October 2021 Business environment update: CPPE condemns blockade of movement of trucks through the Benin border

Apparently concerned on achieving the purpose for establishment of ECOWAS on regional trade, the leadership of Centre for the Promotion of Private Enterprise (CPPE) has cried out against the outrageous charges placed on each truck that dare pass through Benin Republic.

Advocating for urgent address to forestall further herculean obstacles created against smooth businesses along the border, CPPE suggest downward review of high cost of moving goods and services across borders.

In his statement, Dr Muda Yusuf, Economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) wondered the justifiable reason for imposing so much on each truck by a neighbouring country.

In his business environment update for the month of October 2021 the former LCCI DG stressed:

The quality of the business environment is a critical factor in the acceleration of economic recovery, growth of investment and job creation.

The Business Environment Update is an assessment of the key investment climate variables impacting on business performance. These are essentially factors that business owners or managers have no control over but which have significant impact on sustainability of investment.

Understanding of the business environment variables are very important for public policy advocacy engagements with the government and also critical for business strategy. These factors include the macroeconomic dynamics, regulatory concerns, institutional challenges, and structural issues.

Investors, especially those in the real sector space, identified access to foreign exchange, exchange rate depreciation, high inflationary pressures, crisis at the ports, high cost of diesel, skyrocketing gas prices, and insecurity as the most critical challenges of business in the last couple of months. Others lamented the severe impact of the punitive transit duty imposed by Benin Republic on transit goods passing through the country by road. The duty is estimated at an average of N9 million per truck. This duty payment is significantly impeding trade across the west African sub region.

Meanwhile the tempo of economic activities had increased following the progressive relaxation of the COVID-19 restrictions which had restricted activities in some sectors of the economy. The economy witnessed an improvement in the activities and gradual recovery in the entertainment, hospitality, aviation, transportation, trade and commerce, food and beverage sectors, among others.

MACROECONOMIC ENVIRONMENT
The rebound in oil price has improved the outlook for foreign reserves as well as the capacity of the Central Bank of Nigeria (CBN) to fund the foreign exchange market. As at October 2021, the foreign reserves has crossed the Forty one billion dollar threshold. The impact on revenue outlook is also positive. These developments would impact positively on investor sentiments.

Inflation
Although the inflation rate has decelerated over the past couple of months, inflationary pressure remains a major cause for concern for investors in the Nigerian economy.

Headline inflation as of September was 16.63% while food inflation was 19.57% and core inflation was 13.74%.

In all of these, there are worries about the implication of the inflationary situation for the Nigerian economy. Inflation had the following impact in the period under review:
It escalates production cost and operating cost for businesses.

It weakens purchasing power.

It depresses sales, turnover, and profits of businesses.

High food inflation aggravates poverty and social tension.

The key drivers of inflation were exchange rate depreciation, the illiquidity in the foreign exchange market, insecurity in the farming communities and structural constraints impacting negatively on productivity in the economy.

DOWNSIDE RISKS TO THE ECONOMY
The economy continues to face headwinds even as some degree of recovery is being reported. Some of these headwinds and shortcomings include:

Naira exchange rate depreciation and volatility.

Illiquidity in the foreign exchange market.

High inflationary pressure.

Insecurity in parts of the country affecting access to local raw materials [especially agricultural products], and distribution of finished products across the country.

High energy costs, especially the skyrocketing cost of diesel and gas.

High dependence on crude oil or foreign exchange earnings.

High and increasing fiscal burden of fuel subsidy and debt service.

Smuggling of petroleum products to neighbouring countries in the light of the uptrend in crude oil price.
·
Uncertainties around the African Continental Free Trade Agreement (AfCFTA), especially in terms of readiness of state actors. The onboarding traction remains weak.

Intractable congestion, traffic gridlock and extortion at the nation’s ports.

Structural constraints affecting productivity in the economy
industrialists are worried about the looming imposition of excise duty on a segment of the sector. Manufacturers are already burdened manufacturing sector.

Cost of distribution of finished goods and raw materials have become prohibitive because of the sharp increases in the cost of diesel and the state of the roads. Additionally, delivery vehicles of many companies still suffer the challenges of multiple taxation across the country, especially on the roads. These taxes are imposed from state to state.

Weak purchasing power
The Foreign Exchange Market
The biggest challenge reported by investors across all sectors in the past couple of months was around foreign exchange. Practically all investors expressed serious concerns over this predicament. The concerns were around the following:
· The sharp depreciation in the exchange rate.

· The uncertainty, volatility and unpredictability of the rate.

· The liquidity problem in the official window of the foreign exchange market.
The Port Situation and Cargo Clearing Challenges.

The challenges of cargo clearing persisted in the month of October and importers continued to face the following constraints or obstacles:

· Long and laborious documentation processes.

Too many agencies of government involved in cargo clearing processes. There are also too many units of customs involved in the process.
· Intractable traffic gridlock Some importers had to resort to the use of badges to move cargo outside the Lagos ports.

There are concerns about the interception of containers that have been duly cleared by the Nigerian Customs Service at the ports. These interceptions are undertaken by another arm of the customs service. Investors have expressed serious frustrations as a result of this repeated and overlapping process of cargo clearing and release processes. This underscores the imperative of proper harmonisation within the customs service to minimise the frustrations and pains of investors.

Investors are concerned about the absence of credible and independent dispute resolution system between the Private sector and the Nigerian Customs Service. There are frequent disputes around classification and valuation with profound implications for variation in costs of imports.

Private sector operators in the economy are extremely worried about the difficulty in registering companies [including manufacturers and multinational companies] for fast-track cargo clearing arrangement. The procedure has become extremely bureaucratic making it difficult for companies who ordinarily should enjoy Fast-track to be denied the opportunity.

PROHIBITIVE CHARGES BY BENIN REPUBLIC ON NIGERIAN TRANSIT CARGO
In June this year, the Benin Republic Customs imposed an outrageous transit duty of an average of N9 million per truck for vehicles originating from Nigeria and crossing the Benin border to other West African countries. This continues to make it very difficult for companies exporting or importing by road to do so.

It is essentially a blockade of movement of trucks through the Benin border. There is the theory that this is a retaliatory action by the government of Benin Republic following the border closure by Nigeria about a year ago [which had since been relaxed].

This is in total disregard for the ECOWAS Protocol on trade and movement within the sub region. This development has been taking a huge toll on Nigerian businesses involved in cross border trade within the sub region. Investors would like to see a more effective intervention by the Nigerian government to put an end to this punitive and obstructionist action by the government of Benin Republic.

In the same vein, he said “We will implore the government to take a critical look at the concerns that have been expressed by business operators and address these concerns in the interest of the investment environment and the advancement of the Nigerian economy.”