Illicit alcohol trade: Situating the gravity of Nigeria’s N428bn problem, by SWAN

Analysts have always posited that a market problem reaches an extent where it stops being an industry problem but graduates into a national economic problem. Nigeria as a country may have reached that point with illicit trade in alcohol, particularly as it concerns spirits and wines.

Just in case one is in doubt, the Spirits and Wines Association of Nigeria (SWAN) recently put the scale of the problem in stark terms. Citing a 2024 Euromonitor survey, the association stated that illicit products account for about 40% of the spirits and wines sold in the country.

What this means is that roughly two out of every five bottles in that market may be linked to illicit trade in alcohol, with the association estimating that the Federal Government loses about N428 billion annually in revenue due to this cankerworm. The figure is significant but the real story is about what this indicates about the Nigerian economy.

According to the association, illicit alcohol is a window into a larger structural weakness leading to such substantial criminal activity operating outside the formal tax and regulatory system in the country. It is tempting to treat the N428 billion estimate as another industry statistic but for a country trying desperately to raise non-oil revenue towards diversifying the economy from oil, that contradiction deserves a greater level of attention.

Nigeria is currently under enormous pressure to increase domestic revenue. The Federal Government needs more money to fund infrastructure, education, healthcare, security and other public important obligations.

Therefore, tax reform and improved revenue collection have consequently become central to the country’s economic agenda. However, the real concern is that despite such efforts, a shadow market exists in which a substantial volume of commercial transactions can take place without passing through the same taxation, customs, regulatory and quality-control systems imposed on legitimate businesses.

One is therefore forced to ask, what is the purpose of all the tax reforms? To focus only on legal operators or to bring more players under the tax net?

SWAN’s definition of illicit trade goes beyond counterfeit bottles to include smuggled products, tax-evaded products, parallel imports and illegally produced alcohol. Counterfeit products may represent just a part of the illicit market but they carry particularly serious consumer-safety risks because they are produced outside controlled manufacturing systems. The distinction matters because it means Nigeria’s response cannot simply be about finding fake labels or raiding illegal distilleries but the country must confront an entire ecosystem.

As far as stakeholders are concerned, “the most worrying aspect of illicit trade is not that criminals are breaking the law; it is the fact that the market can make breaking the law profitable. A legitimate manufacturer pays taxes and duties, complies with product standards, invests in quality control, employs workers, maintains distribution systems and bears the cost of regulatory compliance.

“An operator who avoids those obligations starts with a built-in cost advantage, and that creates a perverse economic incentive. The more effectively the state enforces compliance on legitimate businesses while failing to enforce it against illegal or non-compliant operators, the more expensive legality becomes.”

This is not only unfair to businesses that invest in meeting regulatory, tax, labour, environmental and other statutory requirements; it also has significant implications for foreign direct investment (FDI) and other investors considering the country. Investors assess not only market opportunities but also whether the rules of the market are applied consistently and predictably. Where compliant businesses face higher costs because competitors can operate outside the law with limited consequences, investors may perceive a higher regulatory and competitive risk.

It goes without saying that this would discourage new investment, particularly in sectors where margins are already tight and may encourage existing investors to limit expansion, shift operations to more predictable jurisdictions or demand higher returns to compensate for the additional risk. It can also undermine confidence in the broader business environment, as investors may question whether their own compliance will ultimately place them at a disadvantage. Effective and even-handed enforcement is therefore not simply a matter of regulation; it is essential to maintaining a credible investment climate in which legality is rewarded rather than penalised.

Nigeria has encountered this problem before, with the same basic pattern visible across sectors including petroleum products, pharmaceuticals, tobacco, spare parts, mining, textiles, apparel, footwear, electronics, household appliances, food and beverages, cosmetics, and building materials. In each case, formal businesses are often required to comply with taxes, standards, licensing, employment obligations and other regulations, while informal or criminal networks can avoid many of these costs. This creates an uneven competitive environment that undermines domestic manufacturing.

Local manufacturers face declining market share, reduced capacity utilisation and weaker incentives to invest in factories, technology and skills. Over time, this can contribute to factory closures, job losses, import dependence, lower government revenues and the erosion of Nigeria’s industrial base.

This is where fiscal policy becomes important: taxation should raise revenue but tax policy must also take account of the behavioural response it creates.

The association stated that “if the combined burden of taxes, duties and compliance costs creates a sufficiently wide price gap between formal and informal products, criminal operators will seek to exploit that gap. The answer is not to excuse tax evasion but to ensure that tax policy, regulation and enforcement work together rather than against one another.

In looking at the issue of smuggling, for instance, the border is only one part of the problem. The border is where the illicit supply chain enters the country but the real question is what happens after that. Who finances the imports? Who moves the products? Who warehouses them? Who distributes them? Which retailers knowingly sell them? And, crucially, how many of the people behind these networks are eventually prosecuted and convicted?

A seizure may lead to an impressive headline but that alone does not dismantle a criminal network. If one consignment is intercepted while the financiers, distributors and beneficiaries remain untouched, another shipment will eventually replace it.

And beyond the implications concerning revenue and economic issues lies the health cost that we can no longer ignore. While the economic argument is compelling, the fundamental difference between illicit alcohol and many other forms of counterfeiting is about consumption. Poorly produced or adulterated alcohol can expose consumers to serious health risks.

The danger, the association stated, is particularly acute where criminal producers use unsafe ingredients or manufacture products without basic quality controls. This is why the issue is also a consumer-protection issue, rather a fight between government and the alcohol industry over revenue. In fact, it is one of shared responsibilities. The legitimate industry has an interest in ensuring that consumers can distinguish between authorised products and suspicious ones while government has an even greater responsibility to ensure that products entering the market meet basic safety requirements.

SWAN insists that Nigeria needs to move from seizure-led enforcement to intelligence-led enforcement. That means following the money, mapping the distribution networks and building cases that can survive prosecution, with the FCCPC, NAFDAC, the Nigeria Customs Service, SON, tax authorities, the police and other agencies working together against illicit trade in wines and spirits.

That means customs officers cannot work in isolation from tax authorities, health regulators cannot operate separately from law enforcement officers and industry intelligence cannot sit in conference rooms while illegal products move through the market.

Consumers also need practical information to buy from reputable outlets, be suspicious of unusually cheap products, check packaging and product information and report suspicious products where appropriate. This means consumer awareness must complement, not replace enforcement.

Also, the immediate priorities are clear: strengthen intelligence sharing among enforcement agencies, improve border-risk profiling and inspection technology investigate the financial networks behind illicit distribution, prosecute all offenders and ensure that penalties are sufficiently heavy to change the calculation of criminal operators.

At the same time, government must examine whether its own tax and regulatory policies are unintentionally widening the price gap that makes illicit trade attractive. If Nigeria can reverse that trend in alcohol, it will have done more than protect one industry; the clear indication will be that in the country’s emerging non-oil economy, compliance can once again become an advantage rather than a penalty.

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