How ECOWAS Trade Pact Undermines Nigeria’s Economy

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Apart from poorly thought out tariffs and fiscal policies as the well documented poor operational efficiency in Nigerian ports, the issue that has dominated stakeholders' discuss is the serial abuse of the ETLS protocol via state policy by some ECOWAS neighbours and the need to evaluate the relevance of the protocol.  Okey Ibeke and Pius Mordi captures the dynamics of economic planners in Nigeria.

Lining up in a convoy, the 12 trailers loaded with fruit juice headed towards Seme border post, the final gateway to unleashing the product into the huge Nigerian economy. At the Customs post on the Nigerian side, the operatives examined the hundreds of cartons of the freshly packed goods labeled 'Made in Ghana'. And after due evaluation of the accompanying documents, the convoy of 12 trailers was allowed in even though the importation of fruit juice into Nigeria is prohibited.

Under the ECOWAS Trade Liberalization Scheme (ETLS), goods made in any country within the sub-region are not affected by the federal government's ban on importation. With the payment of a 0.5 percent levy on the accessed value of the consignment, such goods are legally allowed into the country.

It was the culmination of a journey that began weeks earlier. The consignment of fruit juice was not made in Ghana and the government there did not authorise the transaction. Rather, it is a time-tested successful strategy used by unscrupulous businessmen mainly of Asian origin, led by the Lebanese, Chinese and Indians, to circumvent the noble intentions of the ETLS. These business people have found in the authorities in Benin republic and its strategic deep seaport in Cotonou a safe outpost for their scheme of undermining Nigeria's economy and reaping stupendous profits.

Concentrating mainly on consumables, including those not under prohibition, they import large consignments through Cotonou Port. With facilities within the port axis and active connivance of the government of the Republic of Benin, the importers repackage the goods with fresh labels falsely indicating they were manufactured in any ECOWAS country, Ghana and Cote d'Ivoire being their preferred choice.

The goods are then loaded on trucks and driven into Nigeria as goods that qualify for special treatment until the ETLS protocol.

The said consignment of fruit juice was, of course, not made in any country within the Economic Community of West African States trade zone. The businessmen were merely taking advantage of a protocol adopted in a trade liberalisation scheme in 1979. That year, the ECOWAS had adopted the ETLS as a main operational tool for promoting the West Africa region as a Free Trade Area.

When the scheme was initially adopted, only agricultural, artisanal handicrafts and unprocessed products were covered. However, in 1990 further agreement was reached and industrial products were approved to take part in the scheme with a caveat.

Under its rule of origin, only industrial goods with at least 60 percent local content or 30 percent value added goods could benefit from the 0.5 percent levy that effectively eliminated import duties.

In the spirit of the ECOWAS protocol, while Nigeria evolved policies to prop up the fortunes of her real sector, she always exempted goods covered under the ETLS. Thus, when tariffs are reviewed to discourage the importation of luxury goods or the goods local manufacturers are adequately producing, the federal government usually exempts goods deemed to have been made by any ECOWAS member country by retaining the payment of just 0.5 percent levy as stipulated by the protocol.

Similarly, even when an outright ban is imposed on any product, the Nigerian government always ensured that any good labeled as made in the sub-region gets special treatment stipulated under the ETLS.

Pix 1: High Table of the Town Hall meeting held by Business and Maritime West Africa

However, the protocol has been serially abused by some members of the foreign business community, mainly Asians, in active collaboration with Nigeria's neighbours leading to exposure of locally manufacturing companies to unfair competition and huge loss of revenue on waived duties.

The desperate desire to avoid paying requisite import duties and other taxes prompted them to resort to importing goods through neighbouring countries where they are repackaged as made in the sub-region and ferried into Nigeria through the land borders. In effect, Nigeria has been incurring huge revenue losses through the abuse of the protocol characterised by unpaid import duties while local manufacturers are closing down due to large scale smuggling.

 

BENIN REPUBLIC AS A 'SMUGGLING HUB'

With an area of 112,622 square kilometres, the Republic of Benin has a population of 10 million people and shares a long stretch of borders with Nigeria on the west. Benin's coastline is just 121km but is blessed with a deep sea port in Cotonou, its economic capital.

