MNCs should assume long lead-time delays and assess the likely impacts of import-tariff hikes
MNCs should stay alert to hikes in import tariffs aimed at protecting local industry. Moreover, firms selling premium consumer goods should model the impact of tariff hikes on demand for their products. In the face of such increases, firms may benefit from raising the frequency of their pricing cycles, as consumers tend to tolerate smaller, more frequent price rises. MNCs should inspect the viability of localizing production amid expected tax incentives and import-tariff increases. Companies should assess the efficiency gains from the new Lekki Deep Sea Port and track gradual improvements to transport and logistics infrastructure across the country; this can help firms stay ahead of competitors who are slow to react to potential improvements. Executives should also track implementation of the African Continental Free Trade Agreement (AfCFTA)—and Nigeria’s policies related to it—to assess opportunities from the potential for steady growth in Nigeria’s trade with the rest of Africa.
- President-elect Bola Ahmed Tinubu (of the ruling APC) will maintain the ban on accessing official FX channels for importing selected goods, after assuming office in May 2023.
- The outgoing administration’s protectionist trade policies temporarily included a sudden closure of land borders to trade with neighboring countries to curb the inflow of illegal items and policy-protected products such as rice.
- In the 2023 budget, the government introduced a 0.5% levy on goods imported from outside the African Continental Free Trade Area (AfCFTA). Moreover, Tinubu’s campaign manifesto provided nondescript aims to develop policies to benefit from the AfCFTA.
- Tinubu’s manifesto also pledged to curb import dependency through “luxury taxes, higher tariffs, and higher processing fees,” as well as to financially incentivize global brands to localize production.
- In January 2023, the government opened the new Lekki Deep Sea Port in Lagos, now the country’s largest port, amid recent major upgrades to transport infrastructure in the country.
Trade policy outlook: The APC’s re-election will mean that companies can expect broad continuity of trade policy. Tinubu will maintain the country’s protectionist trade stance, aiming to protect domestic industries and conserve FX. However, Tinubu’s more positive sentiment toward the AfCFTA will drive efforts toward more trade with other African nations. This could mean higher levies on goods produced outside the block in coming years. It also reduces the risk of ad hoc land-border closures and opens the possibility for Nigeria to gradually increase trade with other African countries, which could help ease MNCs’ ability to import goods into Nigeria from other African countries (or vice versa) over the coming years. Moreover, trade will benefit from the new port in Lekki—which has more than doubled Lagos’ container capacity—and continued investment in road and rail infrastructure is expected under Tinubu.
Sectors most vulnerable to new import restrictions: Goods that are already subject to FX bans for their importation—for example, rice and dairy products—will likely continue to face these restrictions throughout Tinubu’s administration. Moreover, ad hoc additions to this list of goods are likely, particularly given the president-elect’s import-substitution plans and especially at times of acute and worsening FX shortages. This will most likely impact FMCG products and light- and semi-manufactured goods. Increased import tariffs will likely temper demand for MNCs’ products; additionally, specific “luxury taxes” may soften the usual resilience of high-income consumers to the tariff hikes.
Localization policy: Tinubu’s plans to incentivize localization will offer MNCs an alternative to tariff hikes and an opportunity to benefit from tax credits. However, challenges to domestic production—such as difficulty importing inputs, chronic power outages, and FX shortages—will continue to weigh on MNCs sentiments toward localizing.
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