Nigeria: Trade Facilitation In West Africa: Challenges And Opportunities

Last Updated: 19 December 2018
Article by Oluwasolape Owoyemi

INTRODUCTION

In Africa, regional and economic integration is viewed as a panacea for addressing the continent's economic challenges with the enhanced coordination and coherence to leverage on the continent's population strength and diverse attributes in improving intraregional trade and increasing investment inflow.2 However, the trade performance of sub-Sahara African countries generally, has been disappointing. Currently, Africa's trade regime works against the continent as it trades only 16-18% of its locally manufactured goods with other African countries. 3 Over 80% of Africa's exports are shipped overseas, mainly to the European Union (EU), China and the US. 4 The low intraregional trade coupled with conflicting trade rules, poor transport network, long wait times at borders, cumbersome formalities, and inadequate or unclear rules and regulations, have all become serious obstacles to trade, and as a consequence adversely affect investment, employment and trade-led development. 5

TRADE FACILITATION

Trade facilitation can be defined broadly by quantifying the impact of four different measures, namely: port efficiency, customs environment, regulatory environment and e-business usage.6 In its entirety, trade facilitation involves the reduction of transactional costs associated with institutional trade barriers by streamlining policies and procedures required in conveying goods from one country to another to make trade across borders faster, cheaper and more predictable, whilst ensuring its safety and security. 7 The World Trade Organisation (WTO) further defines trade facilitation as the simplification and harmonization of international trade procedures. 8

CHALLENGES OF TRADE FACILITATION IN WEST AFRICA

Over the years, African countries have acknowledged the importance of trade facilitation and have signed numerous trade facilitation inclusive agreements at bilateral, sub-regional and regional levels,9 however, most of these initiatives, despite being robust and ambitious have yielded very limited benefits. Most West African countries share common trade-facilitationrelated challenges. Some of these challenges include:

High Transport Costs, Poor Roads and Infrastructure

Mobility is sacrosanct for inter-regional trade as it brings communities closer to goods and services. Road transport dominates motorized transport in Africa, accounting for 80 percent of the goods and 90 percent of the region's passenger traffic.10 High transportation costs coupled with poor road and rail infrastructure are one of the major reasons for low competitiveness. Oftentimes the cost of transporting goods across borders is extremely high and traders encounter bureaucratic bottlenecks that cause delays. 11 This also has the effect of increasing the cost of products and reducing shelf life of perishable goods, which lowers their market value. Landlocked West African countries12 also incur multiple high transportation costs due to poor road networks and non-existent railway infrastructure. Due to inefficient rail services there is a heavy reliance on road transportation which is deficient and exposes traders to road harassments and cumbersome border procedures, traffic congestion, and increased road accidents.

Weak National Governance Structures and Poor Institutional Framework

Weak institutions act as significant barriers to trade. Trade transactions are inherently risky due to imperfect contract enforceability that goes along with weak institutional regimes. Poor policy coherence and coordination within West African governments have greatly stalled progress in trade facilitation. This is further compounded by conflicting trade procedures and poor institutional framework to adequately implement policies that will facilitate trade within the sub-region, which also hinders trade liberalization. According to the World Bank, administrative hurdles (for example, customs and tax procedures, clearances and cargo inspections) contribute to 75% of trade facilitation delays. 13 Customs administrations in charge of implementing a country's trade policy at the border are often inefficient and not properly trained. Borders are often poorly managed and marred with excessive documentary requirements, cumbersome customs procedures, outdated customs policies and procedures.14 Nigeria has sought to combat some of these issues by the implementation of the Revised Nigerian Export and Import Guidelines 2017.15

Corruption

Corruption among custom officials is a pervasive problem in Africa. Customs provide one of the most important tools for facilitation of trade procedures. Corruption discourages trade in the African sub-Continent, because it causes traders to pay higher fees on their goods before final clearance. This results in higher priced goods and commodities as traders tend to mark these up to guarantee some profit margin. Facilitation fees also increase the costs of doing business and reduce the credibility of the government.16

Low level Automation in Customs

Lack of automation systems and insignificant use of Information and communication Technologies (ICT) further eliminates transparency in the assessment of duties and taxes, increases clearance periods, and customs unpredictability.

ADVANTAGES AND OPPORTUNITIES OF TRADE FACILITATION

Trade facilitation is becoming more attractive for many African countries due to the need to reduce the costs of doing business and create a conducive environment to enhance investment for economic growth. In the 2018 edition of the World Bank's ease of doing business survey, Nigeria ranked poorly at 145 out of the 190 economies assessed (previous year survey ranked Nigeria at 169). 17 Other West African countries such as Gambia, Burkina Faso, Benin, Togo and Guinea - Bissau ranked 146, 148, 151, 156 and 176 respectively out of 190. Ghana however leads West Africa in ease of doing business, ranking at 120.18 The following are some benefits and opportunities of trade facilitation:

Increased Transparency and Predictability

A more transparent system creates better opportunities for fighting corruption. It introduces faster and more efficient customs procedures that greatly enhance the revenue collection at customs, which is one of the largest sources of income in many African countries. It is important to implement modern and more performant custom instruments that will bring about efficiency, increased transparency and result in predictability.

