Key highlights
- The CEO of the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, has advised the incoming administration in Nigeria to reform the country’s tariff regime and reset its trade policies.
- He said that inconsistencies, unpredictability, and impulsiveness has characterised Nigeria’s trade policies over the past decade, making long-term planning difficult.
- He therefore urged the incoming administration to put an end to having two parallel trade policies and make Nigeria’s international trade ecosystem technology-driven.
When Nigeria’s next president assumes office on May 29, 2023, one of his top priority jobs will have to be resetting Nigeria’s trade policies. The incoherent, inconsistent, and unpredictable trade policy regime over the last eight years has cost the Nigerian economy growth and investments. In this interview with Nairametrics, the chief executive of the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, tells what the next administration must do to reverse Nigeria’s dwindling trade fortunes. Excerpts……..
Nairametrics: How have Buhari’s trade policies affected the economy?
Dr Muda Yusuf: Nigeria’s trade policies over the past decade have been characterized by Inconsistencies, unpredictability, and impulsiveness. It had made long-term planning difficult, especially for investors in the real sector.
Sudden changes in import duties, export duties, import levies, import restrictions and export prohibitions led to the collapse of many businesses. This phenomenon is a major downside risk to long-term investment in the Nigerian economy.
Traditionally, the Nigerian tariff book has a seven-year lifespan. The spirit is to make planning easier over a long-term horizon. But frequent changes in its contents had undermined this intent and elevated investment risk in the economy.
On several occasions, these changes take place without any notice. Many investors have suffered enormous shocks, disruptions and huge losses as their basic investment assumptions are arbitrarily altered by the policymakers. We had witnessed several policy pronouncements impacting trade regimes that cannot be traced to any particular trade policy.
Nairametrics: The incursion of the CBN into trade policy space
Dr Muda Yusuf: Investors in the Nigerian economy are grappling with an aberration of CBN incursion into the trade policy space. Through the instrumentality of its foreign exchange policy, the CBN has created a parallel trade policy, creating even more confusion in the trade policy environment.
The CBN has a foreign exchange exclusion list containing items for which foreign exchange would not be made available for imports. In practical terms, it is the CBN version of an import prohibition list, as the banks would make important documents available for transactions relating to any item on the list. The contention of the CBN was that the items on the list can be sourced locally.
This is an assertion that many stakeholders disagree with. The exclusion list has done more harm than good to the economy. Besides, it is an anomaly to have two parallel import prohibition lists for the same economy.
How can we have a trade policy of the Ministry of Finance, which lists items on import and export prohibition; and there is another policy from the CBN listing items for which foreign exchange would not be made available? This has created a chaotic situation for our trade policy.
Nairametrics: What is your view on trade facilitation?
Dr Muda Yusuf: Trade cost in Nigeria is one of the highest globally. This fact has been amplified by the Director General of the World Trade Organization [WTO]. Economic players are grappling with serious trade facilitation glitches. These pertain to laborious documentation processes, cumbersome cargo clearance procedures and manual examination of cargo.
There are also issues of extortion, multiple agencies at the ports, tariff code classification challenges, the absence of single window technology to remove human interface and the absence of a credible dispute resolution system between the importers or exporters and the agencies of government at the ports, especially the Nigeria Customs Service.
It’s technologically troubling that we have not made any significant progress in tackling trade facilitation in the international trade ecosystem. It is noteworthy that we are a signatory to the trade facilitation agreement of the WTO. But practically nothing is happening as far as fixing the trade facilitation challenges is concerned.
Nairametrics: What can the incoming administration learn from all of this?
Dr Muda Yusuf: The lesson for the incoming administration is to clean up the trade policy space. We should put an end to the aberration of having two parallel trade policies – one by the Finance Ministry and the other by the CBN.
We cannot be running an economy with two parallel trade policy documents. Then we need to reform our tariff regime with a view to reducing tariffs on items in which we have weak domestic production capacity, especially intermediate products for our industries. Excessively high tariffs provide incentives for smuggling and many sharp practices in international trade.
Our international trade ecosystem should be technology driven for efficiency and transparency. The adoption of the single-window digital solution should be expedited. This should be adopted at all our ports and land borders. Similarly, the use of scanners for cargo examination should be mandatory at all the nation’s ports. It is embarrassing that we are still examining cargo manually in most of our ports.
There is too much emphasis on revenue generation by the Nigeria Customs Service. But we should stress that the customs service has a dual role – revenue generation and trade facilitation. The latter has been completely relegated. This should be corrected. Trade facilitation is as important as revenue generation.
Nairametrics: What is all of this costing the economy?
Dr Muda Yusuf: A volatile trade policy environment is detrimental to investment and a major downside risk to economic growth. There is an elevated risk of doing business where trade policy is unpredictable. It invariably creates an investment environment where those investors with high-risk appetites become dominant. This excludes those with low to medium risk appetite. This translates to a loss of investment in the economy.
I give you an example; there was an investor who set up a very big agro-processing plant valued at billions of naira. At the time he was setting it up, the raw materials for the business were not under any form of import prohibition. But about a year after, the CBN came up with the foreign exchange exclusion list which included the raw materials for the firm. That was the end of that business. It was a huge loss of investment.
So that’s an example of the kind of damage that an unstable trade policy environment can cost an investment.
Real sector investors are generally more vulnerable because the business model is not flexible. When you are into production you already have imported machinery, built a factory and trained personnel; so, you can hardly change your line of production, unlike traders or investors in financial assets.
When the government closed the land borders, some industries that imported their raw materials from neighbouring West African countries were severely affected, and some had to close down. That’s another example of how a volatile trade policy regime can hurt investors and the economy.
I respect Dr Muda Yusuf’s views on the workings of the Nigerian economy since his days at LCCI so much but I wish to disagree with him on the 41 items . What the CBN said was those 41 items would not qualify for funding through the official window. In fact, this is one of the best policies of the CBN. Why should we use the nations reserves to import toothpick, juice etc when we can encourage genuine local industries to produce these items. If my understanding is right, those items are not banned from being imported. Not at all. What the CBN is affirming is the nation will not pay for their importation with official forex. Importers can still import but source their funds through other legal means. I think the list of the 41 items should be reviewed and expanded to say 50. The forex to engage in unrestrained importation does not exist anywhere. Above all, the incoming administration should institute a fact finding committee on compliance to this policy.