Nigeria: Selected Issues and Statistical Appendix

This Selected Issues paper on Nigeria highlights challenges faced by the country in building on the achievements of 2004. The authorities will have to maintain macroeconomic stability while implementing ambitious structural reforms aimed at reducing the costs of doing business in Nigeria and supporting faster growth and poverty reduction. The government’s ambitious and broad-based medium-term economic reform strategy and the National Economic Empowerment and Development Strategy aim to break with the misguided government-led development paradigm of the past that created a difficult environment for the private sector.


This Selected Issues paper on Nigeria highlights challenges faced by the country in building on the achievements of 2004. The authorities will have to maintain macroeconomic stability while implementing ambitious structural reforms aimed at reducing the costs of doing business in Nigeria and supporting faster growth and poverty reduction. The government’s ambitious and broad-based medium-term economic reform strategy and the National Economic Empowerment and Development Strategy aim to break with the misguided government-led development paradigm of the past that created a difficult environment for the private sector.

IV. Nigerian Trade Policy66

A. Introduction

128. This chapter provides an overview of trade policies in Nigeria, with a particular focus on changes in the policies since the staff’s last survey in 2002.67 In recent years, Nigeria has made little progress in liberalizing trade, and its trade policy regime is one of the most restrictive in the world. The trade regime’s strong anti-export bias is partially offset by a plethora of export promotion incentives. Although little is known about the specific effects of these incentives, the low level of non-oil exports suggests that they are largely ineffective.68

129. Nigeria’s homegrown strategy, NEEDS, adopted in 2004, recognizes the shortcomings of the current trade policy framework. Consistent with the trade policy reforms elaborated in NEEDS, the government is in the process of significantly lowering import barriers, initiatives the staff supports. The section concludes with suggestions as to how the trade reforms can be broadened and deepened.

B. Trade Policy Framework

130. Nigeria pursues an active trade policy agenda. Its import trade protection regime is characterized by high levels of protection in the form of both tariffs and import bans. On the export side, a wide range of specific policy measures are designed to promote non-oil exports. Nigeria’s multilateral and regional trade policies are framed by its membership in the World Trade Organization (WTO) and Economic Community of West African States (ECOWAS), respectively. Oil exports are also influenced by Nigeria’s membership in OPEC.

Import tariffs

131. Currently, the (unweighted) average level of tariffs is exceptionally high at almost 30 percent.69 Indeed, of the 181 Fund member countries for which information was available in 2004, only 5 countries—The Bahamas, Comoros, Nigeria, Tonga, and Tunisia — had average tariffs (including other duties and charges) of 30 percent or higher. Nigeria’s tariff schedule has 19 bands, ranging from 2.5 percent to 150 percent, with a modal rate of 15 percent. Despite the many bands, tariff dispersion is relatively moderate; for instance, for about one-fourth of all tariff lines, the tariff is set at the modal rate. Other positive features of the Nigerian tariff system, which ensure a given level of protection at lower costs to the economy, are that all tariffs are ad valorem and that no tariff-quotas are used.

132. Protection of agriculture is particularly high, with average applied tariffs of about 50 percent, twice the level of protection of other sectors. The last major tariff revision took place in March 2003, but had little effect on the overall level of protection. Average unweighted duty rates fell marginally, but the effective level of protection did not fall concomitantly, and the spread between duties on finished goods and duties on raw materials widened. Duties were cut on raw materials, base metals, and capital equipment and raised on various intermediate and final products, such as plastics and aluminum articles. Tariffs on corn, rice, and other agricultural products were also increased. In late 2004, minor amendments to the tariff schedule were introduced: they involved increasing the tariff rates on various packing materials from a range of 5-25 percent to a uniform rate of 60 percent and increasing the tariff rates on various types of natural starches from a range of 15-45 percent to a uniform rate of 75 percent.

133. All agricultural tariff lines and 7 percent of other tariff lines are bound, resulting in the binding of about 20 percent of all tariff lines. The average bound rate of 118 percent reflects relatively higher bindings on agricultural products. The large share of tariff lines without bindings and the large spread between bound and applied tariff rates do not make for a tariff system in which economic agents can have confidence that current actual tariffs rates will not increase. This, in turn, may affect private investment decisions negatively.

Table 1.

Nigeria: Import Prohibitions as of November 2004

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Source: WTO.

Above eight years old and excluding tractors, trucks, trailers/trailer heads, and buses. In addition, the importation of any vehicle through land borders is prohibited.

