This article is a section from a report “Investing in Nigeria” and shall be viewed in the context of the title. Please view the report for more information on the subject as well as references for this article.
Nigeria imports most of the foods it could be producing domestically. The success of the domestic cement industry is considered a result of non-issuing cement import licenses, resulting in the country wishing to extend the cement industries success to other sectors. The most talked about import tariff is the rice tariff. Nigeria is one of the world’s biggest rice importers. Most of the rice come from Thailand where it can be produced two times cheaper than in Nigeria and the Thai rice is considered better tasting than Nigerian rice.
Tariffs have proven to be very successful with the automobiles industry, where a 70% import tariff was introduced for companies without assembly plants in the country. Companies with assembly plants had a zero duty on imported Completely Knocked Down (CKD) vehicles. This resulted in the car manufacturers opening their assemblies locally.
There is the obvious macro-economic question of protectionism versus free trade, that the Nigerian government might be forced to officially address soon, due to Nigeria’s involvement in Economic Community of West African States (ECOWAS).
ECOWAS has been discussing a deal with the EU for liberalisation of 75% of goods and service over the next 20 years, while the EU would provide a duty-free access and €6.5bn in development programmes between 2015 and 2019 to support capacity development. Nigerian government however has raised concerns about this deal jeopardizing efforts at industrialization and protection of local industries. Other peer ECOWAS countries have given support for these concerns.
Potential for big, international trade duty free deals make some industries volatile, especially considering the political uncertainty. If an ideological party supporting free-trade was to evolve, one election could evolve multiple industries dependent on the high import tariff policies.
Nigeria remains the biggest tariff imposer between the ECOWAS countries. Nigeria has flat out bans on 24 product categories.
ECOWAS is agreeing on a common external tariffs for product groups for all of the countries in the bloc. ECOWAS inner trading is quite low, around 10% of the total trading the bloc sees. This indicates that the bloc is to function as an international bloc than anything else. There have also been talks about a common currency.
The international stance and plans of ECOWAS, is taking away some of the control Nigeria needs to develop its domestic industries based on the protectionism policies. It could be argued that the investment opportunities based on these tariffs, such as rice mills, have even more added risks than the regular investment opportunities in Nigeria.
The tariffs have made the multi nationals that manufacture locally to look for sourcing locally, as they can potentially face big import tariffs for their inputs. Their main concern is if they can achieve the same level of product quality by sourcing locally.
Nigeria also has to tackle some of the issues associated with introduction of high import tariffs, such as increased smuggling, increased informal market activity, expected relations with the importing countries, economic difficulties for import driven companies and there is also the risk of inefficient development of the domestic industries, as witnessed in the Kenya’s sugar industry.
The short term success of these tariffs will be dependent on how successful the government is with governing its borders and effectively tackling smuggling.