Nigeria’s alignment with the current economic reality, coupled with rising inflation, slow growth, floating of exchange rate and volatility in global oil prices, may have exposed the fragility of her economic model and affected its global trade standing.
While trade presents one vital but often untapped pathway to poverty reduction, through its effects on investment, technology transfer, and competition, it can help growth – boosting job creation, increasing domestic value added, and reducing the price of goods that Nigerians buy along the way. All of these effects may contribute to reducing poverty, reports The Guardian.
At almost 30 per cent inflation level, dwindling consumer purchasing power and an exchange rate unstable and trading above N1,000 to the US dollar, there are concerns about ability to sustain trade activities
However, in Nigeria, the federal government’s trade and fiscal policy measures on duty rates, tariffs, excise levies and taxes, specifically on import, have presented major obstacles to trade and economic growth in the midst of the economic hardship the country currently faces.
Findings showed that Nigeria’s trade policies have also caused local businesses to close shops, while international investors are quitting the country due to the unfavourable business environment, which has resulted in losses.
This is coupled with the unsteady application of customs regulations and high exchange rate of N972/$, cumbersome clearing processes at the ports, high berthing, unloading and demurrage costs, lack of effective transport system, corruption and extortions among other challenges that have made operations at the nation’s seaports one of the most expensive in Africa.
There is no gainsaying the fact that in Nigeria, many policies limit trade; the country is not unique in this regard, as protectionist policies have been on the rise the world over and the ongoing war in Ukraine could intensify this. Throughout the past two decades, import bans, tariffs, and foreign exchange restrictions have all curbed the flow of goods into Nigeria.
Though Nigeria’s trade with the rest of Africa increased by 40.8 percent Year-on-Year (YoY) in the first half of 2023 (H1’23) to N1.839 trillion from N1.306 trillion recorded in the corresponding period of 2022 (H1’22), low level of intra-African trade remains.
The African Regional Integration Index does not reflect efforts to push the single market and free-movement agenda in past decades, with foreigners said to be able to move more freely in the region than Africans themselves.
Averaging 0.383, trade integration on the African continent tends towards the lower rungs of the score ladder, the index said. It adds that Africa has the highest average import duties and the highest average non-tariff barriers in the world.
Nigeria adopted the Economic Community of West African States (ECOWAS) Common External Tariffs (CET) in 2015 to liberalise trade in line with the World Trade Organisation (WTO) guidelines of harmonising tariff charges within ECOWAS countries and strengthening its common market.
The ECOWAS CET provides zero per cent duty on capital goods and essential medicaments, five per cent duty on goods of primary necessity and raw materials; 10 per cent duty on intermediate goods; 20 per cent duty on finished goods and 35 per cent on specific goods into strategic sectors for economic development.
Aside the ECOWAS CET, Nigeria also implemented other additional charges such as levies, which are between 10 to 60 per cent, excise duty of between five and 30 per cent and value added tax (VAT) of 7.5 per cent on imports, which raises the total effective rate of the 189 tariff line items above 50 per cent, thereby exceeding the ECOWAS limit.
Duty on luxury goods such as yachts, motorboats and other vehicles for pleasure stand at 75 per cent. Others are 70 per cent on wheat, 70 per cent on sugar, 60 per cent on rice, tomato paste 50 per cent, salt having 70 per cent and cement with 55 per cent duty as opposed to the ECOWAS CET’s recommended rate of 50 per cent.
Meanwhile, import duty for used vehicles is 20 per cent, with a National Automotive Council (NAC) levy of 15 per cent, making it 35 per cent. New vehicles pay 20 per cent duty with NAC levy of 20 per cent, a total of 40 per cent.
Bonafide assemblers importing Completely Knocked Down (CKD) and Semi Knocked Down (SKD) enjoy a concession of zero per cent and 10 per cent duty rate respectively, while within ECOWAS, duty rates for the same items are five per cent and 10 per cent respectively.
The federal government, in addition to the 35 per duty already levied on imported used vehicles, imposed a 35 per cent levy on automobile imports, with a total duty of 70 per cent.
The federal government’s tariff on new passenger motor vehicles of four-wheel drive with cylinder capacity greater than 1500 cubic capacity and station wagons rate of 40 per cent, exceed the five per cent recommended rate of the ECOWAS CET 2022-2026.
