The implementation of the Economic Community of West African States Common External Tariff in Nigeria is raising concern in the manufacturing circle.
Manufacturers appear uncomfortable with the introduction of the ECOWAS Common External Tariff in Nigeria. Although the initiative, whose implementation commenced last month, is meant to guide against arbitrary import tariffs among countries in the West African region, there are fears that the policy may not achieve this harmonisation objective
Under the new policy, goods are grouped into five categories of tariff rates: zero, five, 10, 20 and 50 per cent.
Goods dutiable under the zero per cent category are special drugs as well as industrial machinery and equipment.
Under the five per cent category, goods dutiable include raw materials and other capital goods.
Those dutiable under the 10 per cent category are intermediate goods while finished goods attract 20 per cent import tariff.
Finished goods that can be manufactured locally, however, attract 35 per cent import tariff.
The Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Mr. Emmanuel Cobham, says that local industries need protection against the influx of foreign products in the wake of the implementation of the policy.
“The NACCIMA‘s position on the CET is that our manufacturing companies need some level of protection against the influx of foreign products that the tariff favours. Since the CET regime has commenced, government may need to consider ways by which the hardship on importers and manufacturers alike could be alleviated,” he says.
According to him, there are some measures guaranteed under the scheme for the protection of local industries.
The measures are the Supplementary Protection Measures and Fiscal Policy Measures. These comprise an Import Adjustment Tax list with additional taxes on 177 tariff lines of the ECOWAS CET.
It also includes a national list for items whose import duty rates have been reviewed to encourage more development in strategic sectors of the economy.
The Public Relations Officer, Nigeria Customs Service, Mr. Wale Adeniyi, says the newly approved supplementary protection measures include an import prohibition list applicable only to certain goods originating from non-ECOWAS countries.
A senior official of the ECOWAS commission, Mr. Felix Kwakye says the IAT has been accommodated to allow countries to adjust to the scheme during the five-year transitional period ending in 2019.
He adds that in order to ensure that production does not suffer in any of the member countries due to unexpected influx of imports, the CET is accompanied by some trade defence measures that allow the ECOWAS to temporarily impose a higher tariff if the region experiences an import surge.
These measures notwithstanding, manufacturers are not satisfied with the policy. According to them, the current tariff regime puts them at a competitive disadvantage in the sub region.
Last week, major drug manufacturers raised an objection to keeping pharmaceuticals and raw materials in the five per cent and zero per cent tariff category.
According to the terms of the policy, imported raw materials used in the manufacture of drugs attract five per cent while manufactured drugs are brought into the country at zero per cent import tariff.
The manufacturers maintain that the policy threatens the pharmaceutical industry, the country’s national security and access to essential medicines.
The Chairman, Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria, Okey Akpa, says placing a zero per cent tariff on imported finished drugs while placing an import tariff of five per cent on essential raw materials and packaging required by the industry for local medicine production will spell doom for the local drug manufacturing industry.
He adds that as a consequence of such policy, imported drugs will become cheaper than locally produced ones.
An analyst at SB Morgen, Mr. Cheta Nwanze, says the situation will not help the local pharmaceutical industry.
He says, “The tariff makes it more expensive for the drug manufacturers to import what they need to actually do manufacturing here, while simultaneously making it easier to import finished drug products.
“This cannot help local industry. Nigeria needs to pull her weight and make CET more favourable, or pull out altogether.”
The President of MAN, Mr. Frank Jacobs, admits that the duty rate on most pharmaceutical products including those available in excess capacity locally is zero. He, however, says that the fears of the manufacturers are justified.
He says, “If nothing is done to protect them, it will actually spell doom for the sector.
“Although the CET document incorporates a regulation that allows the producers of finished products to import their raw materials at a zero duty rate, this has not been gazetted to enable the sector to take advantage of the provision.
“The challenge pharmaceutical products had during the CET negotiations was that it was seen as a social product and therefore should be zero-rated for it to be affordable to the poor.
Jacobs also says, “Before the commencement of CET, pharmaceutical products that are being produced in Nigeria attracted between 20 per cent and 35 per cent duty while those not being produced locally were placed at zero per cent.
“You will recall that the summit of heads of state in one of their meetings adopted the West African Economic and Monetary Union (also known as UEMOA from its name in French, union économique et monétaire ouest-africaine) CET for implementation at the ECOWAS level.
“In the UEMOA CET, drugs and other pharmaceutical products are zero-rated. As a result, the efforts made by Nigeria’s representatives at the negotiation level were rejected. The reason was that increasing the duty on drugs will negatively affect the consumers in the UEMOA region that have been enjoying zero duty rates.”
The MAN president adds, “We made inputs but due to the limitations occasioned by the CET regulation on Import Adjustment Tax (IAT), not all our inputs were accepted. It was discussed at length.”
He suggests that in order to assist the sector, government should allow manufacturers to import all their raw materials at zero per cent in line with the regulation on inputs with higher taxes compared to finished products.
He urges the Central Bank of Nigeria to exclude the importation of finished pharmaceutical products that are locally available from the inter-bank foreign exchange market.
According to the Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, high cost of energy, funds, logistics, regulatory charges, ports charges and other related costs, currently bedevil the local manufacturing sector making it impossible for operators to compete with their peers in the ECOWAS sub region.
He says the concern of the drug manufacturers is valid, adding that the call for IAT by domestic investors in the pharmaceutical sector is justified.
He says, “It is difficult for a manufacturing firm in Nigeria to survive under a tariff policy regime of zero import duty for competing products.
“It is certainly not a fair competition. Industrialists in Nigeria contend with added burden of high costs that put enormous pressure on operating cost.”
The LCCI DG suggests that government should give incentives to industries by introducing an effective policy on the patronage of locally produced drugs by government hospitals.
He also calls for a zero Value Added Tax and import duty on all pharmaceutical raw materials and equipment.
Adeniyi, in response to the issue, says extensive consultations were held before arriving at the final decision on the CET initiative.
He says, “While the customs was part of the buildup at a subcommittee level, the Federal Ministry of Finance had the final say.
“Tariff decisions always seek to accommodate various divergent interests. Those taken on CET were taken after consultations with these interest groups.