Pix 2: President Boni Yayi of Benin

In a recent report on the francophone country, Reuters described Benin as a "warehouse state" because it acts as a smuggling hub for goods bound for Nigeria. According to the World Bank, smuggling is big business in Benin, accounting for 20 percent of Gross Domestic Product (GDP). But on paper, there is little trace of the trade. The government of Benin officially records Nigeria-bound imports as being for domestic consumption, the International Monetary Fund (IMF) said in another report. But in reality, more than 80 percent of the goods entering Benin are ultimately re-exported to Nigeria.

Elaborating on the adoption of under hand tactics to undermine Nigeria as a state policy, Reuters stated in a report published in March 2017: "This (deceptive classification of imports) has the advantage of concealing the scale of the business from Nigeria, which has accused Benin officials of undermining its laws. It also allows Benin to collect VAT and other fees on the imported goods.

"Officials turn a blind eye to secret canal networks dug to ship goods across the lakes and lagoons of the border region, as well as the bribes sometimes paid to let them through, residents say. They do the same for cheap Nigerian fuel coming the other way, often ferried into Benin in jerrycans on small canoes."

Pix 3: Custom inspecting bags of imported rice

Also in a recent report, the World Bank put the value of goods smuggled into Nigeria through Benin at over $5 billion yearly. Calling the situation a "headache" for Nigerian authorities, the bank also says the loss in customs revenue from the figure is over $400 million annually.

While Nigeria provided the major market for used cars, Cotonou Port accounted for majority of the traffic. Using a well structured arrangement anchored on very low tax on imported cars and demurrage-free huge parking lots, vehicle dealers have set up lots where thousands of cars are warehoused and Nigerians throng to buy cars at lower costs.

Indeed, Benin Republic encourages Nigerian importers to route their cars through Cotonou and designate them as transit goods destined for any of the land-locked neighbours as the final destination. With such legal cover, no import duty is paid or demanded on such vehicles apart from some statutory handling charges. While transit goods are supposed to be escorted under Customs bond to the border posts of the country of final destination in accordance with international law, no such thing is done for the cars by the Benin authorities who are safe in the knowledge that the cars will be moved to Nigeria.

The amount collected on each car in Benin is minimal but given the high traffic, the revenue is tremendous enough to keep oiling their economy. The recession in Nigeria has taken a huge toll on Benin's economy. Until last year, up to 35,000 vehicles were sold every month in Cotonou, but they now barely sell 3,000 units.

A similar scenario also played out in the case of rice, a staple in Nigeria. According to figures from the Thailand Farmers Association, there has been an exponential increase in the importation of rice into Benin Republic from Thailand at just about the period Nigeria banned the importation of the produce. In 2016, over 1,421,050 tons were shipped into Benin compared with the 805,765 tons received by the country in 2015. This represents an increase of 45.3 percent.

Remarkably,  rice importation from Thailand into Nigeria had a diametrical relationship with that of Benin Republic, crashing by 91 percent from the 2015 record of 644,131 tons to just 58,260 tons at the end of 2016.

Coming at a period that the federal government enforced policies to curtail rice importation,  a policy backed by the Central Bank of Nigeria's denial of foreign exchange allocation to fund rice importation, government's worst fears of a concerted collaboration between unscrupulous businessmen and Beninoise authorities to scuttle the enhanced local rice production programme may have been confirmed.

Reuters called it a state policy of "secretly re-exporting goods it has not produced."

 

ETLS AND THE RULES OF ORIGIN

One of the protocols following the founding of the Economic Community of West African States (ECOWAS) is the Trade Liberalisation Scheme (ETLS). This protocol which was adopted to boost intra-regional trade stipulates a token 0.5 percent tax on goods manufactured in any ECOWAS country.

In 1979 when the scheme was adopted, only agricultural, artisanal handicrafts and unprocessed products were covered. However, in 1990 further agreement was reached and industrial products was approved to take part in the scheme with a caveat.

With industrial products being accepted, it became imperative to define what products were “originating” from the ETLS region. The rules of origin which guide this concept are defined in the ECOWAS protocol A/P1/1/03 of January 31, 2003. It defines out originating products as follows:

 

  • Wholly produced goods;
  • Goods whose raw materials completely originate from the region;
  • Goods which are not wholly produced but their production requires the exclusive use of materials which are to be classified under a different tariff sub-heading from that of the product;
  • Goods which are not wholly produced but their production requires the use of materials which have received a value added of at least 30 percent of the ex-factory price of the finished goods.

