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Trends and Challenges of Cross Border Trade

„Experiences From a German Customs Adviser“

Presenter: Frieder MecklenburgDate: 16 February 2017

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Contents of this Presentation

Introduction: GIZ / GIZ in Nigeria / GIZ’s Work on Trade in Nigeria

1. The Institutions

2. The Legal Framework

3. Challenges

4. Outlook & Trends

5. Practical Hints for Dealing with Customs

_______________________________________

Unfortunately Not Covered in this

Presentation is…

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Nigeria

Current GIZ Offices

Future GIZ Field Offices

Introduction

GIZ – Germany’s Development AgencySince 1971 in Nigeria

Business Development Support Unit

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Business volume and personnel 2016(Business vol. 2015+2016; Personnel as of May 2016)

Businessvolume(in Mio. €)

2015 2016 (est.)

Total: 23.2 35.7

BMZ 8.5 18

German public sector clients

0.4 2.4

Co-financing by other donors, incl. EU and Bill & Melinda Gates Foundation

12.7 15.3

GIZ employees

Seconded Personnel40

National Personnel171

Regional Personnel10

CIM- Integrated experts- Returning experts 5

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Areas of Cooperation in Nigeria

• Sustainable Economic Development

• Energy

• Regional Integration

• Health

• Agriculture

• Peace, Reconstruction & Security

• Social Development

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Duration: 2013 - 2018

Client and partners: German Federal Ministry for Economic Cooperation and Development; EU; Federal Ministry of Budget and National Planning

Target states: Sokoto, Niger, Plateau, Cross River and Ogun

Objective: To improve conditions for investment in renewable energy, rural electrification & energy efficiency.

Approach: The programme advises the Nigerian government on how best to provide reliable and sustainable electricity to its people. This is achieved through the promotion of investments in renewable energy, energy efficiency, and rural electrification.

Nigerian Energy Support Programme

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Duration: 2015 - 2017

Client and partner: German Federal Ministry for Economic Cooperation and Development; Federal Ministry of Budget and National Planning

Target states: Ogun and Plateau

Objective: The project supports the Federal Government of Nigeria, and the state and local governments of Ogun and Plateau States, in improving the employability of Nigerian youth and women through demand-oriented vocational qualification.

Approach: The project provides demand-orientated vocational education and training in the agriculture and construction sectors for employment-seeking young persons and women.

Promotion of Demand Oriented Vocational Qualification in Nigeria

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Duration: 2015 - …

Client and partner: German Federal Ministry for Economic Cooperation and Development; Delegation of German Industry and Commerce to Nigeria (DGIC)

Target states: All States of the Federal Republic of Nigeria

Objective: To serve as a point of contact for German and European companies with business operations in Nigeria to promote, prepare, and implement public private development partnerships with European companies operating in Nigeria.

Approach: Using the existing market intelligence of DGIC and GIZ, private sector actors are proactively approached to identify opportunities for PPPs through the GIZ develoPPP concept (www.developpp.de)

Business Development Support Unit

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Make IT Nigeria

Duration: 2017 - …

Client and partners: German Federal Ministry for Economic Cooperation and Development; Digital Africa Initiative

Objective: Better Government performance & more ICT jobs.

Approach: “ Accelerator”

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Duration: 2014 - 2017

Client and partner: German Federal Ministry for Economic Cooperation and Development; European Union (EU); Federal Ministry of Budget and National Planning

Target states: Niger, Ogun and Plateau

Objective: The programme supports the Federal Government of Nigeria and the targets states in improving the framework conditions for MSMEs to increase sustained employment and income generation.

Approach: The programme is pursued via four fields of intervention: financial system development; business enabling environment reforms; trade policy and facilitation; and value chain development.

Pro-poor Growth and Promotion of Employment in Nigeria

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The Trade Unit – Our Partners & Stakeholders

Topics• Capacity Building• ECOWAS CET• ETLS / Export

Promotion• Trade Policy (EPA,

CFTA, National Trade Policy, ECOWAS Trade Policy, ...)

• TRIMS (anti-corruption mobile app)

Implementing Partners• GIZ Germany• UNCTAD• Crown Agents

• USAID• DFID• EU Delegation

Partners / Stakeholders of Implementation• Ministry of Trade (FMITI)• Ministry of Finance (FMF)• Customs (NCS)• Organised Private Sector

(NANTS, MAN, NACCIMA, NEPC, NASME, ...)

