Reassessing the 4% FOB Charge: A Call for Policy Reform to Safeguard Nigeria’s Economic Growth and Competitiveness


The recent decision and subsequent announcement by the Nigeria Customs Service (NCS) to impose a 4% charge on the Free on Board (FOB) value of imports has sparked significant debate among stakeholders in the business community. The FOB valuation method, which measures the value of goods at the port of origin before insurance and shipping costs, now serves as the basis for this new levy. While intended to boost government revenue, this policy threatens to stifle economic development and undermine the competitiveness of Nigerian businesses in a globalised market.

Though it has been temporarily suspended, according to the NCS, for further engagements and consultation with stakeholders, if we go by the trend of public policy in Nigeria, government is usually somehow rigid and unwilling to review its stands. So we are not so sure that anything would change.

The Chartered Institute of Directors (CIoD) Nigeria has therefore critically examined the implications of the 4% FOB charge, drawing on relevant national and international examples and therefore advocates for reconsideration or reform of this policy in tandem with government policy target of improving the business environment and to foster a more conducive environment for economic growth.

Implications of the 4% FOB Value Charge

1. Increased Cost of Doing Business

This additional levy significantly raises the cost of importing raw materials and finished goods. For businesses reliant on imported inputs, this charge exacerbates production expenses, thereby diminishing profit margins and competitiveness. Conversely, it could lead to increase in cost of the end products, if the cost is passed on to the end user.

2. Stifling Industrial Development

Local industries that depend on imported machinery and components will face higher operational costs. This is particularly damaging to the manufacturing sector, which is already grappling with infrastructure challenges and high energy costs. It is also contrary to the promise made by government to reduce cost of doing business in Nigeria and improve the competitiveness of Nigerian companies.

3. Inflationary Pressures

The cost increase that this levy will induce, when passed on to consumers, will lead to higher costs for the consumer and increase inflationary pressures.

4. Impact on Small and Medium Enterprises (SMEs)

SMEs, which are vital drivers of economic development and job creation, will be disproportionately affected. The additional financial burden could force many to scale down operations or shut down entirely.

5. Risk of Trade Diversion

If we go by historicals, in terms of the reactions from importers to similar previous increase, they may seek alternative routes through neighbouring countries with more favourable trade policies, thereby undermining Nigeria’s revenue generation efforts.

Historical Context and Lessons from International Practice

In Nigeria, the history of high import duties and charges has been marked by significant negative consequences, including widespread smuggling and corruption within the customs system. These practices not only undermine government revenue but also distort the market, making it difficult for legitimate businesses to thrive.

Furthermore, the country's experience with the Structural Adjustment Program (SAP) of the 1980s highlighted the detrimental effects of excessive trade barriers, which stifled economic growth and discouraged foreign investment. This period served as a harsh reminder of how over-regulation and burdensome tariffs can inhibit industrialisation and reduce a nation's competitiveness in the global market.

In contrast, international experiences demonstrate the benefits of trade facilitation measures. The World Bank and the World Trade Organization (WTO) have long advocated for policies that streamline customs procedures and lower trade barriers to foster economic development.

  • Singapore

     serves as a prime example of how efficient customs procedures, paired with low tariffs, can transform a nation into a thriving global trade hub.

  • Ghana’s efforts

     to reduce import levies have spurred industrial growth, improved tax compliance, and strengthened the overall economy.

These examples underscore the importance of creating trade policies that encourage investment, boost industrial development, and foster a competitive business environment—principles that Nigeria should consider in its pursuit of economic stability and growth.

Recommendations

Based on the foregoing, the CIoD recommends:

1. Policy Review

The Federal Government should reassess the 4% FOB charge to evaluate its long-term implications on trade, industry, and the overall economy.

2. Targeted Support for Local Industries

Policies should be implemented to support industries reliant on imported inputs, such as duty waivers for key manufacturing sectors.

3. Strengthening Trade Facilitation

Customs procedures should be optimised to reduce bureaucratic bottlenecks and corruption. Technology should be exploited more to reduce human interface.

4. Stakeholder Engagement

Continuous dialogue between the government, private sector, and industry stakeholders is essential to develop trade policies that balance revenue generation with economic growth.

5. Adoption of Best Practices

Nigeria should benchmark its trade policies against international best practices to foster a competitive and inclusive trade environment.

Conclusion

The CIoD Nigeria believes that while revenue generation is critical, it should not come at the expense of economic growth and development. The 4% FOB charge on imports poses significant risks to Nigeria’s industrialisation agenda and economic stability.

We urge the Federal Government to reconsider this policy and adopt measures that promote trade, foster industrial growth, and enhance Nigeria’s global competitiveness.

The Chartered Institute of Directors remains dedicated to advancing these initiatives by conducting research, advocating for policy change, and engaging with key stakeholders, all aimed at helping Nigeria achieve its economic goals.

Bamidele Alimi, FNIM, F.CIoD
Director General/CEO
Chartered Institute of Directors Nigeria (CIoD)
10th February 2025