However, goods manufactured in free zones or special economic schemes involving suspension or partial or total exemption of entrance fees do not qualify for originating products status.

 

RESETTING ETLS

At the Town Hall Meeting on Cargo Handling and Port Charges organised by Business and Maritime West Africa, stakeholders took turns to rip into the ETLS protocol. Okey Ibeke, publisher of the magazine, set the tone in his welcome address. He contended that the protocol has been serially abused by Nigeria's neighbours leading to the exposure of local manufacturing companies to unfair competition and huge loss of revenue on waived duties.

Ibeke said some foreign traders have compromised the protocol to avoid paying requisite charges by importing goods through neighbouring countries where they are repackaged as made in the sub-region and ferried into Nigeria through the land borders. Noting that the enforcement of the minimum requirements for determining the products to be covered by the ETLS is no longer observed, Ibeke said Nigeria is incurring huge revenue losses through the abuse of the protocol while local manufacturers are closing down.

According to him, playing the big brother role or being a good neighbour should not amount to condoning unfair trade practices by her neighbours. Rather,  it is incumbent on Nigeria to ensure that the spirit of the protocols designed to boost regional trade are not undermined through dubious application of the rules of origin.

In the communique at the end of the Town Hall meeting, the federal government was enjoined to review and evaluate the ETLS protocol with a view to determining if it is still relevant to Nigeria's developmental road map. In effect, the stakeholders unanimously affirmed that ETLS has become counter productive as the country's neighbours, especially the Republic of Benin, have failed to keep faith with the spirit of the trade bloc.

 

CURBING ARBITRARY PORT AND CARGO HANDLING CHARGES

Chronic cargo congestion,  a convoluted clearing process, high tariffs,  inconsistent and unpredictable prohibition list, a galaxy of security agencies with ill-defined roles as well as numerous and astronomical shipping and port charges have become the hallmark of Nigerian ports.

A combination of these factors have effectively diminished the status and potentials of the ports to the point where while the country accounts for more than 60 percent of the goods shipped into the ECOWAS trade bloc, a large part of the goods are discharged in ports in neighbouring countries.

It was the desire to evolve a discernible strategy to reverse the trend that inspired Business and Maritime West Africa to hold a one-day Town Hall Meeting on Cargo Handling and Port Charges on March 8, 2017 in Lagos.

From shipping operators, policy makers, regulatory agencies, terminal operators, freight forwarders, banks and all stakeholders were all on hand to dispassionately evaluate the state of the industry and the issues that kept it from realising its potentials.

 

ABSENCE OF TRANSPORT POLICY  

The communiqué brought to the fore Nigerias lack of a coherent transport policy which, among others, could support the shipping industry and its operations to ensure the desired growth. The forum observed that prior to ports concession, there was no economic regulator to check the activities of operators, including the concessionaires. When the Nigerian Shippers' Council was appointed as one, she was not availed necessary legal instruments giving her strong powers to regulate as expected.  Consequently, services at Nigerian ports have not been competitive; concessionaires have formed cartels whereby uniform charges are adopted while they collectively work to resist regulation by any government agency.

The town hall resolved that pending the establishment of the proposed National Transport Commission or an appropriate regulatory authority, the federal government should set up an ad-hoc committee to verify and harmonize the current cargo handling practices and charges which is the main reason for legal hostilities between the terminal operators and the NSC.

Decayed infrastructure has made efficient cargo handling difficult and expensive. This is manifested in the deplorable condition of roads leading to the ports. Concessionaires often cite this factor as one of the reasons they routinely increase charges because they experience low patronage.

Pix 4: Hassan Bello, ES, NSC

It is no longer news that the increase in human and vehicular traffic in Apapa, home to the Lagos Port Complex (LPC) and Tin-Can Island Port Complex (TCIPC), has made the area very challenging for business. Since ports concession 10 years ago, road haulage operators have been finding it extremely challenging operating in a system that made no provisions for parking lots and holding bays for their trucks.

Pix 5: Hadiza Usman, NPA MD

Thus, they have now converted available ports access link into permanent parks thereby constituting serious menace to other road users. In its resolution, the town hall highlighted the challenges the deplorable condition of road arteries linking Apapa community to the seaports pose to the evacuation of cargoes from the two ports. The forum called on the Federal Ministry of Works, Housing and Power to urgently fix all dilapidated ports access roads to ease the inflow and exit of cargo from the ports.

