The recent announcement by the Nigeria Customs Service (NCS) to impose a 4% charge on the Free on Board (FOB) value of imports has ignited a firestorm of debate across Nigeria’s business community. While the policy, now temporarily suspended, was ostensibly designed to boost government revenue, its potential to stifle economic growth and undermine Nigeria’s competitiveness in the global market cannot be overlooked.
At the Chartered Institute of Directors (CIoD) Nigeria, we have critically examined the implications of this policy alongside our team of experts. We are compelled to speak out and advocate for its reconsideration. The 4% FOB charge, if implemented, could have far-reaching consequences for Nigeria’s economy, particularly at a time when our nation is striving to recover from economic challenges and position itself as a hub for trade and investment in Africa.
The Implications of the 4% FOB Charge
- Increased Cost of Doing Business
The additional levy will significantly raise the cost of importing raw materials and finished goods. For businesses reliant on imported inputs, this translates to higher production costs, reduced profit margins, and diminished competitiveness. If these costs are passed on to consumers, the result will be higher prices for goods, further straining household budgets. - Stifling Industrial Development
Local industries, particularly those dependent on imported machinery and components, will bear the brunt of this policy. The manufacturing sector, already grappling with infrastructure deficits and high energy costs, will face even greater operational challenges. This move contradicts the government’s promise to reduce the cost of doing business and improve the competitiveness of Nigerian companies. - Inflationary Pressures
The ripple effect of increased production costs will inevitably lead to higher prices for goods and services. This will exacerbate inflationary pressures, further eroding the purchasing power of Nigerians and undermining economic stability. - Impact on Small and Medium Enterprises (SMEs)
SMEs, the backbone of Nigeria’s economy and a critical driver of job creation, will be disproportionately affected. Many of these businesses operate on thin profit margins and lack the financial resilience to absorb additional costs. The 4% FOB charge could force many SMEs to scale down operations or shut down entirely, with dire consequences for employment and economic growth. - Risk of Trade Diversion
Historical precedents suggest that importers may seek alternative routes through neighbouring countries with more favourable trade policies. This could lead to a loss of revenue for Nigeria, as goods are diverted through informal channels, undermining the very objective of the policy. Historical Context and Lessons from International Practice
Nigeria’s history with high import duties and charges has often been marked by unintended consequences, including widespread smuggling and corruption within the customs system. The Structural Adjustment Program (SAP) of the 1980s serves as a stark reminder of how excessive trade barriers can stifle economic growth and discourage foreign investment.
In contrast, countries like Singapore and Ghana have demonstrated the benefits of trade facilitation measures. Singapore’s efficient customs procedures and low tariffs have transformed it into a global trade hub, while Ghana’s reduction of import levies has spurred industrial growth, improved tax compliance, and strengthened the overall economy. These examples underscore the importance of adopting trade policies that encourage investment, boost industrial development, and foster a competitive business environment.
Our Recommendations for Policy Reform
In light of these challenges, we, at the CIoD Nigeria, recommend the following measures:
- Policy Review
The Federal Government should conduct a comprehensive review of the 4% FOB charge, evaluating its long-term implications on trade, industry, and the overall economy. - Targeted Support for Local Industries
Policies should be implemented to support industries reliant on imported inputs, such as duty waivers for key manufacturing sectors. This will help mitigate the impact of the levy and promote industrial growth. - Strengthening Trade Facilitation
Customs procedures should be optimised to reduce bureaucratic bottlenecks and corruption. Greater use of technology can minimise human interface, enhance transparency, and improve efficiency. - Stakeholder Engagement
Continuous dialogue between the government, private sector, and industry stakeholders is essential to develop trade policies that balance revenue generation with economic growth. - Adoption of Best Practices
Nigeria should benchmark its trade policies against international best practices to foster a competitive and inclusive trade environment.
While revenue generation is critical for national development, it should not come at the expense of economic growth and competitiveness. The 4% FOB charge on imports poses significant risks to Nigeria’s industrialisation agenda and economic stability. We urge the Federal Government to reconsider this policy and adopt measures that promote trade, foster industrial growth, and enhance Nigeria’s global competitiveness.
At the Chartered Institute of Directors Nigeria, we remain committed to advancing these initiatives through research, advocacy, and stakeholder engagement. Together, we can help Nigeria achieve its economic goals and build a prosperous future for all.