Tariff on containers for compressed or liquefied gas remained 60 per cent, which is also higher than the recommended 40 per cent of the 2022-2026 ECOWAS CET.
Also, importers pay 15 per cent Import Adjustment Tax (IAT) on imported used vehicles. This is just as data from PricewaterhouseCoopers (PwC) showed that vehicle imports into Nigeria crashed by 128 per cent by the first quarter of 2023.
Also, in the Finance Act 2023, the government introduced an additional IAT levy of two per cent on motor vehicles engine size of 2,000cc to 3,999cc, while 4,000 cc and above will be taxed at four per cent on the green tax policy.
Stakeholders importing automobiles have continued to complain about the unfavourable government policies that have negatively impacted the importation of vehicles into the country.
Additional charges on imports include, seven per cent port development levy/surcharge, one per cent Comprehensive Import Supervision Scheme (CISS), 0.2 per cent levy on imports coming into Nigeria from African Union (AU) countries, 0.5 per cent ECOWAS Trade Liberalisation Scheme (ETLS) levy for goods imported from non-ECOWAS member countries.
Others are 0.5 per cent levy on all goods imported from outside Africa into Nigeria as contained in the Customs, Excise Tariff, Act (CETA), to fund capital contributions, subscriptions and other financial commitments to multilateral institutions as well as boost government revenues.
The several government tariffs, taxes and other import substitution policies have formed barriers to trade following the challenging economic landscape.
According to the principles guiding Nigeria’s tax system, all existing and future taxes are expected to be flexible and dynamic to respond to changing circumstances in the economy so, it does not retard economic activities.
The tax system is also expected to promote sustainable revenue, economic growth, employment, export, local production and national development with synergy between other economic policies of the government.
The principles also stipulated the reduction in the number of taxes, broad-based and high revenue-yielding to create competitive edge, while the administration of the taxes should be simplified.
However, the tax system has been unable to achieve its objectives due to multiple taxation and non-regular review of its legislation, as they do not reflect the current economic realities.
The Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, had stated that multiple taxation was choking businesses and had shrunk the Federal Government’s internally generated revenue pool as opposed to increasing it.
Meanwhile, Nigeria’s trade policy typically aims to achieve several key objectives, including, maintaining a favourable balance of payments by controlling imports and boosting exports, attracting foreign direct investment (FDI) and promoting a conducive environment for international investors.
Others are addressing trade imbalances, reducing trade deficits and improving trade infrastructure, logistics, and customs procedures to facilitate smooth trade flows.
Unfortunately, the recent economic downturn in the country has affected trade with the cost of importation rising daily with a 70 per cent drop in cargo volumes into the country within nine months of 2023.
Although the Central Bank of Nigeria (CBN) lifted the foreign exchange restrictions it placed on 43 items eight years ago, to boost liquidity in the Nigerian Foreign Exchange Market, it still does not address the present economic realities.
The floating exchange rate still affects importation with the high tariff, duty and other levies on goods leading to high inflation witnessed in the country.
Indeed, as concerns over economic stability and competitiveness continue to grow, the recent economic challenges have highlighted the need for a reevaluation of trade policies.
Experts and stakeholders have said the trade policy should be reviewed to serve as palliative in this harsh economic situation, as Nigeria is losing its trade to neighbouring countries, which stakeholders described as very detrimental to the economy.
The Chief Executive Officer of Wealthy Honey Nigeria Limited, Dr. Kayode Farinto, decried the seven per cent port development levy and 15 per cent import adjustment tax placed on used vehicles.
Farinto, who is a former Acting National President of the Association of Nigerian Licensed Customs Agents (ANLCA), said if the government wants to reduce the suffering of the masses, these taxes must be abolished as they are not adding value to the nation’s economy.
He said the 15 per cent import adjustment tax placed on used vehicles is making the cost of vehicles too exorbitant in the country. Farinto urged the economic committee set up by the President Bola Tinubu to look into the issues of double taxation on trade as it affects Nigerians.
The spokesperson for Seaport Terminal Operators Association of Nigeria (STOAN), Dr Bolaji Akinola, stressed that cargo volume into the country has crashed by 70 per cent in nine months with an urgent need to reduce the high rate of physical examination of cargoes, which is over 90 per cent.