All other textiles must be imported through Apapa and Tin Can Island ports in 20ft containers in the following range: (i) other textiles (non-printed) 110,000-140,000 meters; (ii) brocade/damask 120,000-130,000 meters; (iii) and, lace/embroidery 70,000 80,000 meters. A minimum import price of $0.40/meter shall apply to all textiles under HS Chapters 50-63. The importation of all textiles through land borders is prohibited.

The importation of all cassava and cassava products through land borders is prohibited.

Fruit juice may be imported in concentrates or drums only.

Drugs and pharmaceutical raw materials may only be imported through Calabar and Apapa ports, and Lagos and Kano airports.

Import bans

134. Nigeria has a long history of banning imports of a broad range of products. After heavy use of such bans in the 1980s and early 1990s, their importance waned in the mid-1990s, as protection began to take the form of tariffs, among other forms, in line with Nigeria’s WTO commitments.

135. In recent years, the use of import bans has once again become more prevalent, with major expansions in the list of prohibited products taking place in 2001, 2003, and 2004. In January 2004, bans were introduced on most types of textiles, men’s footwear, plastic and leather bags, soaps and detergents, furniture, bicycles, flowers (plastic and fresh), fresh fruit, wheelbarrows, various meat products, toothpaste, pencils, and corrugated boards and cartons. In late 2004, Nigeria banned imports of cocoa powder and cake in order to encourage the use of locally processed cocoa. To offset the potentially negative effects of higher input costs on downstream producers, the government also launched a publicity campaign to encourage the consumption of chocolate drinks, including in schools. In early 2005 bans on various pharmaceutical products were introduced, but the government decided concurrently to lift the import ban on used cars because it had proved to be ineffective.70

136. Import bans have proved to be difficult to enforce and many banned products are readily available in Nigeria. Exemptions are also provided on a case-by-case basis, and some import bans are partially lifted from time to time.71 For example, at times specific companies have been permitted to import fruit juices even though the importation of such juices is banned, and the import ban on wheat flour has been suspended on occasion in line with developments in local market conditions. A particular objective in the latter case has been to encourage the use of cassava flour.72

137. Most import bans are introduced at the behest of local manufacturing interests and serve defensive protectionist purposes. However, the prohibition on imports of barites and bentonites is officially maintained for balance of payments reasons.73 Nigeria has also notified the WTO that the import bans on wheat flour, sorghum, millet, and kaolin were put in place for safeguard reasons. Nigeria has not imposed any antidumping and countervailing duties since 1998, opting instead to use import bans pending the integration of the WTO Agreement on Safeguards into domestic legislation.

138. Import bans are also used to encourage the production of goods deemed to benefit economic development objectives. For instance, to ensure a larger domestic share of value added in the booming cellular phone industry, an import ban on recharge cards was to have gone into effect at the end of 2004; the deadline, however, was extended because local companies were not yet ready to commence production. The government is also encouraging rice production by strengthening agricultural extension services and improving the availability of fertilizer and new types of seeds. In support of these initiatives, the government has announced the introduction of an import ban on rice starting in January 2006.

139. Imports of various products are also banned owing to security, health, or morality concerns. Examples are weapons, textile materials containing hazardous chemicals, and secondhand clothing. Finally, there are certain restrictions on products that can be imported across land borders (for example, cement, and medicine), and minimum shipment volumes for others (for example, cement imports cannot be less than 10,000 tons, and textile products must be imported in 20-foot containers containing not less than 130,000 meters of fabric).

Other import barriers

140. Among other import barriers are discriminatory government procurement policies, the use of the tax code and other legislation to promote domestic production, inappropriate customs clearance procedures, and heavy-handed administration of standards and certification policies. It is difficult to gauge the extent to which such barriers hamper trade, but the prominent discussion such practices garner in the local press as well as among trading partners suggests that informal trade barriers are a significant problem. Specific examples of trade barriers are the requirement that uniforms of public officers be sourced locally, value added tax (VAT) exemption for locally produced fertilizer, and tax incentives under the investment act for companies that use domestic sources. However significant such specific policies are in particular sectors, it is probably the informal and more intractable barriers that distort trade the most.

Export-promotion policies

141. A broad range of policies have been put in place to encourage exports, such as lowering the cost of production (either by cutting red tape, lowering tax liabilities, lowering the costs of inputs, and improving the availability of financing).

142. The Nigerian Export Processing Zone Authority (NEPZA) was established in 1992, and it created Five Zones. Having had little success in attracting companies, the NEPZA converted the export-processing zones into free trade zones in 2001.74 Currently, only the zones in Calabar and Onne are operational. The companies located in the Calabar free trade zone mostly market their products locally, but also in part within the West African sub-region, whereas the Onne zone is being used mainly to facilitate the export of liquefied natural gas. Incentives include tax holidays and fewer restrictions on foreign ownerships. In 2004, 22 firms in Calabar employed some 2,000 workers, and in Onne about 100 firms employed some 7,000 workers. Exports from Calabar amounted to $50 million in 2003. Some states have also established export-processing zones, but it is unclear whether these zones are operational.

