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Illicit trade damages Nigerian economy


Illicit trade in Nigeria is taking a toll on the economy and the operations of manufacturers.
 
From loss of huge tax revenue and income to the government and manufacturers to damage to long built brand reputation and serious health risks to consumers, illicit trade may have become a hard nut to crack.
 
Experts at a roundtable in Lagos brainstormed on how to curb the trade.
 
CHARLES OKONJI reports.
 
For standards regulatory authorities, revenue generating agencies, consumers and private sector operators, particularly manufacturers, the fear of illicit trade (IT) is, perhaps, the beginning of wisdom.
 
Despite measures so far put in place to halt, or at least minimise the booming trade in the production and distribution of consumer goods that violate the rules and regulations governing the relevant industry and regulatory authorities in Nigeria, IT has refused to abate.
 
Rather, the trade, which covers a wide range of goods and brands, ranging from electronics, apparel, alcoholic drinks to vehicles and auto parts, drugs, arms, pharmaceuticals, cigarettes, counterfeit currencies, as well as humans, appears to have assumed a life of its own, leaving sour taste in the mouths of various stakeholders in the economy.
 
For instance, it has continued to force a reduction or loss of huge tax revenue to the government. Genuine manufacturers and other local businesses are also groaning over the reduction in market share. Many local businesses whose profitability has nosedived as a result, have also been screaming blue murder over the colossal damage foisted on their brand image by the thriving IT.
 
Consumes appear worse hit, as the proliferation of fake and substandard goods have virtually taken over from the genuine ones, posing serious health risks to end users. Because IT thrives in the underground economy, the unwholesome business naturally does not reflect in the country’s Gross Domestic Product (GDP).
 
These must be why experts and economic analysts describe illicit trade, which permeates virtually every product category and industry, as avoidable economic cankerworm, which is not only destroying businesses in the country, but also militating against Nigeria’s economic growth and development.
 
The imperatives of curbing IT
 
Globally, illicit trade accounted for between eight per cent and 15 per cent of global Gross Domestic Product (GDP) valued at $12 trillion in 2015, according to the World Economic Forum.
 
A Senior Research Officer, Initiative for Public Policy Analysis (IPPA), Mr. Olusegun Sotola, also said, according to the United Nations estimate, more than $1billion is illicitly traded in small arms alone in Africa, fuelling the increasing conflict and criminal activities in the region.
 
Sotola, in his opening remarks at a policy roundtable discussion titled: “Business environment & excise duty: Maximising economic opportunities through effective anti-Illicit trade enforcement” said IPPA was of the view that illicit trade was largely policy induced, while tax and tariff, for example, often create perverse incentives for illicit trade.
 
He explained that the essence of the forum was to show the underlying factors responsible for the growth of illicit trade, the danger associated with it and the economic dis-incentives it creates for local industries, the accompanying revenue loss it has caused the government and undermining healthcare delivery.
 
A Senior Research Fellow at IPPA and don at the University of Aberdeen, United Kingdom (UK), Dr. Olajide Damilola, said Nigeria’s absence in the world ranking on IT as captured by the Global Illicit Trade Index (GITEI) was worrisome.
 
GITEI is the global body rating countries on illicit trade. Nigeria’s absence in GITEI’s ranking, according to Damilola, was as a result of unavailability of data. He said the paucity of data was even more precarious because the trade could be causing serious harm to the economy unnoticed and a big scare to prospective investors.
 
The expert said as an emerging economy laden with socio-economic obstacles, the challenges of doing business in Nigeria were many and they affect the growth of the economy as well as make it difficult to attract investors and successful investment.
 
“The challenges range from multiple infrastructural inadequacy, policy inconsistencies, corruption, insecurity, bureaucratic bottlenecks, infringements on rule of law and sometimes a lack of political will to implement business friendly policies,” Damilola said.
 
The Senior Research Fellow stated: “In such an adverse environment, companies operating legally as net economic contributors deserve government encouragement and protection of their goods and services from losing commercial viability to illicit perpetrators.”
 
According to him, Nigeria needs to urgently work on the critical factors encouraging IT in order not to compound the economy’s problems. He listed some of the factors to include government policy, supply and demand of illicit products, transparency and trade environment and customs enforcement.
 
