you are going down. These are the dangerous people that
we are dealing with. They are the dangerous competition and we need the assiatance
of every agency to deal with them. We are fighting, NAFDAC is fighting, but the
problem cannot be fully dealt with by NAFDAC. NAFDAC is not everywhere. We require
the police, customs, immigration and even the public information. There is no
where in the world you can eliminate counterfeit but you can reduce it to a minimum
percentage. It’s the percentage that we have to reduce in Nigeria.
State
of infrastructure
It is disheartening to report that, throughout the
year 2006, the bad state of our infrastructure and public utilities constituted
an albatross to manufacturing and the economy in general. Power supply, road and
rail networks and water supply remain inadequate. The high cost of petroleum products,
especially diesel and the incessant increase in price of natural gas for those
companies that have converted their processes to use gas adversely affected the
cash flow of most businesses.
We, therefore, implore the government to
work assiduously towards the implementation of the 2007 budget that projects a
46 per cent increase in capital expenditure and proposes to accelerate physical
and human infrastructure for wealth creation and poverty reduction. We reiterate
our earlier call for a National Emergency on Infrastructure Development. This
should include the setting up of a monitoring mechanism to track and boost the
performance of agencies or institutions involved in the implementation. We fully
support the widening of private investment in the power sector and entourage the
government to deepen the trend.
Political transition
We
stand at the threshold of another civilian transition and political activities
have stated to build up. We are deeply concerned about the intra and inter party
bitterness; unending legal squabbles; intolerance and high level of political
violence that have characterized the political scene. There is also the apprehension
over the preparedness of the Independent National Electoral Commission to organize
a credible and fair elections as they have consistently vowed.
All these
have far reaching implications for the process of instituting constitutional democracy
and good governance. In addition, the atmosphere of political uncertainty that
is foisted on the nation by these dangerous trends portends the disruption of
national development, economic growth and the rule of law.
We call on all political
actors at the three tiers of government to eschew bitterness and violence and
seek fair and legal means to express their interests and contention. We opine
that issues pertaining to the well being of the nation and its people should take
the center stage and direct the venture of all political office seekers. The campaigns
must be issue centered!
Also, we counsel the judicial arm of government
to brace up to face the obvious challenges ahead. They should perform the task
of watchman and unbiased umpire on any matter that is brought before the courts,
be it a referral for correct interpretation of the position of law or litigation.
The Federal and State Governments and the security agencies must give optimum
support to INEC to deliver their avowed commitments. It will take more than just
INEC to deliver a free and fair election. Indeed all Nigerians must be supportive
and vigilant.
Our special friends, the media should live up to their billing
as the 4th Estate of the realms. Factual reporting and avoidance falsehood and
deliberate fabrications should be the hallmark of your coverage of the unfolding
political events. The citizens rely on you to bear what the aspirants have to
offer and you should be confident and focused in reporting the activities of all
political contenders.
As citizens and voters, we have to be vigilant. It
is accepted worldwide that economic development drive all the parameters of human
wellbeing and advancements. Our position is that we should put the economy first
in order to be able to guarantee the good quality of life that the present and
future generations deserve. We assert that we have electorate, men and women,
young and old should insist on a better life and hold it up as the litmus text
to judge all those who seek to govern us. This factor should guide our thoughts
and secure our votes.
Research and development
NEIMETH
has committed a substantial amount of money to Research and Development (R &
D) in the recent past. This flows from our mission statement that we will "add
value to indigenous research". Our efforts in this area are double faceted:
Internal and External.
Internal R & D activities include formulation
of new products, re-formulation of existing products to enhance efficacy, create
new therapeutic uses, and increase sales potentials and profitability as well
as usage extensions. Recent achievements in this area include, the re-formulation
of Minizide, our flagship antihypertensive drug for blacks to give birth to our
new product MINIPLUS, which is to be launched shortly. We are also working on
the production of the solid form of Ciklavit, which when encapsulated, will further
enhance patient convenience, compliance, export potentials, product profitability
and overall management profile of Sickle Cell disease.
