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Nigeria: From Customs exceptions to a Regional Trade Policy

Nigeria stands out in the sub-region for its traditionally
protectionist trade policy. This tendency, which is partly
in question today, has slowed down the process of West African
regional integration.

Nigeria’s trade policy is
above all a tool to foster
growth, and is framed to be
consistent with the country’s overall
development objectives. This policy is
formulated and implemented via legislation
and regulation, as well as by
directives issued by the federal Ministry
of Finance.

Protectionism Is Losing Ground.
Although Nigeria continues to use
the same trade policy instruments,
i.e. tariff and non-tariff barriers [1] , the
combinations of the two have changed
considerably over time. Export taxes in
particular were progressively reduced
starting in the 1970s and disappeared
altogether in 1980.
Until the middle of the 1980s, Nigeria’s
trade policy was highly protectionist.
Agricultural products, in particular
grains and oils, were subject to high
customs duties, between 50% and 100%,
from 1982 to 1985. Quantitative import
restrictions were placed on some 200
agricultural products between 1982 and
1985, and exports of nearly all agricultural
foodstuffs were banned.
In 1986, Nigeria was subject to a
structural adjustment programme.
This marked the beginning of a progressive
liberalisation of the trade regime,
including agricultural trade. The
process started with the setting up of a
transitional regime for customs duties,
a reduction in the number of products
subject to an import ban (from seventytwo
to seventeen product categories),
and the elimination of import and
export licence regimes. A new tariff
schedule was then put into place
for the period 1988-1994, followed by
another schedule for 1995-2001. The
latter schedule was finally extended
to 2004.
During this period, customs duties
on agricultural products also dropped,
from an average rate of 37% in 1988 to
33% in 2000. The number of products
subject to duty of less than 50% rose
between 1988 and 2000, while the
number of products subject to duty
over 50% fell from 13% in 1988 to 7%
in 2000. The agricultural products and
foodstuffs subject to the highest tariffs
are beverages and spirits (76.4%),
tobacco (61.2%), grains (54.2%) and
horticultural products (52.5%).
In addition, Nigeria has applied VAT
at 5% (the lowest rate in the region) to
domestic and imported products since
1993, and excise duty of between 20%
and 40% on certain imports.

An Unpredictable and Opaque Trade
Policy
. Nigeria’s trade policy is characterised
by unpredictability, lack of
transparency and the confusion created
by many special regimes. Tariff
schedules and lists of banned imports
are revised frequently. The Nigerian
customs authorities systematically
assert the right to modify custom
duties or to implement other ad hoc
trade measures. Many special-interest
groups obtain amendments from the
authorities, adding to the perpetual
modification of the trade regime.
This situation is likely to come to
an end, however. First, because the
present trade policy seeks to achieve
more systematic application of the
official tariffs, and second, because it
is likely to be more difficult to avoid
procedures that are harmonised at the
regional level.

Restrictions that Fuel Informal Trade.
As a member of ECOWAS, Nigeria is
supposed to apply the trade liberalisation
measures that took effect in 2004.
Trade in products between countries
in the region should therefore be entirely
liberalised. This is not the case,
and Nigeria’s protectionist stance fosters
widespread informal trade on the
sub-regional scale, particularly in agricultural products.
An analysis of trade data for Benin
reveals gaping discrepancies between
official statistics and “mirror” statistics [2]. These discrepancies are greatest
for products that are subject to import
bans or high customs tariffs in Nigeria.
It has also been shown that consumption
of products subject to bans and/or
high import tariffs in Nigeria is much
higher in Benin than in Nigeria. On the
face of it, per capita rice consumption in
Benin appears to be very high, so high
that Benin, a country with a population
of fewer than 10 million people,
imported as much rice as a country
with a population of 130 million ! Rice
imports doubled in Benin between 2004
and 2005. These products subjected to
restrictive measures in Nigeria only
pass through Benin on the way to their
final destination, Nigeria. In the case of
rice, subject to a 50% customs duty in
Nigeria and 8.75% in Benin, the share
of Benin’s import of rice classified as
“in transit” increased from 79.9% to
nearly 100% of total rice imports between
2004 and 2006.
The intense trade between Niger
and Nigeria is based primarily on the
competitive advantages of the two
countries : a very large proportion of
livestock raised in Niger is exported to
Nigeria, and this country in turn exports
grains to Niger. These flows build
better food security in both countries,
and particularly in Niger.

