Key points
- The executive director of the Center for the Promotion of Private Enterprise, Dr. Muda Yusuf, has advised the incoming Nigerian administration to reform the country’s tariff regime and reinstate its trade policies.
- He said that inconsistencies, unpredictability and impulsiveness have characterized Nigeria’s trade policies over the past decade, making long-term planning difficult.
- Therefore, he 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 takes office on May 29, 2023, one of his top-priority jobs will need to be restoring Nigeria’s trade policies. The inconsistent, inconsistent and unpredictable trade policy regime of the past eight years has cost the Nigerian economy growth and investment. In this interview with Nairametrics, CEO of the Center for the Promotion of Private Enterprise, Dr. Muda Yusuf, tells what the next administration must do to reverse Nigeria’s dwindling business fortunes. Extracts……..
Nairametry: How have Buhari’s trade policies affected the economy?
Dr Muda Yusuf: Nigeria’s trade policies over the past decade have been characterized by inconsistency, 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 bans led to the collapse of many companies. This phenomenon is a significant downside risk to long-term investment in the Nigerian economy.
Traditionally, the Nigerian rate book has a shelf life of seven years. The spirit is to facilitate planning on a long-term horizon. But frequent changes in its content undermined this intention and raised investment risk in the economy.
On several occasions, these changes take place without prior notice. Many investors have suffered huge shocks, disruptions, and heavy losses as lawmakers arbitrarily change their basic investment assumptions. We have witnessed various policy pronouncements impacting trade regimes that cannot be attributed to any particular trade policy.
Nairametry: CBN’s Foray into the Trade Policy Space
Dr Muda Yusuf: Investors in the Nigerian economy are dealing with an aberration of CBN’s foray into the trade policy space. Through the instrumentalization of its exchange rate policy, the CBN has created a parallel trade policy, creating even more confusion in the trade policy environment.
The CBN has a currency exclusion list that contains items for which foreign currency will not be available for import. In practical terms, it is the CBN version of an import ban list, as banks would make important documents available for transactions involving any item on the list. The CBN’s argument was that the items on the list can be obtained locally.
This is a statement that many stakeholders disagree with. The foreclosure listing has done more harm than good to the economy. Furthermore, it is an anomaly to have two parallel import prohibition lists for the same economy.
How can we have a trade policy from the Ministry of Finance, which lists articles on import and export prohibition; and is there another CBN policy that lists items for which foreign currency would not be made available? This has created a chaotic situation for our trade policy.
Nairametry: What is your opinion on trade facilitation?
Dr Muda Yusuf: The cost of doing business in Nigeria is one of the highest globally. This fact has been amplified by the Director General of the World Trade Organization [WTO]. Economic actors are dealing with serious failures in facilitating trade. These relate to laborious documentation processes, cumbersome cargo clearance procedures, and manual examination of cargo.
There are also extortion issues, multiple agencies at ports, tariff code classification challenges, the absence of single window technology to eliminate the human interface, and the absence of a credible dispute resolution system between importers/exporters and agencies. governments in the ports. , especially the Nigerian Customs Service.
It is technologically concerning that we have not made any significant progress in addressing trade facilitation in the international trade ecosystem. It should be noted that we are signatories of the WTO trade facilitation agreement. But almost nothing is happening when it comes to solving the challenges of trade facilitation.
Nairametry: What can the incoming administration learn from all 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 from the Ministry of Finance and the other from the CBN.
We cannot run an economy with two parallel trade policy documents. Next, we need to reform our tariff regime with a view to lowering tariffs on items where we have weak domestic production capacity, especially intermediate products for our industries. Excessively high tariffs provide incentives for smuggling and many aggressive practices in international trade.
Our international trade ecosystem must be driven by technology to achieve efficiency and transparency. The adoption of the digital one-stop solution should be accelerated. This should be adopted at all our ports and land borders. Similarly, the use of scanners for the examination of cargo should be mandatory in all ports of the country. It is embarrassing that we are still manually screening cargo at most of our ports.
There is too much emphasis on revenue generation by the Nigerian Customs Service. But we must emphasize 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.
Nairametry: What is all this costing the economy?
Dr Muda Yusuf: A volatile trade policy environment is detrimental to investment and a significant downside risk to economic growth. There is a high risk of doing business where trade policy is unpredictable. Invariably, it creates an investment environment in which investors with high risk appetites become dominant. This excludes those with a low to medium risk appetite. This translates into a loss of investment in the economy.
I give you an example; there was an investor who set up a very large agricultural processing plant worth billions of naira. At the time he was setting it up, the raw materials for the business were not under any form of import ban. But about a year later, the CBN drew up the currency exclusion list that included the raw materials for the company. That was the end of that business. It was a huge waste of investment.
So that’s an example of the kind of damage an unstable trade policy environment can cost you an investment.
Real sector investors are generally more vulnerable because the business model is not flexible. When you are in production you already have imported machinery, you have built a factory and trained personnel; therefore, you can hardly change your production line, unlike traders or investors in financial assets.
When the government closed the land borders, some industries that imported their raw materials from neighboring West African countries were severely affected and some had to close. That’s another example of how a volatile trade policy regime can hurt investors and the economy.
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