Internal R &
D efforts will lead to the launch or re-launch of 11 human products and eight
veterinary products in the last quarter of 2005 business year.
With the
re-establishment of a sterile unit after our recapitalisation drive in the last
quarter of 2005, we plan to roll out four injectable veterinary antibiotics and
several injectable human antibiotics, antimalarials, antipyretic, and anti-rheumatic
drugs within 18 months. R & D work on all these products is well advanced.
Our scope of ongoing work will also enable us to introduce eight branded generic
products within a six-month time frame, in 2006.
Our external R &
D work entails working with Medical Scientists/Researchers to develop new products,
do drug clinical trials and in-vitro drug studies? These drugs could be natural,
and/or chemical (synthetic), oral, or injectable. To this end, we review research
work in our universities based on local raw materials, focusing on specific ailment
areas that are generally neglected by the global/multinational companies. We seek
to provide new local health remedies in these areas at affordable costs. Our first
success in this area is CIKLAVIT; the first homegrown natural product for the
effective management of Sickle Cell disease.
Our work on PHYSOGEN and
STREPTOL for common cold and throat infections respectively has advanced significantly.
Malaria, Diabetes and HIV/AIDS are ailments that are also in the focus of our
efforts. Our mission is to expand and grow the exportation of health solutions
to other countries after meeting local needs.
Community services/social
responsibility
Community consciousness is one of Neimeth’s
core values. To this end, Neimeth as a good corporate citizen has from the early
sixties till date engaged in various community based welfare programmes that confirm
its dedication to community welfare. The company has contributed significantly
in helping to control worm infection via numerous free deworming schemes and has
also deployed sanitation/ hygiene and diverse health educational strategies to
reduce overall health cost through education.
One of such health educational
strategies is Combantrin Kids Club. It is a health educational club for children
aged 4-13 years. This is because children have been proved to be the main transmission
link in worms infection. Membership is spread across the 36 states, and is 100,000
strong at present. It has numerous enviable membership benefits like birthday
cards, scholarships, etc. Membership strength, it is expected, would hit a million
by the end of 2007.
Another health educational strategy is Helminthiasis
Elimination Lower-Cost Partnership (HELP). This is Neimeth’s social engineering
programme aimed at improving the health, nutrition and welfare of Nigerians through
the eradication of worm burden in our society. Like Combantrin Kids Club, it is
structured on chemotherapy, sanitation, hygiene and health education. HELP is
a mass deworming partnership programme with NGOs, governments, State Ministries
of Women and Social Development at highly subsidized shared/lower cost.
NEIMETH
‘s focus on indigenous research into drugs and medicaments for common African
disease ailments led to the discovery and launch of CIKLAVIT, a nutritional supplement
for the management of Sickle Cell disease. Consequent upon this, a well orchestrated
public enlightenment/advocacy machinery was established by the company to handle
issues on sickle cell disease. Its activities include, facilitation of the setting
up of Sickle Cell Clubs in local government areas across Nigeria, facilitating
the management of these clubs in collaboration with other NGOs, demystification
of the disease among rural communities as well as counselling of young and single
people before marriage.
NEIMETH has also put her technical expertise at
the service of state governments in the area of "Drug Revolving Fund (DRF)"
management to ensure greater mileage in quality and reach of such state health
programmes. Cross River State is a beneficiary of this medicare enhancement programme.
The
focus and cost effectiveness of these enlightenment and advocacy programmes make
them most beneficial to the recipients and gives the highest visibility to government
health programmes at highly subsidized rates.
Neimeth has also offered
numerous scholarships to children and students alike. Her community welfare activities
also involve sponsorship of numerous NGOs, schools, churches, overseas fellowships,
professional travel, medical treatment for individuals, course/seminar sponsorship
among others.
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