143. Companies registered with the Nigerian Export Promotion Council (NEPC) may benefit from various export incentives. An export-expansion grant scheme entitles eligible firms to a 4 percent grant on their export receipts. The scheme was introduced in 2002, but suspended in mid-2004 owing to concerns about fraudulent claims by companies. With stricter safeguards and eligibility rules in place, the scheme was re-launched in January 2005. Other incentives are a duty-drawback scheme providing a 60 percent refund to qualified importers, an export-adjustment fund scheme compensating companies for the cost disadvantages of infrastructural deficiencies and other factors beyond the control of the companies, and an export development fund providing financial assistance to private sector export companies to cover part of their initial expenses related to export promotion.

144. The manufactures-in-bond scheme allows for the duty-free import of raw materials—whether prohibited or not—for the production of export goods by companies posting bonds to guarantee the payment of duties in case the exports do not materialize. The scheme has proved difficult to administer and is under review. In November 2004, the import ban on certain U.S. textile and yarn products was lifted to encourage their use in a special manufactures-in-bond scheme.

145. Although highly underused, the Nigerian Export-Import Bank offers commercial bank guarantees and direct lending to facilitate exports. The Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports, and the Industrial Export Stimulation Facility provides exporters of manufactured goods with credits to import capital equipment and packaging and raw materials.

146. Besides the granting of tax holidays to companies located in free trade zones, tax relief is also provided to manufacturers exporting at least 50 percent of their production. Another tax incentive is tax relief for commercial banks that lend to exporters (a tax exemption is granted on interest earned from loans for export activities).

Export bans and taxes

147. Nigeria bans the exports of a few products in accordance with the provisions in Nigeria’s Export Prohibition Act. Currently, the products that cannot be exported are raw hides and skin, timber (rough and sawn), scrap metals, unprocessed rubber latex and rubber lumps, rice, yams, corn, beans, artifacts, and antiquities. Whereas the bans on hides, timber, metals, and rubber serve the purpose of ensuring lower-cost inputs for the manufacturing industry, the bans on rice, corn, and other food items are imposed on food-security grounds.

148. Export taxes are permitted under the 1992 Export Amendment Decree, which prescribes that all raw materials and unprocessed commodities (mineral or agricultural) may be subject to export levies as determined by the Nigerian Export Promotion Council. Currently, a levy of $5 per ton is imposed on cocoa exports and a levy of $3 per ton on other raw materials.

C. Trade Performance

149. The current trade policy framework combines high general barriers to trade and a plethora of derogations granted thereto by administrative fiat. The high import barriers entail an antiexport bias to the economy that is partly mitigated by various export incentive schemes. Much like a tax system with high tax rates and a widespread use of tax credits, the Nigerian trade policy framework allows the government to guide productive activities in directions of its choosing.

150. Nigeria’s trade policy framework is significantly more restrictive than that found in most other countries, and it has become increasingly restrictive in recent years. In its 2005 trade policy review, the WTO concluded that Nigeria’s trade policy regime had become more protectionist since its 1998 trade policy review. Over that same period, an array of developed, developing, and transition countries have pursued significant trade liberalization policies.

151. That Nigeria’s trade policies are not aligned with those found elsewhere is not in itself a problem, but it is an issue that the restrictive policy framework is associated with a very weak export performance. Nigeria—with more than 2 percent of the world’s population—has a share of the world’s exports of about 1/3 of 1 percent, of which more than 90 percent is oil and gas exports (Table 2). Over the past decade, Nigeria’s non-oil and gas exports on a per capita basis amounted to only 1 percent of the world’s average—the fourth-lowest share in the world.75 Over a decade in which the world economy became significantly more integrated, Nigeria’s non-oil and gas exports remained stuck at about 3 percent of GDP (6 percent of non-oil and gas GDP).

Table 2.

Nigeria: Trade, Foreign Investment, and Growth, 1994-2004

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Sources: IMF Balance of Payments Yearbook, WEO; and staff estimates.

In percent of GDP.

In percent of non-oil/gas GDP.

Exports of goods and services in percent of GDP.