In addressing the problem, Damilola advised that certain questions must be answered to properly direct policy at the fight.These include government action or inaction that creates incentives for illicit trade to thrive in the country.
 
He added that there was the need to ask the following questions: “How do we benefit from illicit trade compared to the costs? What categories of GITEI should Nigeria aim to improve upon?”
 
Other industry operators and experts who spoke at the roundtable agreed that a holistic approach was required to curb the trade, which also involves strategies beyond the Nigeria’s jurisdiction.
 
Some of them noted that illicit trade is a global phenomenon whose solution should be global in nature, adding that the preferred global approach to combating the trade, which Nigeria should be part of, should be aimed at international cooperation and harmonisation of laws and regulations beyond borders.
 
While citing the global fight against money laundering as a typical example, they, however, cautioned that in opting for this approach to the fight against illicit trade ravaging the economy, Nigeria should not rush into signing the controversial African Continental Free Trade Area agreement (ACFTA).
 
The AfCFTA was designed to create a continental trade bloc of 1.2 billion Africans, with a combined Gross Domestic Product (GDP) of about $3 trillion. It was adopted by the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU) in Addis Ababa, Ethiopia, in January 2012.
 
The agreement was seen as an important milestone in promoting Africa’s regional integration and helping to increase intra-African trade, which was at 16 to 17 per cent, by more than 52 per cent, worth about $35 billion per year.
 
AfCFTA commits African countries to phasing out tariffs on 90 per cent of goods, with 10 per cent of “sensitive items” to be phased out incrementally. It will also liberalise trade in services, while also signaling a step towards building strong regional value chains.
 
Forty-four out of 55 African leaders ratified the AfCFTA at an Extra-ordinary Summit of the AU Assembly in Kigali, Rwanda, on March 21. Nine other AU members, including Nigeria and South Africa, delayed accent to the treaty.
 
President Muhammadu Buhari was earlier scheduled to travel to Kigali to ratify the trade deal, which is easily the largest trade agreement since the World Trade Organisation (WTO) in 1994. But he backtracked on the opposition of the OPS who said they were not consulted.
 
But at the IPPA roundtable, a Consultant with the United Nations Industrial Development Organisation (UNIDO), Dr. John Isemede, said the government must not succumb to pressures to sign the agreement until some identified gray areas are taken care of.
 
Isemede, a former Director- General of Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said there was the need to explore the salient issue of Nigeria’s comparative advantage in such an arrangement to avoid making the country a dumping ground for goods and services.
 
His words: “The country is already overloaded with imports. I am not saying the Federal Government should not sign at all, but to put the necessary infrastructure on ground, something to sell, something to offer before rushing into the agreement.
 
“The tea you sip comes from Kenya, the Titus fish you eat every day comes from Morocco, there is Shoprite here and there owned by South Africans. The majority of the products sold is imported from South Africa and with the South African Airline. What is Nigeria bringing to the table and what are we going to sell?”
 
According to the UNIDO consultant, the government should review the membership of the 20-member committee to review the proposed agreement to allow the OPS take centre stage. The government, he added, should also fix infrastructure by getting the transport sector especially the rail system up and running.
 
Isemede also said more local industries must begin to think more of export, while the government should consider the coming back of Commodity Board to optimise the nation’s comparative advantage.
 
“You know that the Nigerian market is the target of AfCFTA because of its size. To me, signing ACFTA without putting the necessary things in place and without more involvement of the OPS is like a landlord handing over his Certificate of Occupancy (C of O) to the tenant,” he warned.
 
It is easy to see the connection between the thriving IT and Isemede’s insistence that Nigeria must tread with caution over the controversial AfCFTA. The thinking of some experts is that, if Nigeria throws its doors wide open in the spirit of the proposed trade liberalisation deal, perpetrators of IT might cash in on the situation to continue their trade.
 
The thinking is that combating the influx of prohibited goods and the harm they cause to the economy may have already become a hard nut to crack by the authorities. And this was why the Buhari administration is struggling with whether or not to sign the ACFTA deal.
 
Although the Federal Government has said African countries are targeting the Nigerian market for the implementation of ACFTA, it was being careful by not hastily signing the agreement for the good of the economy. But pressures are still mounting from some quarters for the government to soft pedal.