ECOWAS Tariff takes off as Manufacturing Suffers

Thirty-eight days into the implementation of the Common External Tariff (CET), Nigeria’s manufacturing sector is beginning to feel the pinch as the new regime makes imported finished products cheaper than locally manufactured goods.

 

Currently, local drug manufacturers who import raw materials for domestic production pay as much as 20 percent duty, while importers of finished products from other countries pay no duty.

Consequently,  Nigeria’s drug producers are mulling increasing the prices of their products by as much as 15 percent. This could however work against them, as such price increases will likely shift demand to the cheaper imported products.

This exposes the country to the influx of fake and substandard products, while threatening to shut down the country’s 150 drug firms and throw one million Nigerians currently engaged in the industry into the labour market.

It also threatens to kill over N300 billion investments made in the pharmaceutical industry.

“This undoubtedly spells doom for the local industry,” said Okey Akpa, chairman, Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN) in Lagos.

“The lack of demand for locally manufactured medicines as a result of cheap imports will lead to idle capacity and will negatively impact previous investments in the sector, worth over N300 billion,” Akpa said.

Steve Onya, managing director/CEO, Chi Pharmaceuticals, said  the Federal Government should protect local industries by reversing the tariff structure and imposing tariff on imported products to avoid closure of over 150 drug makers, stressing that there is no place in the world where inefficiency is rewarded.

The CET, a regional trade agreement among the 15 countries of the Economic Community of West African States (ECOWAS), targeting uniformity in the tariff system and seamless trade across the borders of the region, began last month.

The regime has lifted ban on textiles and furniture, which were hitherto contraband, thus opening the gate to the flooding of Nigerian markets with imported textiles and furniture.

The regime puts fewer than 12 surviving textile firms such as African Textile Manufacturers Limited, Angel Spinning and Dyeing Limited, Spinners, Adhama Textiles, Tofa Textiles Limited and Lakhi Textiles, in jeopardy. It thus threatens to throw many in the job market in an economy where one out of every four persons is jobless. 

“CET is taking a lot of market from local producers,” Paul Jaiyeola Olarewaju, director-general, Nigeria Textile Manufacturers Association (NTMAN) said in an interview with BusinessDay.

“But we were part of the discussions and we prescribed 35 percent duty, 10 percent levy and five percent Value Added Tax. We felt this was enough because anything more than this could lead to smuggling again. Despite being part of it, it is still taking a lot of market from us,” Olarewaju said.

Analysts say with the current regime, investors are already shying away from some captive sectors such as paint, vanishes, cosmetics/toiletries, ceramics, carpets and rugs, among others.

“Some investors I have interacted with see the regional policy as unfavourable to some of these sectors. Before CET, they were still few or no activities in these sectors. But with CET, importing these products may now be cheaper.

“ What it simply means is that investing in them, to some, may not be as profitable as it would have been without CET. But this is still too early to say,” Ike Ibeabuchi, CEO, MD Services, said on the telephone.

ome manufacturers say every cloud has a silver lining, stressing that CET is also advantageous to Nigeria, as there is much to gain from regional trade.

“We have been part of CET. We believe we have to be part of ECOWAS,” Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN) told BusinessDay.

“The one we are watching closely is the Economic Partnership Agreement (EPA), because we know that it will kill our industries. Our levels of technologies are not the same. We have written to the government on that and we believe they will carry us along,” Jacobs said of the EPA, which is being pursued by the European Commission with a view to opening its borders for West Africa and vice versa.