 

UNENDING LITIGATION: NIGERIAN SHIPPERS COUNCIL vs SOME OPERATORS

 The Nigerian Shippers Council (NSC), the ports economic regulator, has been at daggers- drawn with some port concessionaires over arbitrary terminal charges and obsolete equipment. The federal government and the national assembly have so far remained nonchalant even in the face of flagrant disregard by some powerful interests of the immense powers of the regulator. The authority of the regulator is being trampled upon in a manner that apparently questions governments wisdom and authority.

The Town Hall declared that the NSC possesses the capacity to monitor, regulate and enforce compliance with all the rules guiding port operations including terminal and cargo handling charges. But lingering litigation between her and some operators appear to clip her wings, thus making her appear like a toothless bulldog.

Making this public at the forum, Mr Hassan Bello, Executive Secretary of the Council declared: "You and I live in Nigeria. You know our peculiar problems. We have sound-minded people; people who are ready to push the mandate the government has given to them. But our hands are tied".

Bello, who was represented by Mrs. Celine Ifeora, the agency’s Assistant Director, Compliance, Monitoring and Enforcement, was reacting to accusations by stakeholders that the agency lacks capacity to enforce regulations and sanction operators who flout laid-down rules.

The Executive Secretary said that when the Council was mandated to carry out the responsibility of an economic regulator, it immediately went into wide consultations with stakeholders just to get them buy into the agenda.

At that time, the council noticed that there were certain issues that must be tackled immediately. Series of meetings were held with stakeholders during which agreements were reached.

But the effort of the council to execute its mandate was scuttled when the port concessionaires and shipping companies dragged her to court thereby putting a wedge to the momentum to bring sanity to port operations.

Beside the council, the litigation also involved the President of Nigeria, Minister of Transportation, Minister of Justice and Attorney-General of the Federation, he said.

The Executive Secretary admitted that the council is aware of arbitrary increase in various charges by terminal operators and shipping companies but the court cases are hindering her from intervening. But we have told the court that some charges are illegal.

On the ongoing litigation, he said, the council won the first case in which the court awarded about N3 trillion against the terminal operators and shipping companies.

This huge amount, he said, is the estimated excess charge the operators have collected from Nigerian importers over time. Bello said that the fund would be given back to the shippers at the final resolution of the court cases.

 

FREIGHT FORWARDERS KICK, ISSUE ULTIMATUM

Observers say meeting one-on-one at a forum such as the town hall would have provided a platform for contending parties to freely ventilate ideas on the issues at stake. This would, perhaps, engender better understanding of the issues.

Already, freight forwarders and licensed customs agents are threatening to withdraw their services from the ports to protest the lingering court case between STOAN and shipping line agencies on one hand and the Shippers Council on the other. Reacting to the challenges confronting the Nigerian Shippers Council, National President of the Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu announced that freight forwarding associations and licensed customs groups would be forced to withdraw their services if the present court case continues.

Apparently condemning the scanty presence of government officials who ought to be at the event to hear the matter first-hand Shittu said "we are highly disappointed with the government and other agencies that have anything to do in the ports because in our discussions today, it is like we are helpless.  Even though he sympathized with the Nigerian Shippers Council for inability to address the issue of arbitrary charges owing to the litigation involving her and the terminal operators and shipping lines, he insisted it is not an excuse.

"We are going to do something about it; let me inform you that irrespective of the way you perceive freight forwarders and the discordant tunes coming from anywhere, we have decided to work together.  ANLCA, NAGAFF, NCMDLCA, Save Nigeria Group and others will have no option but to withdraw our services. Enough of this corruption!  When we withdraw our services from the ports and operations grounded, then we will know how many ships will be seen at the ports", he threatened. He said customs brokers and freight forwarders had waited in vain for months for the Shippers Council to intervene and reverse the charges, adding that agents should not be blamed when they down tools and close down the ports.

According to him, it was discouraging that the government agency which should call the stakeholders involved in the illegal tariff hike to order, had refused to do so on the grounds that there was a case in court against the shipping companies agents and the terminal operators over some increase in their charges in the past.

Some of the illegal charges, according to him, included shipping dues, departing charges, facility charge and others.

Shipping companies and terminal operators are ripping us off, charging all manner of fees. They believe Nigeria is big and they can get all the money they want from the country to service other nations in the West African region. We have it on good authority that what shipping companies get from Nigeria is what they rely on for survival because of the next-to-nothing charges they get from other countries in Africa.

