The CET implications for Nigerian economy

All things being equal, the Economic Community of West African States (ECOWAS) will, later this month, kick-start the Common External Tariff (CET) regime with likely more pressure on Nigerian economy which is presently challenged by falling oil prices, depleting revenue, undiversified non-oil exports and ineffective anti-dumping measures.

Nigeria is among the 15 ECOWAS member-countries that recently agreed to begin implementation of CET, which is a trade liberalisation scheme that seeks to introduce uniform tariffs, customs union and economic integration across the West African sub-region.

It amounts to emphasizing the obvious saying that Nigeria is currently mired in crisis occasioned by weak naira recently devalued by the Central Bank of Nigeria, and falling oil prices at the international market, now $50 per barrel, $15 less than the 2015 budget benchmark of $65. The country depends on oil for 75 percent of its budget and 95 percent foreign exchange earnings.

It is on this premise that we have our reservations on the perceived merits and benefits of this common tariff to Nigeria. We share key industry watchers’ fears that with uniform tariffs, revenue accruing to the Federal Government through duties collected by the Nigeria Customs Service (NCS) (which reached N3 trillion in 44 months preceding September 2014 and N977 billion between January and December 2014) will plunge.

It does not require a prophet to foresee that the manufacturing sector and non-oil export could be the worst hit as the two sectors suffer from significant problem of lack of competitiveness. While many sub-sectors in manufacturing have low capacity, non-oil export is mainly dominated by raw agricultural commodities rather than finished manufactured or semi-finished goods.

We foresee a situation where CET regime will make countries with weak manufacturing base to lose out and become a dumping ground for other economies in the sub-region and this has negative implication for Nigeria.

Frank Jacobs, president, Manufacturers Association of Nigeria (MAN), says implementation of cross-border policies such as the CET and Economic Partnership Agreement (EPA) could throw up fresh challenges that might further complicate the current lack-lustre performance of the manufacturing sector. We  agree totally with this submission.

We reason with Jacobs that the CET and the EPA regimes would challenge the Nigerian economy, particularly the manufacturing sector, as local markets would be flooded with products made under favourable business environment at relatively lower prices.

The fear of real sector players in this connection is that regionalisation made possible by CET could create an avenue for the adoption of the EPA, which is a trade liberalisation agreement between ECOWAS and the European Union and manufacturers believe EPA will open doors for European products which will box local commodities to a corner.

Another implication of all these for our economy is that EPA, like CET, could lead to revenue loss estimated at $1.3 trillion by the Federal Government while the country stands the risk of being flooded with European products.

Much as we welcome this initiative with its inherent benefits, we advise that Nigeria, because of its peculiar economic circumstances at the moment, should trade with caution by avoiding what might turn out ‘mercy-killing’ to local industries.

We advise further that government should establish mitigating measures such as anti-dumping measures, labour market reforms, and technological support to private firms to improve their ability to compete.

Additionally, government should create social safety nets to compensate displaced workers and also come up with tax reforms to increase collection efficiency and the tax base. And because delay in putting all these measures in place could be costly, the time to act is NOW!