[b]Nigeria’s tariffs, high and unproductive
Wednesday, 01 December 2010 00:00 Anthony Osae-Brown
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Nigeria’s import bans and high tariffs is costing the country the efficiency of its Customs and not helping the manufacturing sector for which it is designed to protect. This is basically the findings of a report by Gael Raballand and Edmond Mjekiqi of the World Bank’s transport unit. In their extensive investigations of Nigeria’s trade policy, they reveal that the impact on the Nigerian economy has been largely negative while it has also impacted negatively on the efficiency of Nigeria’s customs.

The report clearly shows that the greatest beneficiary of Nigeria’s current trade policy is the Benin Republic, Nigeria’s neighbour. Using mirror statistics, the report shows a huge discrepancy between what Benin declares as imports and what corresponding countries, especially China, declare as exports to Benin. The discrepancy is accounted for by the amount of goods smuggled into Nigeria from Benin. Textile, footwear, manufactured products and food account for more than 70% of the discrepancies noticed.

Interestingly, the report reveal that importation of textile into Benin Republic boomed in 2004, the same year Nigeria re-introduced extensive import bans for textile products. The textile products were mainly from China. Another area of interest in the report is the fact that Benin, with a population of 10 million people and a lower standard of living, between 2004 and 2006, imported as much rice as Nigeria with a population of 150 million and a higher standard of living. An obvious indication that most of the rice imported was destined for the Nigerian market.

“We estimate that up to 4 billion USD of cargo enters Nigeria’s market unofficially from the Cotonou port only, which could represent up to 15% of Nigeria’s total imports.” The report also states that “almost 400 million USD or more than a quarter of the current revenues collected by the Nigerian Customs Service (NCS) could be collected on top of the current revenues if the trade restriction would be adjusted to the current practices in the Sub region, while the current system itself feeds port traffic diversion and delays in port clearance.” Unofficially, the report estimates that 75% of the containers that land at Cotonou port are destined for Nigeria.

Explaining how this high number of import restrictions affects customs efficiency, the report notes that it complicates the administrative procedures of the NCS making it difficult to put in place an efficient and simple administrative system. Besides, to check smuggling, the customs has to place a high number of its force at the borders diverting vital manpower that could have been used to manage a simple administrative process.

The high number of tariff restrictions also facilitates corruption, as corrupt elements within the NCS see it as an opportunity to extort money from traders bringing banned goods into the country illegally. The report notes that as of February 2008, 968 tariff lines were subject to import bans while another 76 lines were subject to partial bans applied to imported consumer goods and restrictions on import quantities.

The report shows that manufacturers, for whom these trade barriers have been raised to protect, are actually not benefiting from it. Using the textile industry as an example, the report notes that despite almost permanent bans placed on textile imports, the number of firms in the Nigerian textile sector has dropped from 175 firms at its peak in the 1980’s  to  only 10 factories by 2004. Employment fell from 350,000 to 40,000 direct workers within the same period.

Another way by which manufacturers suffer from the high number of tariff barriers is in delayed clearance of goods at ports because of the very long time required to carry out the high number of customs checks as well as procedures, in turn, due to the high number of prohibited items.

In  conclusion, the report notes:  “The success of domestic production is not simply contingent on restrictive trade policy, and that domestic producers are sensitive to more than just trade policy, such as power supply, transport among others. Therefore, while trade policy can serve as an important tool to boost economic growth, it may not be the most relevant. In most cases, macro-economic policy, inadequate infrastructure and overall investment climate have a greater impact on the poor performance of the manufacturing sector.”

The report could however be criticized for not examining sectors of the Nigerian economy that have benefitted from outright bans and high import tariffs. A good example is the food and beverage sector of which has enjoyed an average of 10 to 20 percent growth rate per year since 2003 when the Federal Government imposed outright bans on the importation of fruit juice, biscuits and other items.

The report did not also look at sectors like the entertainment industry which has grown without government tariff or ban protection. Nigeria’s entertainment industry has virtually taken over the Nigerian and African market without direct government intervention in terms of funds or tariff barriers.

There is also the cement industry which, as a result of tariff barriers and policy incentives, helped the development of local capacity in cement production. Today, Nigeria has one of the biggest cement manufacturers, Dangote Cement, because of a combination of the high tariff barriers and policy incentives.

What is clear is that tariff barriers have certainly not resurrected the much desired industrial revolution; nor have they reduced Nigeria’s import dependence. Official and unofficial imports are still on the high side putting a heavy strain on the nation’s export earnings. However, high tariff barriers have also helped some sectors of the Nigerian economy while other sectors have grown without the need for these barriers.

Going forward, it is for the Federal Government to take a critical look at the nation’s industrial and trade policy and come out with a policy that will be truly beneficial to the economy. It is not enough to have high tariff barriers. The barriers must have a purpose and the purpose must be seen to be achieved.

Source: http://www.businessdayonline.com/NG/index.php?option=com_content&view=article&id=16439:nigerias-tariffs-high-and-unproductive&catid=1:latest-news&Itemid=18[/b]

Has anyone been able to find the original report written by the World Bank online? If so, please share the link.

So here seems to be the synposis:

[list]
[*] We've banned certain products.
[*] Benin Republic has not banned these same products.
[*] Importers route the products into Cotonou.
[*] The porous border allows them to import the products from Cotonou to Nigeria.
[/list]

So the World Bank's suggestion from this is we should

A) Reduce the bans, so that the $4 billion in import business we lose to the Cotonou port goes to Nigeria instead.

