Menu Style

Cpanel

23August2017

Attempts at intra-regional trade within the Sub-Saharan African Region achieved mixed results


The Common External Tariffs (CET) was adopted by the ECOWAS heads of state in 2001 and was aimed to harmonise all ECOWAS member countries’ trade tariffs with the existing UEMOA common external tariff. The UEMOA consists of 8 mainly francophone subgroup of countries within the ECOWAS who had adopted CET amongst themselves since 1998. Essentially, the CET features four tariff bands with 0% tariff rate for essential social goods, 5% for essential/basic raw materials, capital goods and specific inputs, 10% for intermediary products, and a peak tariff rate of 20% for final consumer goods. The nominal average tariff rate (ATR) is 12.1%.

Nigeria; the sub regional Oliver twist

The analysis of the impact of the adoption of CET by Nigeria since 2004, conducted by trade policy experts, suggests that the CET resulted in substantial reduction of the simple average import tariff rate of the manufacturing sector, from 28% in 2003 to 12.2% in 2005 and to 11.6% in 2008. A mild increase pushed it to 12% in 2011. The World Bank, quoted by Trading Economics, an online international economic data portal, reported the weighted average tariff rate in Nigeria at 9.11% in 2010. It was also found that all the types of imports have exceptionally and substantially increased after the adoption of CET. However, the trends of inputs such as raw materials, intermediate and capital goods imports have been unstable.

It can therefore be argued that Nigeria has embraced the CET significantly, despite its sustained demand for the introduction of a 5th band of 50% to be applied to certain products in the bid to protects its budding industries and young manufacturing sector. It appears however, that the biggest beneficiaries of the ECOWAS CET are the non-African and external trading partners whose trade volume with Nigeria continues to grow.  Nigeria’s demand for the 5th band is justified on the basis of the fact that most low-income countries in Africa and South Asia have higher average tariff rates than the ECOWAS CET. In fact, the CET structure and rates are similar to tariffs adopted by middle-income countries of South America with well-developed manufacturing sector and productive base.

For instance, global average Tariff rates (ATR) indicate that EU which is a high income region has an ATR of 3.5%, the Mercosur, a middle income South America trade bloc has 11%, the Southern African Customs Union (SACU), another middle income region has 11.4%, while the Central African Monetary and Economic Community (CEMAC) which is a low income bloc has 18.4% ATR. Following from the above, the UEMOA Common External Tariff with an ATR of 12.1% is, from a global perspective, out of the line with the low-income status of countries in West Africa.

Although the above scenario opens up the region to influx of goods from all over the world given the attractive tariff structure, it justifiably benefits those ECOWAS countries that are resource poor, with low populations and unviable markets that cannot support competitive production bases and therefore have no need for protective tariffs. But for a country like Nigeria, when tariffs are set too low it could encourage imports and become a disincentive to domestic production and investments. This perhaps provides sound justification for the current spate of prohibitive tariff policy on certain food items that could be produced locally but have become a major source of foreign exchange drain on the economy.  These include rice, wheat grain and flour, sugar among others.

The second move toward integration is the ECOWAS Trade Liberalisation Scheme (ETLS); its effects however is yet to be felt

ETLS was in line with the objective of ECOWAS promotion of cooperation and integration and as one step towards the creation of a common market. ETLS was first adopted in 1979 but restricted to only agricultural products, handicrafts and crude products. It was later opened to include industrial goods in 1990. ETLS seeks the abolition, among member states, of customs duties levied on imports and exports, as well as the abolition of non-tariff barriers in order to establish a free trade area within the region.

ETLS is however subjected to the WTO’s (which most ECOWAS member states are members of) agreement on rules of origin. The ECOWAS protocol A/P1/1/03 of 31st January 2003 defines the concept of originating products and origin criteria applicable for the free circulation of industrial goods. The rules of origin defines the proportion of local content or transformation a product must go through for it to qualify as originating from the country where such transformation occurred upon which it can benefit from the free trade advantage. The required institutions in the member countries have been established and functional with significant number of goods listing per country enjoying this scheme. Yet, the volume and value of trade originating from and coming into Nigeria from member countries remain substantially very low.

Nigeria may also be the biggest beneficiary of greater integration and freer trade in the sub-region

As a regional commercial hub in sub-Saharan Africa, about 40% of Fast Moving Consumer Goods (FMCG) trading in most West African countries, especially those landlocked, is routed through Nigeria. Over the last 8 years, countries such as Benin Republic, Chad, Cameroun, Niger etc have enjoyed growing in-flock of goods manufactured or re-exported from Nigeria.

Barring the structural constraints facing the Nigerian economy- many of which are currently being addressed- the economy has comparative advantages in costs in industry, agriculture, oil & gas, finance, and commerce. Its comparatively large maritime industry, despite the challenges, offers domestic producers access to global intermediate goods at competitive costs. The Nigerian aviation industry, compared only to South Africa in the sub region, is poised as the window into many landlocked African countries as well as operational base for multinationals. The increased sophistication and depth of the Nigerian financial system and capital market as well as its seamless integration into global financial system also provides a port for financial access for other SSA economies.

  • Written by The Analyst
  • Hits: 386

Connect

Newsletter