According to him, reviewing the Customs processes and cutting it down drastically to less than 50 per cent, will help to reduce the dwell time of cargo and the cost that importers pay at the port. He said this can facilitate trade at the port especially with the call for the review of the trade policy.
The STOAN spokesman said the major component of the cost for importers is customs duty, which alone takes up more than 50 per cent of the cost borne by importers of the goods into the country.
Akinola also stressed on the need to look at the tariff, adding that the benchmark used to access the goods is in dollars. He said the more the naira depreciates, the more customs duty importers have to pay.
He also called for more intelligence gathering, sampling, scanning and less physical examination of cargoes at the ports to help to crash the cost of doing business.
Akinola also pointed at the need to promote export, especially with the substantial decline in the volume of importation into the country, adding that it has become a lot more expensive to import goods because of the depreciation of the naira.
He said the government must help farmers add value to those agricultural produce and remove the encumbrances on the way from the farm or production centres to the port.
Akinola listed the encumbrances making export difficult to include, logistics from the production centres to the ports, state of the road, continuous harassment of trucks on the road by operatives of security agencies and hoodlums.
He said all of these make it expensive to push goods out of this country to the international markets and difficult to compete, adding that whatever is exported out of Nigeria cannot compete with that of China and other countries because of the high cost.
The Public Relations Officer, Association of Registered Freight Forwarders of Nigeria (AREFFN), Taiwo Fatomilola, said the high exchange rate determines the duty and amount for clearing goods at the ports, noting that the Customs rate stands presently at N771/$.
He said the duty, which is high, varies on the different commands of Customs at the ports, noting that at Tin Can port, a 1x20ft container cost N1.4 million, while a 1×40 is N2.8 million.
“Before now, duty on 1×20 ft container was N500, 000 but it has increased to N1.4 million, this is on the high side. To clear a Sienna car under the past administration, the total duty was N1, 319, 000, but now it is around N2, 335, 000 because of the new floating exchange rate,” he said.
He said the rate should be reduced or importers given leverage on how much they get dollar, noting that the interpretation of Customs towards government revenue is extremely appalling.
Fatomilola also decried clearing and valuation processes at the customs commands, noting that to open the bill of laden and the entire process of releasing the vehicle, which sometimes could exceed the 28 days, Customs at Tin Can command will consider it as overtime cargo. He said the Tin Can customs command, which is fully aware of importers’ effort to complete documentation, ignores it just to ensure they get money.
“When the importers bring in their cars and are trying to get money to do the clearing processes and then exceed the normal 28 or 30 days for clearing, Customs declares it as auction for overtime cargo and before you run the documentation, it takes a duration of three to four weeks and you spend as much as N250, 000 before you get your vehicle at Tin Can. In Grimaldi and PTML you only pay N5, 000 and they will remove you from the overtime list for you to take your vehicle,” he said.
Fatomilola also stressed on the palliatives in the port on trade facilitation to include the access route, transportation system and security at the ports, which also contributes to the high cost of doing business.
“There is no security on the roads. You see all local government touts breaking containers, trucks and cars and you have to pay N1, 000 for each checkpoint before you are allowed to pass. We are paying so much to the federal and state government as tax. If you are clearing a car inside a container, you must first do Vehicles Registration from the Federal Inland Revenue Service (FIRS), which was introduced by Lagos state government.
“Despite paying the tax to Lagos State, they put their local government urchins on the roads. So they need to remove them because there is no security. If you are going home with your car, trucks or containers, you see them damaging them except you are ready to part with money at each point where there are like five touts,” he lamented.
The Managing Director of Widescope International Logistics Limited, Dr. Segun Musa, said there should be a discount and reduction on the port charges, such as the terminal and shipping companies charges as well as customs duty.
According to him, the cost of doing business is massive, which will be passed to the masses, adding that if the trading community can get a discount in the cost of port charges, it will really assist. He said the only way to do that is for the agencies of government to reduce their own charges so that all other components will also be reduced.
“Government needs to look at a way of ensuring the major haulage services also enjoy reasonable discounts in the duty regime in terms of cost of duty. We are all business people and we need what will boost our business so we can generate revenue that will boost the economy. That will really impact positively on the cost of doing business in the ports,” he stated.
The Director/Chief Executive Officer Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the current economic condition with the extremely challenging high exchange rate is affecting trade in a very serious way.