Again, the demurrage they are charging in Nigeria, they don’t have the facilities to support it. They are required to have holding bays. It does not matter if the fault is theirs or not, you are still charged demurrage. Their charge is the cause of the high cost of doing business at the port and this is affecting the Nigerian economy, the ANLCA boss said.

But on a different note, Chief Boniface Aniebonam, founder of the National Association of Government Approved Freight Forwarders (NAGAFF), argued that the Shippers Council is not a toothless bulldog as being said.

Aniebonam stated that the best approach the council would have adopted should have been that of a criminal case and not civil.

"The approach on the case with the concessionaires which is in a civil court has led to the delay".

Pix 6: Roro Port, Tincan, Lagos

He stressed that government has the duty of protecting investments of foreigners and Nigerians. 

However, the Lagos Chamber of Commerce and Industry (LCCI) opined that the litigation between the council and the concessionaires poses a serious setback to port operations.

While speaking at the event, Dr. Ikenna Nwosu who represented the director-general of LCCI stressed the need for the council and the service providers to sit on a round table to address issues of port charges and avoid a resort to the court.

PERSPECTIVES ON DECAYING PORTS INFRASTRUCTURES

Beside obsolete equipment in use in many terminals, the Nigeria Customs Service continues to receive knocks for failing to provide functional scanners to boost trade facilitation at the ports as recently illustrated by its operatives' failure to intercept a large cache of arms and ammunitions imported through the Apapa Port.
The inability to achieve the 48-hour cargo clearance from the ports obviously is another reason shippers divert their consignments to neighbouring ports.

At the town hall meeting, the Nigerian Shippers' Council and Nigerian Ports Authority (NPA) took turns to blame the customs for the delay in providing functional scanners at the ports for effective and efficient examination. 

Both agencies advised the service to acquire scanners in order to up its standard for achieving 48-hours cargo clearance and trade facilitation.

 Joshua Asanga, NPA’s General Manager, Marine and Operations, appealed to the Customs to provide required scanners at designated positions in the seaports for easy examination.

According to him, many containers at Nigerian ports undergo physical examination thereby hampering trade facilitation.

 Asanga stressed the need for Nigerian ports to be competitive, saying that the service embarks on 70 percent physical examination and 30% scanning at the ports. However, he affirmed that the service is “on top of the game".

Similarly, Mrs. Celine Ifeora of the Nigerian Shippers Council accused the service for failing to acquire scanners for personnel to discharge their jobs diligently and effectively. 

Ifeora said "supposing the scanners are functional at the ports, I don't think the 661 arms would exit the port like that without being noticed.

 She regretted that the presence of decaying scanning machines at the seaports are some of the challenges faced in the industry and called on the service to do the needful by providing the right equipment for officers. 

Participants at the town hall included Mrs. Margaret Onyema-Orakwusi, Chairperson, Nigerian Shippers Forum; the Executive Secretary of the Nigerian Shippers Council (NSC), Mr. Hassan Bello, represented by Assistant Director, Compliance Monitoring Division, Mrs. Celine Ifeora; the Managing Director of the Nigerian Ports Authority (NPA), Ms. Hadiza Bala Usman, represented by the General Manager, Marine and Operations, Mr. Joshua Asanga.

Others are the Director-General, Nigerian Maritime Administration and Safety Agency (NIMASA), Dr. Dakuku Peterside, represented by the Director of Shipping Development, Mr. Anthony Ogadi;  the Chairman, Corporate Affairs and Strategic Planning, Manufacturers Association of Nigeria (MAN), Mr. John Aluya; Deputy Comptroller A.Y. Idris who represented the Comptroller- General of Nigeria Customs Service (NCS); member of the Lagos Chamber of Commerce and Industry (LCCI) Clearing and Forwarding Trade Group, Dr. Ikenna Nwosu.

Also among the participants are the national president, Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu; the founder of the National Association of Government Approved Freight Forwarders (NAGAFF), Dr. Boniface Aniebonam;  Director of Special Duties in the office of NIMASA Director-General, Hajiya Lami Tumaka; the Assistant Secretary-General of the Nigerian Mariners Association (NMA), Rear Admiral Godswill Ombo (rtd); and the ANLCA Women leader, Hajiya Bola Muse, among others. 

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