Interview: Olusegun Aganga
How can the country control imports while also decreasing smuggling across its borders?
OLUSEGUN AGANGA: Nigeria has the potential to manufacture many products that are currently being imported. For example, tariff policies support the implementation of the country’s industrial policies by strengthening Nigeria’s manufacturing sector and increasing the contribution of the industrial sector to GDP from 4% to 10% within four years. Appropriate tariffs must be put in place in order to reposition manufacturing in the country.
Contrary to speculation, it is also important to note that tariff differentials do not necessarily lead to smuggling. Any potential rise in underground trade channels depends in large part on the nature of the product and that of the sector, as well as the ability of Nigerian companies to capitalise on support from trade protection policies by ramping up capacity in those sectors. When products are not that easy to transport, or when domestic players scale up their operations significantly, the risk of smuggling is low. In these instances, smuggling is not a significant threat to the sectors in question.
For sectors where smuggling does threaten domestic industries, the Economic Community of West African States (ECOWAS) Common External Tariffs (CET) have been developed to mitigate the threat of underground trade to trade protection policies. The CET will remove most of the tariff differentials that exist between Nigeria and neighbouring countries like Benin. As a result, starting from January 1, 2015, all members of ECOWAS will apply similar tariffs. This move will not only reduce dependence on imports, support industrialisation and augment the economic integration of the region, but also reduce incidents of smuggling. Of course, a few sectors will be carved out from the CET, but these sectors will become easier to enforce too.
What lessons can be learned from Nigeria’s backward integration policy for the cement sector?
AGANGA: The success of the country’s cement industry can be directly attributed to the government’s consistent implementation of the backward integration policy in the sector. This policy, which commenced in 2002, was executed with the private sector’s active collaboration. This successful cooperation between the government and the private sector has led to a steady rise in local production of cement from about 2m tonnes in 2002 to the current installed capacity of about 28m tonnes. In the same vein, the tremendous achievement has translated into an investment of $5.86bn.
The significant increase in the local production of cement has saved Nigeria large amounts of foreign exchange that would otherwise have been spent on importing cement from abroad. It has also helped to create, directly and indirectly, around 1m jobs. Most importantly, the sub-sector has over the last decade constituted the major portion of the manufacturing sector’s contribution to GDP and economic growth.
The Nigerian Industrial Revolution Plan (NIRP) is the flagship industrial repositioning plan of the federal government, developed and implemented by the Federal Ministry of Industry, Trade and Investment (FMITI). Having met national cement demand, the NIRP’s current objective for the cement sub-sector over the next four years is as follows: the promotion of robust cement consumption, the reduction of the price of cement by reducing the cost of cement production and delivery, the promotion of cement exports, improving skills development and innovation, attracting additional investment into the industry, and enhancing the global competitiveness of the players in the sub-sector.
The government, through the FMITI, has replicated the implementation of this strategy within the sugar sub-sector in order to make the nation self-sufficient in the domestic production of sugar cane. Currently, Nigeria produces just 2% of its local consumption of sugar from sugar cane. However, the country has sufficient refining capacity to meet all domestic consumption needs. This strategy is also being modified so that it can be replicated in the automobile, palm oil, iron and steel, and aluminium, sub-sector plans of the NIRP.
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