• Office of the Vice President

Political Mandate / Donors• Ministry of Budet & National

Planning• BMZ• EU Delegation

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Pol

icy

Mak

er

Federal Ministry of Finance (FMF)

Impl

emen

ter

Nigeria Customs Service (NCS)

Tariff & Customs – Roles & Responsibilities

informs . Beschreib

ung

Tariff Review Technical Committee

Tariff Review Board

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Nigeria Customs Service (NCS) – the Organisation

• Ca. 22,000 Officers, para-military organisation

• Head: Comptroller General Col. Hameed Ibrahim Ali

• Political Management: Deputy & Assistant Comptrollers General

• Operational Management: Customs Area Comptrollers &Comptrollers

• 10 Customs Areas in Zone “A”, 15 spread across the rest of Nigeria

• ~70% of Officers based in & ~90% of customs revenue collected in Zone “A”

• Check out: www.customs.gov.ng

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NCS Organisational Structure

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Federal Ministry of Finance

For Customs relevant Departments are:

• Fiscal Policy Department: defines tariff & fiscal incentives policy

• Tariff Review Technical Committee: consults with stakeholders such as NCS, other MDAs, MAN, other private sector representatives on tariff policy, coordinated by Fiscal Policy Department.

• Tariff Review Board: decides on tariff policy.

• Budget Office of the Federation: revenue collection & granting duty waivers.

• Check out: www.finance.gov.ng (not up to date?)

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The Legal Framework of Customs

ECOWAS Customs CodeCustoms and Excise Management Act (CEMA) ‘old’

CEMA ‘new’

ECOWAS Common External

Tariff (CET)

Import Adjustment Tax

National List

Import Prohibition List

except

Levies

Fiscal Policy Incentives & Duty Waivers

except

except

except

except

Nigeria CET

The

Tar

iff –

a C

ircul

arLe

gal

Bas

is

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The ECOWAS CET

Category ProductsNumber of Tariff

LinesBand 1 Essential Social Goods 85

Band 2Basic necessities, raw materials, capital goods, specific inputs

2146

Band 3 Inputs and intermediate products 1373Band 4 Final Consumer Goods 2165

Band 5Specific Goods for Economic Development

130

Total 5899

Category Duty Rate

Band 1 0

Band 25

Band 3 10

Band 4 20

Band 5 35

1.4%

36.4%

23.3%

36.7%

2.2%

Band 1

Band 2

Band 3

Band 4

Band 5

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The Import Levy Trick

S/N Products CET Total CET* VATImport Levy

1 Cane Sugar 10 11. 5 5 50 66. 5

2 Sugar for Industrial use 10 11. 5 5 60 76. 5

3 Generator set 20 21. 5 5 20 46. 5

4 Brown rice 10 11. 5 - 60 71. 5

5 Broken rice 10 11. 5 - 100 111. 5

6 Table salt 35 36. 5 - 35 71. 5

7 Wheat 35 36. 5 - 65 101. 5

8 Tomato paste 35 36. 5 5 15 56. 5

9 Cigarette 35 36. 5 5 100 141. 5

10 Durum Wheat 5 6.5 5 65 71.5

* Total inclusive of 1% ECOWAS Statistical Tax and 0. 5% ECOWAS Community Levy

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Challenges NCS is FacingWorld Bank Doing Business Report, section trading Across Borders: rank 169 / 182

• Coordinated & wild smuggling , mostly across Benin border.

• Coordinated corruption (‘syndicates’ of NCS officers, clearing agents, banks, importers) & forced/wild corruption.

• High revenue targets (revenue collection & anti-corruption measure).

• Fight against corruption (distrust of leadership, re-posting of officers, retiring of officers, no budget approval for capacity building).

• Fight against fight against corruption (pressure of NCS officers & political / administrative elite against Customs Intelligence Unit).

• Bureaucracy, ITC illiteracy, defective scanners, lack of knowledge

• Work Ethics

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Challenges FMF is Facing

• Revenue collection in times of recession, a declining buying power & a FOREX policy that leads to low imports (-40% imports in 2016).

