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Tinubu’s policy reforms and the maritime industry 13 Jul 2023

On 29 May 2023, President Bola Ahmed Tinubu assumed office. His tenure, as the 5th President and Commander-in-Chief since the Fourth Republic, commenced with swift introduction of some stringent economic policies. These include the removal of petrol subsidies and reversion to a market exchange rate system. The policies have met limited applause. They have also generated serious concerns due to their immediate negative impacts on the general price level, and, therefore, the welfare of the populace.

Undoubtedly, the policies have unleashed a wave of consequences that have left many Nigerians struggling to survive in an already very stressed environment. The policies, which were aimed at addressing long-term economic challenges, have proven to be a double-edged sword. One side is already cutting very deeply into the welfare of the people, while the other is looking blunt in the short-term.

The maritime industry has been directly affected by these policy decisions, particularly the foreign exchange reform. In collaboration with the Nigeria Customs Service (NCS), the Central Bank of Nigeria (CBN) has implemented a 40 percent hike in the exchange rate utilised for the calculation of import duty. On Saturday, 24 June 2023, the NCS announced this big adjustment, raising the exchange rate for import duty taxes from N422.30 per dollar to N589 per dollar. The effect of this is currently reverberating in the maritime sector, raising concerns amongst the stakeholders.

Clearing agents, freight forwarders, and importers have united in demanding an immediate reversal of the new exchange rate. Some of its feared repercussions include job losses and a sharp decline in the importation of vehicles. Should these concerns materialise, they will affect business activities and hinder the growth of the Nigerian economy. Outside the industry, many economists have also criticised the policy, warning that they will erode the well-being of Nigerians.

In the meantime, the Federal Government of Nigeria (FGN) has approved the reopening of the Seme land border with Benin Republic for the importation of vehicles. This reverses the policy of the last administration on the closure of the boarder – and every other land boarder – in an attempt to force its import substitution policy.

As should be expected, the decision to lift the border closure policy, particularly regarding vehicle importation through neighbouring countries, has garnered support from the Economic Community of West African States (ECOWAS). This move is seen as an alignment with ECOWAS' objective of enhancing trade among member states within the region. To foster collaboration and explore the potential benefits of this recent development, ECOWAS organised a meeting between officials from Nigeria and Benin Republic.

The meeting featured broad deliberations on ways to optimise the mutual benefits derivable from the policy change. Both countries aimed to improve trade relations, enhance broader economic cooperation, and identify strategies for harnessing potential opportunities arising from the reopened borders. The meeting served as a platform to strengthen bilateral ties and reinforce the spirit of regional integration among the two West African countries.

The reopening of the Seme border is expected to dilute the negative impacts of the new exchange rate by the CBN. Importers are going to grapple with increased costs of bringing vehicles into the country. As a consequence, there is likely to be a decline in demand as vehicle buyers struggle with the transfer of the higher import duties to them, in the form of higher vehicle prices.

But there is likely to be a notable increase in competition as importers now have access to a wider range of vehicle sources. The increased interplay of market dynamics will also provide consumers with more options and potentially lower prices.

One other potential gain is improvement in regulatory compliance. Competition between the Nigerian sea ports and the Seme land border should engender more efficiency by improving quality standards, safety practices, and documentation processes. Importers and their agents would have to comply with the regulations to avoid penalties or disruptions to their import activities.

It is important to note in general that the specific outcome for importers would depend on a multitude of factors, including market conditions, consumer behaviour, allied government policies, and global economic trends. Importers will need to carefully assess these factors and adapt their strategies accordingly, in order to successfully navigate the changing landscape.

In addition to the importation of vehicles, the impact of the policy changes extends to all other imported goods, ranging from textiles to machinery and consumables. While President Tinubu has demonstrated a strong determination to address the economic challenges that have been plaguing Nigeria for decades, we are now confronted with the harsh reality of lack of absorptive capacity for the economic shocks.

The impacts of the policy changes will be felt across various sectors that heavily rely on imported primary or finished goods. From the textile industry, which sources materials from abroad, to businesses that require imported machinery and everyday consumer goods, the implications of the new policies would be quite noticeable. Despite the President's evident commitment to addressing economic issues, these challenges highlight how deep-rooted, and how widespread, are the issues affecting the economy.

Over the years, the dependence on imports has coexisted with a persistent scarcity of dollars and other foreign currencies. Individual and corporate Nigerian entities sources foreign exchange for production inputs, consumer goods, foreign degrees and certifications, medical tourism, etc. But the economy has been predominantly reliant on revenue from crude oil exports. Poor quality of local manufactures, erstwhile CBN's multiple exchange rates, lack of market access, and acute reduction in foreign direct investment (FDI) have worsened dollar scarcity.

But while market policy changes are necessary to reset key sectors of the Nigerian economy, they are not likely to be enough. Even then, sustained and transparent implementation of policy changes have been a challenge in the past. The new government would have to avoid this to ensure that Nigerians are not suffering today for tomorrow that may not materialise. Efforts should be made to deliver the potential benefits of the devaluation of the naira through a significant uptick in non-oil exports. Indeed, significant policy and financing tools must now back the agenda of the diversification of the economy and exports.

Perhaps it is time to end the ritual of basing the annual national budget on assumptions on the country’s production volume and price of crude oil in the international market. A basket of exportable goods – including crude oil – could begin to anchor government’s foreign exchange revenues. The signalling impact of this, quite apart from practical measures to back the policy measure, can be a true gamechanger for the economy.

Nigerians must embrace a new economic thinking and new possibilities. This should be evident in our support for the new government’s policy thrust, especially when a more holistic picture of it has been presented. It has become necessary for us to face the reality that we have unsuccessfully been avoiding. These reforms should compel Nigerians to introspect and explore avenues to boost exports and generally enhance our production capabilities.

Joy Dimka is a Senior Legal Officer at the Nigerian Shippers' Council.