According to him, it is not fair and appropriate to have high import duty at the same time, especially for items not produced in the country. He said it is very important the president Bola Tinubu’s administration and its committee on fiscal and tax reforms extend it to import tariff reforms to address those tariffs that are too high, especially on products not produced locally.
Yusuf also stressed that reducing the high tariffs and import duty on vehicles will support the government’s palliative drive for the transport sector, which he said is more sustainable than the food and money palliative being shared to the masses.
He said the import duty on passenger buses should be reduced to 15 per cent as well as the VAT as part of the palliative to enable commercial transporters replace their rickety vehicles, while companies, state and local governments can buy staff buses for their employees and masses respectively.
Yusuf also noted that import duty on some of the raw materials of food processing companies, energy renewables such as solar, inverter and batteries are very high.
He said reducing tariffs and scrapping import duty collections on food materials and renewables will impact positively on the economy.Yusuf said while the government wants to make much revenue, the impact of this reduction will go a long way to support the citizens and the palliative that the government is trying to put in place.
He said the government should also realise the importance of port infrastructure and invest appropriately in developing it as well as ensuring more connectivity to the port by road, rail and waterways (barges).
“We have dry ports all over the place which cannot function if we don’t have a functioning rail system, which is very critical. That has contributed to the deterioration of our roads. If we are able to move all these haulage on rail it will help. We can also use waterways to move a lot of goods,” he said.
Former member of the Presidential Committee on Destination Inspection and Ministerial Committee on Fiscal Policy Implementation and Import Clearance Procedure, Lucky Amiwero, said the maritime sector is supposed to be the engine of economic growth, yet most trade laws have been destroyed by the new Nigeria Customs Service bill (Customs and Excise Management Act).
Amiwero, who is also the former member and sub-committee chairman of the Reconstituted Presidential Task Force on the Reform of Nigeria Custom Service, said the high tariffs and inconsistent/floating exchange rates is detrimental to trade.
According to him, most of the things the trading community is supposed to have benefited comes from the government’s concessions to trade, import, export and the manufacturing sector among others.
“Most of these concessions no longer exist for now. As Customs has taken over power in the new CEMA bills it is not going to be easy for the government to give out concessions to trade,” he said.
The Vice Chairman of Business Action Against Corruption (BAAC) Integrity Alliance, Lagos, Jonathan Nicol, said the government is owing so much and needs money by all means to service its debt, hence the anti-trade policies that have not been favourable to Nigerians.
Recall that the former President Muhammadu Buhari, in the Finance Bill 2023, imposed a 0.5 per cent levy on goods imported into Nigeria from outside Africa as a revenue source to help the country meet its finance capital contribution, subscriptions and other financial obligations to multilateral organisations.
Nicol, who is the former president, Shippers Association of Lagos (SALS), said the government and economy is in trouble with the only channels for support being the maritime and oil sector.
“The only sector that is stable now is the maritime and oil sector. Everywhere is tense, so for them to look at reduction of Customs duty will be a problem for them as well. Most importers have left Nigeria ports because the cost of doing business has gone up,” he said.
He said when the exchange rate increases at an astronomical cost, getting the profits of trade back becomes detrimental to the importer, citizens and the economy.
According to him, it is a very big risk to bring goods into the country with the current rate, adding that importers are at the moment going through a very difficult time to bring in a 1x20ft container without being even sure of getting the capital let alone the profit.
“People prefer to go to other climes where they don’t have such harsh trade and economic policies. That is why goods are not coming in much, the exchange rate is actually killing the import business and as a matter of fact the manufacturers are crying as well. We have multinational companies that are leaving Nigeria, some other industries are closing shop. We are not making progress,” he said.
He said for the government to ensure trade picks up in the country, the cost of clearing secondhand items should be reduced as they have depreciation value. Nicol said it is wrong for customs to use the vehicle identification number to prepare duty for a vehicle that is 12 years old, considering its depreciation effect which must be looked into.
“It is only in Nigeria you buy a second-hand vehicle as if you are buying a new vehicle. This is not right, how do you expect people to break even. Those days you can buy a vehicle for less than N1 million and use it for a couple of years. Now the same car you buy for over N5 million and can’t use it for the same period. People who bring in these goods want to make profit but they can’t with this kind of astronomical cost of duty,” he stated.