Fine and well. But what if instead we considered

B) Closing the porous western border: hire more security, put in place more checkpoints, confiscate smuggled goods, in general make life miserable for would-be smugglers.
C) Pressuring Cotonou to ban the same items we ban too? I'm not sure what "stick" we have to use to pressure Benin, but surely we are not powerless against them.

Can someone explain to me why (B) and (C) cannot be considered first? If both of those options are completely impossible or infeasible, then fine, we don't have any choice, do (A). But why is the World Bank immediately suggesting (A) without exploring (B) and (C)?

^^

Let me start with option (B)

(B) Nigeria and Benin belongs to the Ecowas organization so technically you cannot close the border because goods and people are meant to flow freely without restrictions through this agreement.

Securing the border is not so easy as you think, corruption, technical efficiency and manpower to do that does not exist. There are so many interest involved in this line of business so it is not easy. This is not the border between between mexico and USA, it is very vast stretching from lagos state up to far northern part of Nigeria in sokoto.

(C) Every nation is independent to the choice of what goods they import into their country so we cannot dictate for them except going into a joint trade agreement or understanding.

(A) Its all about the free market and open competition but to me a country to some extent should protect its domestic manufacturers. If you place too much ban then countries will also reciprocate the gesture back to you because the world is a global village. No nation is an island to itself because you also need to export and engage in international trade when the home market becomes saturated.

But from the Nigerian point of view now, there was no need to ban because you do not have any home alternative. We are banning used cheap cars when we do not have car companies like tata of india. The manufacturing industry is very low and not moving ahead because the right factors are not in place so why ban imports?. It is countries like china that should be placing trade barriers on imports and not Nigeria because we are not a manufacturing or exporting country in big sense of it.

Black_Revo:

^^

Let me start with option (B)

(B) Nigeria and Benin belongs to the Ecowas organization so technically you cannot close the border because goods and people are meant to flow freely without restrictions through this agreement.

I'm not closing the border, I'm securing it from smugglers. I'm sure there are heavy existing fees for people importing rice, but I suspect much of that $4 billion in lost business is people who simply are able to avoid paying the import duties, by hook or by crook.

Securing the border is not so easy as you think, corruption, technical efficiency and manpower to do that does not exist.

This is not a good enough answer. If the Nigerian gov't cannot secure its border, what purpose does it serve? Why in 2010 can we not control what enters and exits the country? This is not the middle ages. If the Nigerian gov't cannot do it, then they'd better subcontract it to someone who can. What do you mean there isn't the manpower to secure the border? In a land of 150 million people, we cannot find the manpower?

There are so many interest involved in this line of business so it is not easy. This is not the border between between mexico and USA,   it is very vast stretching from lagos state up to far northern part of Nigeria in sokoto.

Two separate points:
1) By and large, nobody smuggles rice, cassava, toothpicks, etc across the Mexico/US border. It isn't cost effective, when you can buy these goods cheaply from Walmart, Safeway or whatever. The sort of goods smuggled across the Mexico/US border are narcotics, namely cocaine.
2) Why is the length of the border an issue? The $4 billion in goods flow from one small geographical location, the port city of Cotonou. If we make border security tight in the southern part of our shared border with the Benin Republic, then we raise the costs and reduce the profitability of the smugglers. See what I'm saying? Even a smuggler has to bring his rice/cassava/toothpicks into Cotonou, but can only smuggle them across the border in Sokoto (where the true population of the country is lower), then the profitability of his business is reduced. We do not need to make the entire border impregnable, the point is to attack his profitability. So in the south where he would love to smuggle, we block that and raise his costs.

(C) Every nation is independent to the choice of what goods they import into their country so we cannot dictate for them except going into a joint trade agreement or understanding.

Indeed, I'm not suggesting that we have the power to bully them. Let's seek to work together with them. But even if they are not cooperative, we still must prevent the Benin Republic and Cotonou from leeching off of the Nigerian consumer.

(A) Its all about the free market and open competition but to me a country to some extent should protect its domestic manufacturers. If you place too much ban then countries will also reciprocate the gesture back to you because the world is a global village. No nation is an island to itself because you also need to export and engage in international trade when the home market becomes saturated.

Who cares? What does Nigeria produce? What items will they ban that we produce? Oil?  
How can we be worrying about retaliation when we produce nothing?

Justcash:

It's a four way thing;
1. Allow the importation of those items, and place high taxes on them (For income), while subsidizing cost of production for local manufacturers to compete (If they exist)
2. Provide efficient basic and advanced infrastructures
3. Attract  FDI from foreign manufaturers that export to Nigeria and encourage importers to produce locally.
4. Reduce the number of custom officials and make the job easier, technologically advanced, professional and efficient.

No need for outright ban. Even local manufacturers need cheap imported materials. A country cannot have it all. This can bring out the efficiency in local manufacturers.

Nicely put, Justcash.

In Nigeria, economics (macro or micro) doesn't work the way it should work in an ideal setting. Has anyone see prices of any commodity(goods or services) fall after having risen? Even when inflation recedes, previously jacked up prices refuse to find their natural balance which ought to be a downward review in such instance.