• Phasing out of import prohibition list, national list, import adjustment tax list, of non-justifiable levies, fiscal policy measures, and duty waivers -without damaging industries.

• Mediation between ECOWAS CET commitments and conflicting policies of other MDAs.

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Outlook

FMF:

• From 2020 onwards, the ECOWAS CET is carved in stone (unless a country opts out).

NCS:

• Young and aspiring NCS officers

• Slow but steady adoption of ITC systems & automation of procedures?

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Radical measure: dismantling NCS and merging it with FIRS to a state-of-the-art “Revenue Authority”?

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Trends

• The Economic Partnership Agreement (EPA) uses the ECOWAS CET as baseline, once signed, the CET cannot be changed by ECOWAS anymore.

• The ECOWAS jurisdiction does not cover trade disputes , Nigerian courts do not have the competence for trade & investment disputes –will ECOWAS ever be mandated?

• The ETLS is not functional and the CET alone does not constitute a customs union – will the EPA push for completing the ETLS and will the ECOWAS Customs Code create a ECOWAS customs union?

• And many more…

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Practical Hints for Dealing with Customs I

Letters to NCS HQ:

• Always address: The Comptroller General of Customs

Nigeria Customs Service Headquarters

Abidjan Street, Wuse, P.M.B. 26, Zone 3

Abuja – FCT, Nigeria

Attention: XYZ

• Always bring an acknowledgement copy, get it stamped and store it safely, in case it is necessary to follow-up your letter.

Online Portals:• www.nigeriatradehub.gov.ng (import process portal)

• www.trade.gov.ng (single window portal)

• In development by UNCTAD: Nigeria Trade Information Portal

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Practical Hints for Dealing with Customs II

In case you want to dispute classification or valuation of goods:

• Letter to Comptroller Dispute Resolution & Comptroller Classification (holding both positions), NCS HQ Abuja, Tariff & Trade Department.

• Address letter as described in previous slide. The letter should be as detailed and comprehensive as possible.

In case you suspect corruption, smuggling or any other crime :

• Customs Intelligence Unit

• Not a general ‘Help Desk’ for importers, focus on fighting crime.

• Contact: An email address is provided by NCS to importers in the importation documents an importer receives.

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Practical Hints: How to Get a Duty Waiver

In case you want to apply for a duty waiver:

• Definition: a duty waiver is a temporary waiver of customs duties for a certain project that has been defined as important for industrial development by Nigerian authorities.

• Duty & Import Prohibition: A duty waiver can be granted even for import prohibited products, turning it into an ‘import prohibition waiver’.

• Lifespan: Usually, duty waivers are valid for no longer than one year. This means, an application has to be submitted on a yearly basis, each year with uncertainty about timely treatment of the application and about the decision taken.

• Addressee/Issuing Authority: Minister of Finance, Federal Ministry of Finance, attention: Director Revenue, Revenue Office.

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…duty waivers continued (1)

• Application documents: no specific application requirements or an application format, specific procedures etc. exist. It is recommended to submit:

1. Cover letter by BDF covering: purpose of application, objective of investment project (description of the facility, location, employment, benefits to the Nigerian economy etc.), background information on your company.

2. “Packing list”/list of imports for which you wish to receive the waiver.

3. Supporting documents, e.g. by Federal Ministry of Industry, Trade and Investment and other public institutions (the more the better).

• Process: Firstly, the Director Revenue, secondly, the Director General of the Budget Office, thirdly, the Minister of Finance will each assess and treat the application. In case one applies for an ‘import prohibition waiver’, fourth, the President’s Office will have to make a final decision.

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…duty waivers continued (2)

• Application timelines: timelines for the treatment of a waiver application do not exist. Meaning, after submitting it, one might immediately, months later, or never receive a response. In the case, one applies for an import prohibition waiver, the involvement of the President’s Office will likely be a delaying factor.

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Alternatively , assess if it is more favourable to make the investment in another ECOWAS country and to import locally produced products from that country under the ETLS to Nigeria.

The involvement of various government offices in an undefined process without transparency and fix application requirements and the obligation to conduct this process on a yearly basis, makes an investment that requires duty waivers very risky.

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Thank you for your attention!

I am wishing you & your business a prosperous year 2017.

Yours,

Frieder Mecklenburg