Improved Security

Trade facilitation can improve security whilst creating opportunities for both the business community and governmental entities. Traders increase productivity through faster delivery and reduced transaction costs. Governments also profit from enhanced revenue collection, increased economic efficiency and augmented predictability in administrative processes and procedures.

Increased Business Opportunity and Growth

Trade facilitation helps countries reduce trade costs and enhances competitiveness in the private sector. Private companies also have a greater chance of success if they are operated in a trade-enabling environment. Regional trade facilitation efforts also attract FDI to small economies and increase the participation and contribution of small and medium scale enterprises (SMEs) in international trade.

Contribute to Development Goals

A broader aim of trade inevitably focuses on sustainable and broad-based economic growth. The expectation is that through trade facilitation, economic growth becomes a catalyst for poverty reduction by creating job and income opportunities.

CONCLUSION

Trade facilitation is a veritable tool for competitive regional trade strategies in Africa and is of paramount importance because it attracts a more stable financial capital and promotes economic activity, employment opportunities, competition, education,19 foreign exchange earnings, technology transfer, income and growth potentials. Overall, in order to ensure full compliance with Trade Facilitation Agreements or programmes, it is important to take into account the political and geographical dynamics of the distinct regions that make up the African continent and ensure reasonable flexibility in the implementation of such policies or programmes to achieve the desired results. For Africa to achieve sustainable socioeconomic development, intraregional trade and integration is inevitable.20 Given the large potential gains to be obtained from improvements in trade facilitation, intraregional trade will enhance development through the aggregation of African countries into one large common market that can deliver economies of scale, improved competitiveness, attract foreign direct investment (FDI) and facilitate poverty reduction in a leveraged and efficient manner.

Footnote

1 Oluwasolape Owoyemi, Associate Intellectual Property and Technology Law department, SPA Ajibade & Co., Lagos

2 J. Onyido, I. Bolu and O. Owoyemi (2018) "Developments in Investments and Intraregional Trade in Africa" available at:http://www.mondaq.com/Nigeria/x/727066/international+trade+investment/Nigeria+Developmen ts+In+Investment+And+Intraregional+Trade+In+Africa accessed 3rd October 2018.

3 https://www.economist.com/middle-east-and-africa/2018/03/22/forty-four-african-countries-sign-afree-trade-deal accessed 3rd October 2018.

4 https://www.un.org/africarenewal/sites/www.un.org.africarenewal/files/Africa_Renewal_August_ 2014_en.pdf accessed 16th November 2018.

5 Trade Facilitation and Development: Driving Trade Competitiveness, Border Agency Effectiveness and Strengthened UNCTAD/DTL/TLB/2016/1. https://unctad.org/en/PublicationsLibrary/dtltlb2016d1_en.pdf accessed 3rd October 2018

6 Wilson, J. S., Mann, C. L. and Otsuki, T. (2005). "Assessing the Benefits of Trade Facilitation: A Global Perspective", World Economy, Vol.28, No.6, pp.841-871.

7 Trade Facilitation – Principles and Benefits :http://tfig.unece.org/details.html accessed 3rd October 2018

8 WTO - https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm

9 For example the WTO Trade Facilitation Agreement (TFA) entered into force on 22 February 2017 and the African Continental Free Trade Agreement (AfCTA).

10 The Transport Situation in Africa, Available at: http://www1.uneca.org/Portals/ctrci/6th/TransportSituation-inAfrica.pdf

11 Ibid

12 Burkina Faso, Mali and Niger

13 World Bank - Doing business in 2006: creating jobs http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB06- FullReport.pdf

14 ATPC - Trade Facilitation http://www1.uneca.org/Portals/atpc/CrossArticle/1/PolicyBriefs/1.pdf

15 http://www.finance.gov.ng/images/docs/AddendumTo2017RevisedImportGuidelines.pdf, http://www.finance.gov.ng/images/docs/ImportGuidelines2013.pdf , http://www.finance.gov.ng/images/docs/EXPORTGUIDELINESNONOIL.pdf , http://www.finance.gov.ng/images/docs/reductionImportExport.pdf

16 Ibid.

17 World Bank Doing Business 2018 - http://www.doingbusiness.org/content/dam/doingBusiness/media/AnnualReports/English/DB2018-Full-Report.pdf

18 Ibid

19 D. Sakyi, J. Villaverde, M. Adolfo, I. Bonuedi (2017) " The Effects of Trade Facilitation on Economic Growth in Africa" African Development Review Vol. 29(2). pp. 350-361.

20 J. Onyido, I. Bolu and O. Owoyemi (2018) "Developments in Investments and Intraregional Trade in Africa" supra, available at: http://www.mondaq.com/Nigeria/x/727066/international+trade+investment/Nigeria+Developments +In+Investment+And+Intraregional+Trade+In+Africa accessed 3rd October 2018.

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