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% longerDespite 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.
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