LET’S TRADE

Nigeria 2016 | ECONOMY | FOCUS: TARIFFS

In the past year, tariffs have taken on a life of their own. With much of the GDP driven by oil revenues, the country is reliant on the volatile energy market, and economic problems caused by reduced oil prices have become a recurrent headache for Nigeria.

The response to economic hardship is more often than not to move toward protectionist measures. These are mainly manifested in the changing and raising of tariffs, which range from subtle, to sometimes as much as 100% increases overnight.

With a $573-billion GDP and over 180 million people calling the country home, Nigeria often uses tariffs to prop up domestic industry in an effort to reduce reliance on commodity imports. Highlighting this, the Nigerian Central Bank recently signed an edict to ban 40 categories of goods from using the foreign exchange market, which greatly restricts the importing of these goods. This list of goods covers everything from toothpicks, to wheelbarrows, to private jets. The aim is to increase both the in-country production and domestic and international sales of these items. This encourages bank markets to acquire Nigerian bonds for the purchasing of foreign government bonds, a move which also tries to increase the motive to invest inwards, not outwards. A measure of this is the fact that Nigeria has recently adopted a new automotive tariff policy, marked by a 70% tariff on passenger vehicles (a 48% increase) and a 35% tariff on commercial fully-built vehicles (a 25% increase) entering into the country.

Yet the use of the tariff as a tool of import substitution to increase manufacturing potential has sometimes worked against Nigerian industry. Some companies simply work harder to get around these tariff changes, which works to diffuse the potential benefits of the tariff strategy in Nigeria. Automotive companies, for example, get around the large tariff increase by importing fully built vehicles, but removing the wheels or hood of the car before the import. This enables them to qualify for a big tax rebate and avoid the new tariff.
Nigeria is also a member of the Economic Community of West African States, which sets tariffs at a regional level. In the realm of trade defense measures, this can prove helpful for Nigeria because it works to counteract costly subsidies and protects against regional dumping by outside corporations. The second point is especially important because Nigeria has historically lacked the administrative and institutional capacity to deal with anti-dumping regulation issues. Not only will this move help domestic manufacturers, it will also benefit the Nigerian people. Increasing the protection of Nigerian industries will help spur business growth through healthy competition and by bringing about a better standard for goods that are produced domestically. The implementation of a West African tariff status quo should increase Nigeria's competitiveness in the region.
Ever looking to expand international trading, Nigeria continues to explore its options. South Africa's Trade and Industry Deputy Minister Mzwandile Masina discussed an increase in bilateral trade and investment, especially in agriculture, infrastructure, and energy sectors. Trade with China has also increased to $18 billion over the last year as well, with many projects focusing on infrastructure. In addition, there are many new Chinese cultural centers in Nigeria, a sign of increasing ties between the two countries. Nigeria is also France's largest African trading partner, mostly as a result of Nigerian oil production.

As Nigeria focuses on improving its infrastructure and ports, fixing the problems of smuggling, and lowering high energy costs, the manufacturing sectors of Nigeria will become increasingly competitive in international trade. By focusing on sustainable and effective domestic manufacturing, Nigeria will work to increase its market share in commodity markets. An increase in the strength of the naira would also help the country's trade, since people could use the native currency in exchange for services, as opposed to using other more favorable and stable currencies that currently enjoy a higher turn-around value in the market. Yet this is far from certain, as it is probably too soon to gauge the full impact of these tariff reforms on the wider economy.