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Economic Follies of Duty Waivers
By Thompson Ayodele
Nigerian government has vigorously pursued economic
policies aimed at liberalising the economy, promoting
competition and investments. These are done through a
lot of policy reforms. While some of these reforms have
been carefully adhered to, others got derailed midway or
pursued half-heartedly.
The last administration embarked on ambitious reforms.
Initially they were meant to inject life into the
Nigeria ’s comatose economy. However, this
administration at inception, opened a can of worms,
which revealed that close friends and business
associates of the last administration must have
benefited more from these reforms than majority of
Nigerians who the reforms widely proclaimed, were meant
to ameliorate their level of poverty.
Last year, the Federal Government came with a bombshell.
It suspended various exemptions from duties and tariffs
granted certain individuals, organisations and
governments. Initially, the intention of granting those
concessions was primarily to encourage local
manufacturers who cannot cope with the increase in
number of imported goods.
Rather than helping the so-called local industries, the
concession was used at the detriment of the economy in
general. Between 2003 and 2007, about N258 billion was
lost to the concessions, which did not either increase
capacity of local industries or improve the quality of
goods that were produced, a key reason the concession
was granted in the first place. If carefully used for
the purpose it was meant, for instance, duty waiver for
farming machineries would go a long way in improving
agricultural outputs.
Again, duty waiver on imported building materials would
help in reducing problems of shelter and housing. The
selective issuance of waivers has greatly hindered
competition, a vital component for which the reforms
were embarked on. How many firms would be able to
compete with companies that enjoy waivers on imported
items?
The results are predictable: In the first place, the
market economy that government is trying to build would
be distorted and bastardised. Secondly, benefits that
consumers are expected to enjoy, as a result of
competitive economy would be denied. At best, consumers
will be left at the mercy of the monopolists and various
cartels, thereby creating rooms for uneven and
unfriendly condition.
According to Aliko Dangote, President of Dangote Group,
import waivers granted by the previous administration
were used to import items sell and not for projects for
which they were specifically meant.
What this implies is that the waivers were fraudulently
used. No economy would develop when there is a specific
policy for certain categories of people. In fact, it is
double jeopardy for some firms, who after paying all the
necessary duties, are still faced with multiple taxes
and crippling infrastructure.
What is more worrisome is that the waivers benefited few
people whose activities did not contribute in anyway to
the economy. What the concession simply did is to
further endanger the momentum towards a more competitive
economy. No doubt the waivers have been grossly
misplaced and abused by the “bigmen in the system .
What can be deduced from the granting of the waivers is
that duties, levies and tariffs are unnecessarily high.
If they are low, then there will be no need for anyone
to swing his links and contacts to seek for waivers.
The public policy implication of high duties and tariffs
is that it would encourage those well connected to seek
one form of waiver or the other. This no doubt calls for
the need to review the current duties and tariffs.
The advantage of low duties is of three folds. First, it
would discourage importers from seeking of concessions.
Secondly, it would stem under-invoicing that has clearly
characterised imported items and discourage smuggling,
which is so prevalent within our land borders.
It is not enough for the present administration to
simply order the suspension of the duties waiver, in as
much as those who benefited from the concession do not
contribute meaningfully to the economy, they would be
treated as economic saboteurs and be made to refund the
revenue they illegally siphoned out of the national
purse.
We might risk a repeat of the illegal action, if those
responsible are not sanctioned. The first step towards
this is that the beneficiaries’ accounts must be
audited, to actually determine the amount they would
refund. It is a misnomer if policy-makers think that the
best way to revive local industries is through granting
of waivers and other forms of concession.
The urgent item that needs critical attention is the
need to ensure that deteriorating infrastructure are
fixed in all the local industries across the land. On
the long run, this will give them room to showcase their
capabilities of propelling the economy to a sustainable
height.
However, as long as local industries pay for their
security, water supply and power generation, no amount
of protection or concession can enable them to compete
favourably with their foreign counterparts, in terms of
producing cheap and quality products and services.
Granting waivers to a few favoured friends and denying a
large number of people who can contribute significantly
to the economy is a lesson on how not to develop.
Obviously, this should not be the habit of a country
like Nigeria, which aspires to meet the MDGs. The
long-term implication is that it would further distort
economic performance. Many companies, rather than being
innovative and alert to other economic opportunities,
prefered one form of protection and other inward looking
policies.
*Ayodele is the Executive Director of Initiative for
Public Policy
Analysis based in Lagos.
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