PROBLEMS IMPORTERS FACE IN NIGERIA

INTRODUCTION

Nigeria ranks 147th out of 189 countries on the World Bank’s ease of doing business index for 2014. 

The country imposes politically mandated restrictions on imports and exports to support local industries in meat products, spaghetti/noodles, bagged cement, furniture and footwear, among others. It also charges hefty duties on certain goods – for example, imported rice faces a levy of 20%. Additional trade barriers negatively affect the supply chains of exporters to Nigeria, and of local manufacturers either importing inputs or exporting from Nigeria. Import and export costs in Nigeria are almost double those in East Asia & the Pacific region. Moreover, the average time for importing to Nigeria, at 33 days, is 81% higher than it is in Latin America; the average time for exports from Nigeria, at 22 days, is 36% longer 

 

Despite growth in exports and imports, delays in turnaround time have had an adverse impact on Nigeria’s trade volume. Many firms are reluctant to deal with the variability of transportation times. And, as the Forum’s research indicates, corruption is a major structural impediment. The Enabling Trade report of 2013 estimated that removing trade barriers in sub-Saharan Africa would lead to increases of 12% in GDP and 63% in exports. For Nigeria, that would translate to nearly $31 billion in GDP and $79 billion in exports, with a significant positive impact on trade in perishable, time-sensitive goods such as certain foods and pharmaceuticals.

TRADE BARRIERS IN NIGERIA

The Forum’s research shows that a range of companies operating in Nigeria considers the environment not conducive to business. Among four categories of trade barriers, the most commonly mentioned are: lack of transport Infrastructure, and inefficiency and opacity in border administration. Other obstacles include: barriers to market access, such as import prohibitions, local content requirements, and import/export licensing regulations that are designed to provide price protection to local manufacturers from lower-quality imports. The overall business environment also poses challenges. A generally poor security situation (e.g. in terms of police availability and response times, and a willingness and ability to investigate crime) makes it difficult to keep staff, especially expatriates, safe and prevent theft of finished goods and valuable assets.

Delays at Nigeria’s ports are caused by inefficient border administration and seem to stem from general mismanagement, undeveloped transport infrastructure and corruption. Business operators consistently complain about dealing with too many government agencies, arbitrary fees requested by some government officials, illegal clearing agents at the ports, and poor infrastructure. 

The agencies ask for documentation not always communicated in advance and for fees beyond the statutory rate. Experienced importers know with which agencies to deal and the standard process, but the inexperienced are assessed randomly by agents, told to bring unnecessary forms and forced to pay bribes. Since most imported shipments can remain at the port only for 21 days before shipping companies start imposing expensive, daily demurrage charges, many customers are compelled to pay fees higher than the statutory rate to clear their goods.

Illegal agents at the port look for unsuspecting customers to overcharge or outright defraud, while taking up the valuable time of government officials. Many agents have no registered place of business or ties to the official self-regulating bodies of clearing agents. The confusion wrought by such activities results in cargo delays at the port. 

A high percentage of Nigeria’s imports pass through the Lagos port complex at Apapa and the Tin Can island port, both in Lagos, for further transport by road to the rest of the country. But the roads outside the ports are in such poor condition that moving goods out of Apapa can take an entire day instead of 45-60 minutes. That delay is one contributor to port congestion. It also poses a major challenge for importers of time-sensitive or temperature-controlled products. A tyre manufacturer exporting to Nigeria described the impact of Nigeria’s port challenges: “Our Nigerian business partner is unable to plan his off-take and cash flow owing to the fact that clearance from the port can take as few as four days to as much as four to six weeks. Because of this, at different times, our customer is overstocked and under-stocked, causing sporadic off-take and shipments.”

 Interviews with companies with operations in Nigeria

TFA implementation can address some of Nigeria’s border administration problems – for example, the lack of information among various agencies can be resolved by a Single Window scheme. But the TFA will have little impact on the challenges of corruption and inadequate port infrastructure.

CASE FROM NIGERIA – TROPICAL GENERAL INVESTMENTS LIMITED                     

Tropical General Investments Limited (TGI) is a large diversified conglomerate with operations and investments in several West African markets, Morocco, United Arab Emirates and South Africa. The bulk of TGI’s operations are in Nigeria. It produces and sells poultry, fish, fruit juices, dairy beverages, frozen foods, cotton, cooking oil, pharmaceuticals and marine vessels; it also provides specialized oil field and dry dock services. 

The Forum reviewed two TGI subsidiary companies: Chi Pharmaceuticals (ChiPharma) and ORC Fishing (ORC). ChiPharma is a leading importer and distributor of human and veterinarian pharmaceutical products in Nigeria. It moved into manufacturing in 2008. ORC catches, processes and packages shrimp and prawns for export to France, Portugal, Spain, the Netherlands and other European Union (EU) nations. Like other businesses in Nigeria, ChiPharma and ORC face trade barriers in market access, border administration, telecommunications and transport infrastructure, and business environment. 