Nigeria’s Discordant Policy Is Progressively
Aligned with ECOWAS Policy
.
Today’s move to regional integration
in West Africa is gradually modifying
Nigeria’s trade policy regarding agricultural
products. Specific measures
in the process are the institution of a
Common External Tariff (CET), the ECOWAS Agricultural Policy (ECOWAP),
and the ongoing negotiations of
an Economic Partnership Agreement
(EPA) between West Africa and the
European Union (EU).
In 2005, Nigeria adopted an interim
tariff schedule in order to align Nigeria’s
tariffs with the ECOWAS CET [3].
This was a difficult task for Nigeria,
in that the maximum tariff allowed by
the ECOWAS CET was 20%, whereas
Nigerian customs duties reached 50%
for some products. Nigeria pushed hard
for a fifth tariff band at 50% under the
ECOWAS CET. While Nigeria did not
win out in on the issue of the tariff rate,
a fifth band was accepted in principle [4].
The designation of products to
be classed in this fifthh band and the
alignment of the new CET structure
with the EPA process have not yet been
finalised. The current tariff structure
is in effect for the period 2008-2012,
and comprises five tariff bands : 0% for
essential goods ; 5% for most raw materials ;
10% for intermediate products ;
20% for finished products that do not
require protection ; 30% for finished
products that are processed locally.
The latter are of strategic importance,
notably in terms of customs revenue,
and protection is necessary in the interest
of local processors.
The results observed to date are
mixed : although import tariffs in Nigeria
are to a certain degree in line
with the ECOWAS CET, in addition to
tariffs Abuja regularly announces lists
of imports that are banned to reinforce
protection of the country’s agriculture
and industry. The return of these practices
is a sign of discordant trade policy
in the region, in particular between
Nigeria and its neighbours. Nigeria
advances several types of arguments
to back its import bans : protection of
domestic industry, rejection of dumping
practices (especially poor-quality
merchandise), security issues, sanitary
and consumer health concerns,
tax revenue, etc. The federal Ministry
of Finance’s list of banned imports,
including from ECOWAS countries,
currently contains twenty-seven categories
of products : pork, beef, cassava
and its by-products, fruit juices, water,
cement, a set of seventeen pharmaceutical
products, pharmaceutical waste,
tyres, used car engines over ten years
old, and textiles. A 2004 directive also
included fresh fruit and vegetable oils
among the banned products.

Towards a Regional Trade Policy. Even
though it is an intra-regional process,
establishing a Common External Tariff
in West Africa is a prerequisite to
the signature of the Economic Partnership
Agreement between the EU
and ECOWAS. The Nigerian position
has had a strong impact on the implementation
of the EPA. While neither
Nigeria nor the thirteen least developed
countries (LDCs) in ECOWAS
had signed EPAs at the end of 2007,
Ghana and Côte d’Ivoire have concluded
interim EPAs.
In fact, the EPA talks aimed at regional
integration have led to the application
of several different tariff regimes
in the region. As of January 2008, there
were three regimes for trade between
the EU and ECOWAS countries :
– non-reciprocal market access applied
to “everything but arms” (EBA) for
the thirteen LDCs in West Africa ;
– the interim EPA regime for two non-
LDCs, Côte d’Ivoire and Ghana, that stipulates progressive implementation
of a reciprocal free-trade agreement ;
and
– a generalised system of preferences
(GSP) regime, much less advantageous,
for Nigeria.
The discordant trade policies of Nigeria
and its neighbours can be better
understood by analysing the factors
that are determinant for Nigeria. Nigeria’s
need to protect its agriculture
from competition with imported products
goes beyond economic arguments,
and touches upon food security and
employment issues.
ECOWAS’ current attempts to form
a customs union call for not only effective
elimination of trade tariffs between
member countries, but also for
a Common External Tariff to be applied
to trade with outside countries.
These measures necessitate significant
reform of Nigeria’s trade policy.

This article is
adapted from an
article by E.
Olawale
Ogunkola,
available online
at the Inter-
Réseaux website.

E. Olawale
Ogunkola is a
professor of
economics at
Ibadan University
and he directs the
Trade Policy
Research and
Training
Programme. Prof.
Ogunkola has
been a visiting
scholar at the
International
Monetary Fund
(IMF) and a
visiting lecturer
at the National
University of
Lesotho. He has
published widely
on trade topics
and regional
integration in
Africa

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