Monday, October 13, 2008

The New Customs Tariffs

Nigeria’s Customs and Excise Tariff Book for the period 2008–2012 has been presented. According to Dr. Bright Okogu, Director-General, Budget Office of the Federation, the new tariff book is aimed at facilitating trade and industrial growth.
Highlights of the book include the implementation of a new regime of customs and excise tariffs, reducing the duties paid on primary raw materials from 10 per cent to 5 per cent and prohibiting the importation of used motor vehicles above 10 years. Buses and trucks, no matter their age, are, however, excluded from the prohibition list.
The new regime of tariffs also prohibits the importation of textile fabrics and articles thereof, including Hollandais, English Wax, Ankara, Lace fabrics, wedding gowns and ceremonial apparels, second hand clothes, rugs and carpets, as well as recharge cards.
According to Okogu, the import prohibition list is to consolidate Nigeria’s drive towards industrialization. This is a valid point. Even with growing globalisation, it is clear that some Nigerian products are not competitive. This is because of the relatively poor enabling environment and the high cost of production. It does raise the question whether a country should depend on cheaper imported alternatives or encourage local production. For a nation battling to grow its economy, the protection of domestic industry remains a core responsibility.
We, however, worry about overall policy consistency and proper implementation of the customs and excise tariffs. For the ailing textile industry, the ban on some textile products may have come as a relief. The smuggling of these products contributed immensely to the collapse of the local industry. Although there has been some improvement in checking smuggling, Nigeria’s long borders are still porous or it is made to be so by the very people paid to bar the entry of banned products. Too often, those who are supposed to enforce government’s policies and laws connive with unscrupulous persons to circumvent such laws, and over time it seems as if such laws are non-existent.
The other point is that with the closure of so many textile companies, would Nigerians not be forced to look elsewhere for their basic clothing needs. If our local industry was encouraged to grow, why would Nigerians look up to even less endowed West African countries for fabrics like Ankara? Or who indeed would prefer to wear used clothes to brand new ones?
We feel that the ban, as a singular measure, cannot revive the textile industry. In situations where foreign textile, which are sometimes of higher quality, cost far less than the local products, patronage of the imported textile is bound to rise. And this may be understandable. The high cost of production in Nigeria, given our peculiar manufacturing challenges, contrasts sharply with the conducive operational environment of most foreign countries, which ultimately beats down their production cost. That perhaps explains the heavy influx of China textiles in the Nigeria market. Given the huge market in Nigeria, a buoyant textile industry is well positioned to take full advantage. But this has not been the case.
We also notice that the ban on the importation of used tyres may not really resuscitate local production. The two major tyre companies have closed down, the last one mainly because of the country’s tariff structure and other production cost. With ban of used tyres, there will be additional pressure on supply, forcing people to smuggle in tyres.
To encourage local production, what the companies require and which we have heard them say repeatedly, is for government to provide an enabling environment for them to operate in. If they have to provide their own infrastructure, they end up with high unit cost of production with the resultant high prices that put them at a hopeless disadvantage in the flurry of imports. At those prices, products have to be very special for their producers to compete favourably with imported goods or even contemplate exports.
Although it takes more than a ban to encourage local production, the department of Customs and Excise must at least play its part. The recent ban of select items represents a new challenge to Customs and other law enforcement agencies, many of whom are crammed around the nation’s entry points. They must rise to the duty of protecting the nation’s borders effectively, if this new policy will have any effect.
In all, the ban of these items should, ultimately be to the benefit of the Nigerian economy. And unless it is so, the measure will serve as double punishment, as it would have denied them the ultimate benefit and the immediate gain or pleasure if they patronized the banned items