Sat. Jul 20th, 2024

Nigeria’s International Trade Activities Hampered By Local Content’s Excessive Requirements, By Odimegwu Onwumere

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A confused young man, who had ventured into international trade by importing goods like cars into the country, stood at the entrance gate of the Ports and Terminal Multipurpose Limited port, gasping for breath. His first shipment, a 2008 Mercedes Benz, arrived and presented daunting challenges for him to clear due to the unexpectedly high charges imposed by the port authorities. Feeling discouraged and unprepared for the amount demanded, he was at a loss for what to do as his goods continued to accumulate demurrages, further increasing the clearance fee by 200 percent.

Consequently, he decided to abandon the car at the port. Unforeseen by him, the government’s importation duty policies to improve local content turned out to be unfavorable for importers, causing Nigerian importers to redirect their cargo to neighboring ports. This situation created an obstacle to successful international trade for traders, despite Nigeria’s reputation as a populous trade country in Africa with millions of people.

Challenges Cargoes In The Port

In August of this year, during a stakeholders meeting at the Eastern Ports, Mohammed Bello-Koko, the Managing Director of the Nigerian Ports Authority (NPA), expressed that the seaports are facing challenges due to limited space and un-cleared cargoes that persistently obstruct terminal operations, leading to a negative impact on Ports efficiency and the national economy.

He emphasized the importance of promptly removing overtime cargoes from the different seaports and terminals.

The confused young man was not the only one expressing concern about his experiences at the port. In 2020, Jonathan Nicol, a member of the Shippers Association of Lagos State, said shippers experienced financial losses despite clearing their cargo, due to the failure of shipping companies to retrieve empty containers.

The import and export trade experienced a negative impact as a result, he said.

Albeit, officials at the International Trade Administration stated that Nigeria provides export opportunities for U.S. companies in various industries. Nicol emphasized that manufacturers and shippers faced considerable expenses while transporting their goods, with clearing bills proving to be especially burdensome.

High Cost Of Doing Business

To illustrate this, he mentioned that trucking had become a challenge, as shippers were required to pay exorbitant amounts, such as N1 million, for transporting containers to neighboring cities like Ibadan.

“Moreover, the process of clearing goods at ports is said to be slow, burdensome, and excessively bureaucratic,” the source said.

Reports indicate that corruption and congestion at ports continue to be significant problems. According to Nicol, “Local trips were also expensive, varying from N350,000 to N800,000, which was considered unacceptable.”

Nicol stressed that there was currently no trade facilitation in the ports, and some agencies were making profits instead of urging the government to regulate the excessive practices at the port.

Barriers to overcome

Specialists posit that there are certain barriers to overcome, such as the high cost of doing business, the need to replicate essential infrastructure, the prevalence of criminal activities requiring security measures, corruption, the lack of an efficient legal system, and unclear economic decision-making, particularly in government procurement.

Although the government of Nigeria has implemented anti-corruption measures through various organizations, such as the EFCC, ICPC, and Extractive Industries Transparency Initiative, it has been found that U.S. companies looking to do business in Nigeria, which is facing difficulties due to strict government policies, are advised to establish incorporated companies or incorporate their local subsidiaries.

For instance, American businesses are concerned about the Nigerian Oil and Gas Industry Content Development Act of 2010 because it mandates the use of Nigerian goods and services for all projects in the oil and gas sector.

Pundits nonetheless point at the challenges faced by the Nigerian government, such as the deadly insurgency in the Northeast and oil theft in the South, as well as their efforts to improve infrastructure for their people.

The extremist group Boko Haram has targeted various establishments in multiple states, leading to the displacement of numerous Nigerians due to the violence in the North-East.

Factors Decreasing International Trade Over Time

Experts suggest that if U.S. firms choose this route, they should engage capable local partners, work together with experienced commercial attorneys, and seek their guidance.

Conversely, international trade in Nigeria has decreased over time due to the adoption of protectionist measures, such as import restrictions and exchange controls.

