Analysis: The Federal Government’s recent import duties hike leaves us very confused

by Mark Amaza

On Monday, the Federal Government announced that it had raised import duties on what it termed as ‘luxury goods’ such as yachts and Sport Utility Vehicles (SUVs) and food items that have local alternatives like sugarcane, salt, crude palm oil, wheat flour, tomato paste, rice and cassava products.

Also, packaged cement, alcoholic spirits and beverages, used cars and medicaments such as anti-malarials and antibiotics are also affected by the hike in import duties. On the other hand, essential industrial sector accessories had their import duties reduced.

The FG has offered no reasons for the increases other than saying that it was in line with the ECOWAS Common External Tariffs.

However, we are confused about the motivations behind the increase and whether it will work.

Despite the fact that simply banning or increasing the cost of importing certain goods has not led to the development of a local industry for that good, the Federal Government over many administrations has obstinately continued with this economic policy. The effect of such policies has been to create protected territories for monopolies or to drive up the cost of the goods.

Take rice, for example – when in January 2013, import duty on rice went from 60% to 110%, only N11million accrued to the Apapa Command of the Nigerian Customs Service in 2013, a huge drop from the N138 billion and N135 billion they earned in 2011 and 2012 respectively. Now that rice import duty is going to 60% from 10%, such drop in revenues is bound to repeat itself.

So where do the imports go to if they are not coming to Nigeria? The ports of Cotonou, Benin Republic are the preferred destination of importers as their import duties are far less. For example, the import duty on used cars is now 35% in Nigeria with the recent increase, but it is only 10% in Benin Republic. Additionally, it is cheaper and faster to clear goods from the Cotonou ports than in Nigerian ports.

The end result is that Benin Republic earns more from importation while smuggling increases. As the stakes are higher now, the smugglers will also become more deadly and it will not be unlikely that reports of gun battles between Customs officers and smugglers at border towns will become more common, especially as Nigeria has more unofficial border posts than official ones.

Also, it is curious that in a country ravaged by malaria (100 million cases and over 300,000 deaths a year) that the cost of importing anti-malarials and antibiotics will be increased, even if it is for the benefit of growing local production of same drugs. One would have thought that saving these lives from malaria will take precedence over growing local production of the drugs.

Lastly, there is also a curious timing for the announcement of this import duty hike: the Dangote Group announced the next day that its tomato processing factory will recommence production in February. The Dangote Group has previously asked the Central Bank of Nigeria to stop selling forex to tomato paste importers, saying the importation of the product is the reason for the initial closure of their factory.

The Dangote Group is also the leading local manufacturer of at least three other items on the list of items on the list: cement, sugar and salt; and its President, Alhaji Aliko Dangote is politically well-connected. We hate to be the purveyors of conspiracy theories, but this looks like crony capitalism.

While it is also our desire to see competitive local industries for these products, simply making them more expensive to import will not do the trick. The Federal Government will have to dig deeper and create policies to first increase their production such that local demand can be met without importation rather than putting the cart before the horse. It also has to be aware of the ripple effects of making these imports more effective – for example, more expensive cement makes it more expensive to build houses and infrastructure, and that is not desirable in a country that was estimated in 2012 to have a deficit of 17 million houses.

We hope the Federal Government reconsiders this recent move.

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