MARKETACCESS                                                                                                                                        

ChiPharma requires approval for the import and distribution of each of its imported pharmaceutical items, even though some of them are standard and globally accepted (e.g. paracetamol). This licensing process for each drug can take three to six months.

PORT CONGESTION AND ADMINISTRATIVE DELAYS                                                          

A major problem for importers is the unclear and unnecessary product classification and tariff assignment process of customs (e.g. reclassification of paracetamol under its other name, acetaminophen). Reclassification to product codes with higher duties, along with arbitrary demands for these higher duties, is a constant reason for delays in clearing, additional storage costs and, ultimately, port congestion. Many importers end up paying 15-20% in clearing process costs, instead of the statutory costs of about 5%. The delays in administrative process can easily be between five and 15 days, which means higher payments for storage, personnel and demurrage. Altogether, a $100,000 shipment that should cost $6,000-8,000 to clear could end up costing $30,000-35,000. Clearly, this unpredictable cost increase deters some firms from entering the industry and can drive up the end-price for products by 20-30%. Some of ChiPharma’s shipments are time- and temperature- sensitive (i.e. they must be kept between 2°C and 8°C; others at under 25°C). Process delays and inadequate infrastructure can lead to a loss of 3-4% of shipments. 

As ORC is primarily an exporter, it faces fewer delays in getting its products through Nigerian ports. However, with time-sensitive goods that require cold storage, the risk (as high as 20%) is that port delays or power failures will waste shipments. Port clearance normally takes 10-15 days but sometimes can take up to 20 days. Storage fees at the Lagos ports are $27 per day for a standard container, applicable after five days. In effect, the port-side storage costs per container are generally one to two times greater than they should be. ORC estimates the overall impact on costs, from such delays and wastage, at 2% above normal costs – a meaningful addition when competing globally to export to the EU.

 

REMOVING SUPPLY CHAIN BARRIERS IN NIGERIA                                                             

The volume of international trade with Nigeria, while substantial, could grow significantly with the removal of supply chain barriers. The following projects and changes should help to reduce the operating risks for both foreign and domestic companies, and spur Nigeria’s economic growth. 

I. OPTIMIZATION OF BORDER ADMINISTRATION PROCESSES                                    

 Nigeria Customs Service launched a web portal in 2013 to provide information relevant to importers and exporters. The next step: facilitation of the actual clearing process, including integration via the portal of other government agencies’ procedures and the private sector. This should begin with the product types subject to the longest port delays, followed by other strategic product types. 

Second, a clear set of process instructions for each relevant government agency should be developed for each product type, along with a full list of required approvals. The Single Window portal should enable importers to register, submit documents, make payments and track the entire process online. This should help to minimize the number of people working in ports.Third, the port should be secured, with access limited to registered, licensed clearing agents, or individuals or company representatives with confirmed products in the port. 

Fourth, government agencies should quickly transition to keeping digital records to enable faster record retrieval and elimination of duplicate search processes. 

II. INFRASTRUCTURE UPGRADES

In the near term, port congestion can be notably eased with faster clearance processes. However, given Nigeria’s growth prospects, the country must make a long-term commitment to expanding the capacity of the port infrastructure. The Nigerian government already is investing heavily in infrastructure – for example, in a planned seaport in the developing Lagos free trade zone. Almost $12 billion in new port infrastructure has been announced and completion is expected by 2020. The government is also refurbishing the rail network, with $16 billion in projects under way. Plans to integrate the rail network with the ports and industrial sectors are yet to be determined, however.  Another $16 billion in road projects has been announced, but none explicitly remedies the congestion at Apapa. The roads near the port have not been upgraded.

III. RATIONALIZATION OF THE DUTY AND TARIFF STRUCTURES                              

Nigeria Customs Service should aim to further rationalize its set of import duties and restrictions to avoid the possibility of arbitrary product reclassification and to align with global cost-per-shipment levels. Many of the companies interviewed indicate that the Nigerian government should support local industry and job creation by reducing duties for raw materials and ensuring that the definitions of a raw material or finished product are indisputable.

IV. IMPROVING SECURITY AND GENERAL BUSINESS ENVIRONMENT                    

Companies such as ORC need adequate security to run their business without fear of piracy or militant attacks. Such security could increase industrial output by 10-20% almost immediately, according to company estimates  ^. Joint action plans between the government and the private sector could assist in heightening safety, enabling more complex, value-added output, creating manufacturing jobs, and making prices more competitive for the consumer.

Tackling matters beyond the TFA is vital for Nigeria’s trade competitiveness. Some good movements have already begun. For example, a trade facilitation committee was established to coordinate implementation of ongoing projects; it should ensure this happens within announced time frames. However, as mentioned earlier, some issues extend beyond the TFA − problems in infrastructure, safety and corruption, for example. These must be resolved and combined with border administration amendments to allow companies in Nigeria to maintain cost-competitiveness in imports and exports.