International trade and Foreign Direct Investment (FDI) are critical to Nigeria’s economic development and growth. Unfortunately, trade barriers are land mines that pose significant challenges for investors and exporters.
The Nigerian government sometimes imposes high import tariffs to support local industries and foster self-sufficiency. While these policies are intended to boost domestic production, often, when critically examined, they are barriers that impede international trade.
With its large population and abundant natural resources, Nigeria offers an attractive market for investors and traders. However, Nigeria has yet to witness the desired level of economic growth and is vigorously seeking to attract foreign investment commensurate with its immense economic potential.
To remove trade barriers and give confidence to investors and exporters, the government must collaborate with the private sector and stakeholders to develop effective trade policies. They can achieve this through regular dialogue with industry associations that can provide valuable recommendations to policymakers.
In Q2 of 2023, investment inflow into the Nigerian economy dipped to $1.03 billion against the $1.535 billion recorded in Q2 2022. Having realised the significance of foreign investment, the current administration is actively pursuing trade negotiations and partnerships to attract foreign investment.
Within the second half of 2023, the nation signed several investment deals, from a $500M renewable energy and gas deal with Germany to a refinery investment from Saudi Arabia. In addition, TotalEnergies pledged $6 billion in Nigeria’s oil investments, and Indian industrialists pledged $14 billion in assets, among others. The deals and investments have left many Nigerians hoping for an economic boom as soon as possible. But there’s more work to be done.
Nigeria’s investment policies and prospects of ease of doing business
The Nigerian Investment Promotion Commission (NIPC) Act of 1995, with amendments in 2004, removed restrictions on foreign direct investment (FDI), enabling full foreign ownership in all sectors except those prohibited by law. However, certain regulators may impose domestic equity requirements when granting operational licences to foreign firms.
Before commencing operations, foreign and local businesses must register with the Corporate Affairs Commission (CAC) and the NIPC and incorporate their firms under the Companies and Allied Matters Act of 2020. Additionally, companies must register with the Federal Inland Revenue Service (FIRS) for tax and an import-export licence from the Nigerian Customs Service (NCS) for international trade.
To improve Nigeria’s Ease of Doing Business ranking, the government established the Presidential Enabling Business Environment Council (PEBEC) in 2016 to improve the business environment in Nigeria. PEBEC focuses on business registration, movement of goods and people, access to credit, contract enforcement, property registration, construction permits, electricity, and tax payments. While we have progressed in business registration, construction permits, and contract enforcement, the business ecosystem still needs to work on regulatory uncertainty, infrastructure deficits, policy inconsistency, foreign exchange shortages, and customs inefficiency.
Regulatory uncertainty and inconsistent policies weaken investors’ confidence in Nigeria. For instance, the Securities and Exchange Commission (SEC) moved to incorporate blockchain and virtual assets into Nigeria’s capital market in 2020, piquing the interest of cryptocurrency enthusiasts. However, the Central Bank of Nigeria (CBN) gave a contrary directive in 2021 by directing financial institutions to cease cryptocurrency exchanges and close connected accounts, further undermining investor confidence.
Lifting the bans on cryptocurrency and imported items
I recall when the CBN prohibited banks from engaging in crypto-related transactions in 2021, citing concerns about terrorism financing and money laundering. The Central Bank of Nigeria recently lifted a two-year ban on cryptocurrency transactions, but they have upgraded the customer KYC and anti-money laundering regulations. The reversal signifies a renewed CBN’s positive outlook towards digital currency assets.
The new guidelines require banks to get the bank verification number (BVN) of CEOs and owners of crypto businesses they are serving. Additionally, cryptocurrency companies must obtain a licence from the Securities Exchange Commission (SEC), Nigeria’s capital markets regulator.
Similarly, after eight years, the Central Bank of Nigeria (CBN) lifted the foreign exchange restrictions on the importers of 43 items. In a circular published in June 2015, the CBN listed these goods and services as ineligible for foreign exchange in the official exchange market.
The ban forced importers to seek foreign exchange in the parallel market, which increased pressure and demand for forex in the unauthorised parallel window. This contributed to the higher costs of goods. The restriction removal will reduce the pressure on the Naira and grant producers access to cheaper imported inputs and retail products.
Infrastructural Deficits and Economic Investment
While the current administration is busy scouting for foreign investors, signing investment MOUs and business deals, Nigeria should also prioritise its infrastructure, develop its transportation sector with the development of inland waterways for domestic cargo transfers and navigation on the lower River Niger. 80% of the paved Nigerian roads have expired. And even though the government has increased investment in rail projects, many economic corridors across the geopolitical zones are yet to be connected by rail.
Epileptic power supply hovers around 5000MW, which hinders widespread economic development. As a result, it forces most businesses to generate a significant portion of their electricity. Manufacturers spent about N60.4 billion on alternative energy sources in the first half of 2023. However, recent reforms in the power sector, a departure from centralization, have opened opportunities for private sector investment and now allow state governments to invest across the power value chain. This has created more opportunities for public-private partnerships in the power sector. Nonetheless, Nigeria’s underdeveloped power sector continues to impede broad-based economic growth.
Lagos Ports of Apapa and Tin Can Island accounted for N10.83tn (89.9%) of Nigeria’s total trade in the first quarter of 2023. Despite that, due to the limited space at the ports, ships experience extensive waiting times. This significantly impedes trade. Importers undergo lengthy clearance procedures, high berthing and unloading costs, and widespread corruption. Freight forwarders often bribe customs agents and port officials to expedite clearance through the NPA and NCS. The new Lekki deep seaport, the first deep sea port built to handle 2.5 million TEU capacity vessels, is expected to decongest Apapa and Tin Can Island operations.
To remove trade barriers and give confidence to investors and exporters, the government must collaborate with the private sector and stakeholders to develop effective trade policies. They can achieve this through regular dialogue with industry associations that can provide valuable recommendations to policymakers.
As a signatory to the African Continental Free Trade Agreement (AfCFTA) agreement, Nigeria must address trade barriers, enhance security, and lift border closures. As a key player in Africa, we cannot and must not be left behind in implementing the AfCFTA agreement–which aims to unite a fragmented Africa into an integrated free-trade area.
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