According to reports, “These measures aim to boost the use of local products and reduce dependence on imports and oil. This policy of substituting imported goods with domestic ones is typically implemented during times of economic crisis, often caused by the decline in the oil market and a significant decrease in Nigeria’s oil revenues, which make up 70% of the country’s total revenues.”

In spite of relying heavily on oil and gas for revenue, the international community initially had optimism about Nigeria’s ongoing reform of the foreign exchange market.

However according to the June 2023 report from the International Trade Administration, “Nigeria utilizes a combination of tariffs and quotas to both generate revenue and safeguard local industries from highly competitive imports.

“The country’s tariffs are determined by the ECOWAS 2015 – 2019 Common External Tariff (CET), which consists of five bands: 0% duty for capital goods and essential drugs, 5% duty for raw materials, 10% duty for intermediate goods, 20% duty for finished goods, and 35% duty for imports into strategic sectors.”

Authorities state that the additional charges imposed by the Nigerian government, such as levies, excise, and VAT, often cause the effective rates to surpass these percentages.

“ However, it is important to note that the total effective rate for each item should not exceed 70%. Concerns have been raised by U.S. companies, particularly in the healthcare and processed foods sectors, regarding the high registration fees and lengthy processing times with the National Agency for Foods and Drugs Administration and Control (NAFDAC). The Office of Trade Agreements Negotiations and Compliance (TANC) considers these issues to be Technical Barriers to Trade (TBT),” the source stated.

Experts argue that unfortunately, the policies enforced by the Federal Government were not supported by infrastructure development. Consequently, the domestic industry, including manufacturing, did not grow adequately to meet the needs of the large population. This necessitated continued reliance on imports in Nigeria to sustain daily operations.

Challenges In Foreign Exchange

However, financial market analysts, including foreign exchange dealers, have stated that the current scarcity of foreign exchange and the resulting decline in the value of the Naira are causing significant harm to large businesses.

These businesses are being forced to go to great lengths to repay their loans denominated in foreign currency. In June 2015, the Central Bank of Nigeria (CBN) banned importers of 41 foreign products from accessing the foreign exchange market.

This ban has persisted, leading GlaxoSmithKline (GSK) Consumer Nigeria Plc to announce plans to cease operations in Nigeria in 2023.

GSK Nigeria has faced increased competition from local companies and imports from India and China, resulting in a significant drop in sales.

“The CBN rarely grants foreign exchange for the importation of goods that compete with locally produced items, particularly consumer and intermediate products,” said media reports.

Foreign Exchange Market Influenced By Many Factors

Officials at the CBN argue that the current state of the foreign exchange market in Nigeria has been influenced by various factors, such as changes in international trade patterns, institutional changes in the economy, and shifts in production structures.

Before the establishment of the CBN in 1958 and the enactment of the Exchange Control Act of 1962, they say that foreign exchange was earned by the private sector and held in overseas accounts by commercial banks acting as agents for local exporters.

During this time, agricultural exports accounted for the majority of foreign exchange earnings. Despite the fact that 1 USD is equivalent to 770.50 Nigerian Naira, the former CBN governor, Godwin Emefiele, insisted that the primary goal of the policy was to address the issue of import dependency and diversify the economy.

He believed that the intervention would help revive local manufacturing and reshape the economy.

Why Traders Participate In Imports?

It has been discovered that traders participate in imports because of the availability of cheaper goods or materials, higher quality, a wider range of options, faster access to new items, a better chance of negotiating discounts, and the opportunity to travel overseas.

On the other hand, they also encounter challenges such as foreign exchange risks, piracy risks, political risks, legal risks, and cultural risks.

Knowledgeable individuals have stated that Nigeria possesses a strong desire to industrialize. The country has heavily relied on limiting imports of specific goods in order to promote domestic production.

Then again, for Nigeria to achieve success in its industrialization efforts, they say it requires a more diverse set of industrial policy tools beyond just import restrictions.

Onwumere writes from Rivers State. He can be reached via: [email protected]

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