152. Trade policies also influence the broader policy framework that determines private sector choices of when and how to consume, invest, save, and trade with the outside world. In that regard, it is worth noting that Nigeria’s poor export performance is also associated with low levels of foreign direct investment and weak economic growth. Except for investment in the oil and gas sectors, foreign investors have been largely absent from Nigeria, and little progress has been made toward closing the income gap with other countries.

153. Nigeria’s export performance is also relatively weaker than that of two other control groups: fuel exporters and ECOWAS member countries. Whereas growth in Nigerian exports of goods, other than gas and oil, and services over the past decade was broadly in line with the exports of other countries in these two groups, exports other than oil and gas relative to output remained significantly lower in Nigeria than in most other countries.

D. Where To Go From Here?

154. As noted in the introduction, the NEEDS takes into account that Nigeria’s current trade policies are largely failing to achieve any reasonable objectives and makes a strong case for adopting significantly more liberal policies in support of the government’s growth and poverty-reduction objectives. The inefficiencies of pre-NEEDS trade policies are succinctly described as follows: “The old development models of import substitution industrialization and statism, in which government assumed the dominant role as producer and controller in the economy, created perverse incentives, inefficiencies, and wastes.”76 In the NEEDS, trade policy reform is appropriately considered an integral component of broader structural policies aimed at improving the business environment. Furthermore, the NEEDS recognizes that, without further trade reforms—in particular, a lowering of import tariffs—progress in regional economic integration will prove elusive. Although the NEEDS is short on the specifics of what a more rational trade policy should look like, it makes clear that such a policy framework will have to be more predictable than the existing one and provide a lower and more uniform level of protection.

Figure 1.
Figure 1.

ECOWAS Export Indices, 1994-2004

Citation: IMF Staff Country Reports 2005, 303; 10.5089/9781451828979.002.A004

Figure 2.
Figure 2.

ECOWAS Export to GDP Ratios, 1994-2004

Citation: IMF Staff Country Reports 2005, 303; 10.5089/9781451828979.002.A004

Tariff reform

155. The first NEEDS-inspired trade reform is scheduled to go into effect on July 1, 2005. With this tariff reform, Nigeria will adopt the ECOWAS common external tariff (CET) (with tariff bands of 0, 5, 10, and 20 percent). An additional temporary 50 percent tariff band will be applied to selected import-competing goods. The maximum rate will decrease from 150 percent to 50 percent, while the average unweighted tariff rate will fall from about 30 percent to less than 20 percent.77 The next steps in the authorities’ reform program are the elimination of all import bans by end-2006 and the elimination of the 50 percent tariff band by end-2007.

Reduction of non-tariff barriers

156. While the government goes a long way toward establishing a less distortionary trade policy framework, it could consider accelerating the timetable for eliminating the import bans and the 50 percent tariff ban. Both of these measures hamper the development of free trade within ECOWAS. Furthermore, the import bans may be inconsistent with Nigeria’s commitments to the WTO and are a constant source of friction between Nigeria and its trading partners. In the period leading up to the abolition of import bans, it is also advisable not to introduce any new bans; in particular, one can question the purpose of introducing a ban on rice in January 2006 if all import bans are to be abolished by year-end.

Export promotion policies

157. The rationalization of the import-protection policies will promote exports, but Nigeria would be well served by also encouraging exports directly by abolishing all export taxes and bans. Recent efforts to strengthen prudential oversight in the administration of the export-expansion grant scheme is welcome, but a broader strategic review of all export incentive schemes may suggest additional ways to streamline and rationalize the incentive system. Insofar as a case can be made for maintaining any particular incentive scheme, efforts should be directed toward delivering more targeted and effective assistance in a manner that minimizes the risk for abuse. The tax and investment codes should also be pruned of export incentives, and the Value-added Tax code should be amended to make exports zero-rated rather than exempted. Finally, consideration should be given to centralizing export-promotion policies at the federal level so as to prevent companies from shopping around from state to state for the highest possible subsidies and concessions.

Regional cooperation

158. Stronger regional trade links are critical in establishing a competitive, integrated, but also open West African economic space. The ECOWAS customs union project is an important part of fostering stronger trade links, and, given Nigeria’s dominant position in ECOWAS, Nigerian leadership is essential for that project to succeed. With the recent implementation of tariff reforms in Guinea, all but three of ECOWAS’ 15 member countries have now broadly adopted the tariff schedule included in the proposed CET. In the 12 CET countries complying with the common external tariff, average unweighted tariff rates are 15 percent (including other duties and charges), with Liberia’s and Cape Verde’s tariffs being slightly lower and Nigeria’s tariffs being more than double this average (Table 3). With regard to fostering the internal ECOWAS market, a lack of implementation of agreed measures has been an issue in several countries, but Nigeria has lagged behind other countries in implementing ECOWAS’ Trade Liberalization Program.78 Looking forward, Nigeria needs to take on a more proactive role in assuring that the trade integration program remains on track. Otherwise, the establishment of a fully functioning customs union by January 2008 will be jeopardized.

Table 3.

Average Tariffs in ECOWAS Countries, end-2004 1/

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Source: Trade Policy Information Database, IMF.

Unweighted averages including other charges and fees.

Multilateral cooperation

159. In the Doha Round negotiations, Nigeria should seize the opportunity to commit to binding all tariffs and lowering bindings significantly to approximate applied levels, steps that would enhance the predictability of the tariff system. Consideration could also be given to coordinating offers on new tariff bindings with other ECOWAS countries so as to minimize differences in tariff bindings at the regional level.

E. Conclusions

160. Nigeria’s current trade protection regime is in dire need of reform. Although its high barriers to import have had the predictable consequence of stifling exports other than gas and oil, it has done little to encourage the development of either the agriculture or manufacturing sectors. The current system’s reliance on administrative fiat rather than legislation to implement policies makes the system more flexible and therefore more adaptable to changing circumstances; unfortunately, the same flexibility has made the system prone to abuse as special interest groups’ clamor for more protection has tended to prevail over general interest groups’ call for lower protection. Over time, rent-seeking activities have become entrenched and the system progressively more restrictive.

161. The authorities’ intention to break with past practices in the trade policy area is welcome. The tariff reforms to be implemented on July 1, 2005, represent a significant first step toward a more rational trade protection regime, but other reforms should follow soon after. The cumulative benefits from opening up the trade system are not necessarily front-loaded, and, although the trade system is being liberalized, economic agents who are negatively affected will engage in end runs to roll back the reforms. Momentum is thus of the essence if the trade reforms are to succeed.


  • Nigeria’s Export Promotion Policy, Government of Nigeria: mimeograph.

  • Meeting Everyone’s Needs: National Economic Empowerment and Development Strategy, Nigerian National Planning Commission, 2004.

  • Trade Policy Review of Nigeria, WTO Secretariat, (WT/TPR/S/147, 13 April 2005).

  • 2005 Report on Foreign Trade Barriers. United States Trade Representative.

Statistical Appendix

Table 1.

Nigeria: Revised Gross Domestic Product by Sector of Origin at Current Prices, 2000-04

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Sources: Federal Office of Statistics; National Planning Commission; and staff estimates.
Table 2a.

Nigeria: Revised Gross Domestic Product by Sector of Origin at Constant 1990 Prices, 2000-04

(In millions of naira)

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Sources: Federal Office of Statistics; National Planning Commission; and staff estimates.
Table 3a.

Nigeria: Revised Gross Domestic Product by Expenditure Category at Current Prices, 2000-04

(In millions of naira)

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Sources: Federal Office of Statistics; National Planning Commission; and staff estimates.

National disposable income less aggregate consumption.

Domestic disposable income less aggregate consumption.

Table 4.

Nigeria: Revised Gross Domestic Product by Expenditure at Constant 1990 Prices, 2000-04

(In millions of naira)

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Sources: Federal Office of Statistics; National Planning Commission; and staff estimates.

National disposable income less aggregate consumption.

Domestic disposable income less aggeragate consumption.

Table 5.

Nigeria: Selected Petroleum Statistics, 2000-04

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Sources: Central Bank of Nigeria; Nigerian National Petroleum Corporation; and Fund staff estimates.

Includes condensates.

Balance of payments basis, including exports of condensate.

U.K. Brent, light-blend 38 API, f.o.b. United Kingdom.

For 2003, simple averages for the year.

Price at which the NNPC buys government equity crude for domestic refining.

Table 6.

Nigeria: Selected Indicators of Agricultural Production and Prices, 2000-03

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Sources: Federal Office of Statistics; Federal Ministry of Agriculture; and Central Bank of Nigeria.
Table 7.

Nigeria: Index of Industrial Production, 2000-03

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Source: Central Bank of Nigeria.
Table 8.

Nigeria: National Consumer Price Indices, 2000-04

(May 2003 = 100)

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Sources: Central Bank of Nigeria; and Federal Office of Statistics.
Table 9.

Nigeria: Urban Consumer Price Indices, 2000-04

(May 2003 = 100)

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Sources: Central Bank of Nigeria; and Federal Office of Statistics.
Table 10.

Nigeria: Rural Consumer Price Indices, 2000-04

(May 2003 = 100)

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Sources: Central Bank of Nigeria; and Federal Office of Statistics.