Trade Facilitation: The Role of the Nigeria Customs Service

World trade has expanded faster than economic growth and has been a vehicle for raising the standard of living in OECD (Organisation Economic Cooperation and Development) countries. African countries have not seen similar trade expansion. Africa's share in world trade is relatively small, accounting for less than 3% as at 2012.  This is hardly surprising considering that the most integrated regions in the world are also the most competitive at the global level. The rising share of Asian countries in world trade underscores this point. While Africa's trade with external partners is growing very fast, particularly in emerging economies, trade amongst African countries is stagnant. In 2012, the top trading partner regions for Africa were the European Union, Asia and the United States.

The dismal performances of African trade can be attributed to several factors traditionally associated with trade facilitation –such as complex customs requirements, lengthy and non-transparent bureaucratic procedures associated with the movement of goods and services across international borders. These trade impediments could be compounded when countries are parties to several non-functioning regional and bilateral trade agreements, leading to significantly high cost of doing business and competitiveness.

In this age and time, the ability of countries to deliver goods and services in time and at low costs is a key determinant of their participation in the global economy. Trade facilitation is gaining inimitable attention and is at the heart of numerous initiatives within the customs’ world. It has become a substantive issue within the World Trade Organisation (WTO) round negotiations. Also, it is frequently referred to in supply chain security initiatives, and is a feature within many customs modernisation programs.

Easy movement of goods and services clearly drives export competitiveness and fosters diffusion of better technologies through imports and foreign direct investment. Increasing awareness of trade-related transaction costs has called for multilateral rule making and regional coordination regarding trade facilitation. Business costs may be a direct function of collecting information and submitting declarations, or an indirect consequence of border checks in the form of delays and associated time penalties, forgone business opportunities and reduced competitiveness.

Trade facilitation in the context of the World Customs Organisation (WCO) means: “The avoidance of unnecessary trade restrictiveness which can be achieved by applying modern techniques and technologies, while improving the quality of controls in an international harmonised manner.” It looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives.

For trade facilitation to be well achieved, the Customs Administrations need to identify and understand the key international, regional and national strategic drivers in order to respond timely and appropriately to economic challenges.

Challenges to Trade Facilitation in Nigeria
1. Bribery & Corruption
This is perhaps the greatest challenge to the attainment of a 48-hour goods clearance at the ports. There is the unfortunate notion that the Nigeria Customs Service (NCS) is one of the most corrupt institutions in Nigeria. The Customs Consultative Committee (CCC) has said that the prevalence of bribery, corruption and other trade-related fraud constitute the greatest challenge to international trade facilitation.
2. Cybercrime
Cybercrime is now widespread due to increased use of information and communication technology through computers and the Internet which have opened new doors for criminal activities.
3. Weak Legislation (Penalty)
The current maximum penalty for underpayment is six hundred naira (₦600.00), and the law has been in use since 1958.
4. Non-compliance With The Law
The seeming reluctance of many importers and ports operators to comply with the law has been a challenge. This constitutes not only a hindrance to those who want to conduct legitimate business, but also a serious obstacle to smooth trade facilitation.

Others are:

  • Institutional Limitations
  • Inadequate Funding
  • Insincere valuations declared by importers/agencies, over invoicing and under invoicing description, concealment
  • Multiplicity of government agencies with direct intervention in the clearance process, particularly as it affects physical checks.
  • Integrity issues
  • Lack of trust between the private and public sectors
  • Inadequate coordination between governmental agencies
  • Logistics –inadequate cargo handling equipments at terminals
  • Inadequate office accommodation both at the headquarters and Area Commands.

Customs Service’s Role in Trade Facilitation
The trade environment is complex and sets a wide field for trade facilitation; it is easy to count over 60 distinct trade procedures targeting goods, the vehicles that move them (for example, ships, planes and trucks) or their operators (drivers, seafarers and flight crew). Control objects include: revenue collection; safety and security; environment and health; consumer protection; and trade policy. In many countries, a significant share of these controls will be performed by Customs or under customs supervision.

According to the WCO, the Nigerian custom service should be saddled with the responsibility of eliminating unnecessary trade restrictiveness which can be achieved by applying modern techniques and technologies, while improving the quality of controls in an international harmonized manner.
Trade Facilitation Objectives of The NCS

  • To improve the trade environment and reduce transactions cost between business and government
  • To attract foreign direct investment (FDI)
  • To make Nigeria’s borders competitive by unimpeded flow of goods, services and investment funds through the borders.

The question by the business community is: how do Customs procedures minimize the dwell time in transactions/cargoes through the borders to reduce cost and time of contract performance?

The above concern is addressed in the Kyoto Convention which focuses on the simplification and harmonization of customs procedures.

Nigeria is a signatory to the Kyoto Convention, and the NCS is sensitive to the issue of dwell time in cargo clearance. The NCS has introduced major reforms to facilitate trade through the ports.

During the year 2007, the WCO in conjunction with the Nigeria Customs Service conducted a time-release study, to see how much time it takes to clear cargo at Nigerian ports and border stations. The discovery left the NCS with no alternative than to find a faster way of clearing goods at the ports. The time taken to get consignments out of our ports was reduced from an average of 2 weeks to 48hrs (2 days) for reasons which had become obvious.

Automation of Clearance Procedures:

  • Electronic submission of cargo manifest
  • On-line documentation through direct trade input (DTI) facility
  • E-payment  of duty
  • Use of scanners for profiling and cargo examination

The attainment of 48-hour clearance time for cargo at the ports is dependent on a number of considerations, including the following:
A. Customs Reform
The objective of the reform is to have a Service that is responsive to the demands of a rapidly globalising economy in terms of human capacity and ICT infrastructure (ASYCUDA software programme), which are sine-qua-non to the effectiveness of trade facilitation.

In replacement of pre-shipment inspection, the Federal Government granted approval for destination inspection of goods in 2006 by appointing service providers to achieve speedy clearance and just in time delivery of goods, and also liberalisation of trade. Even if multilateral and regional trade agreements result in revenue reductions, Value Added Tax (VAT) and other taxes still have to be assessed and imposed on imported goods as a means of both raising taxes and also levelling the playing field in trade competitiveness.

B. Trade Facilitation
Trade facilitation is crucial to the performance of the economy. The adoption of trade efficiency measures can significantly lower the cost of trade transactions. A number of steps to facilitate trade include the use of fast track, post clearance audit, upgrading IT capability to ASYCUDA++ by shortening and simplifying the clearance procedures. The adoption of destination inspection and use of scanners have also helped greatly.

C. Economic Development
There is a strong linkage between Customs reforms, trade facilitation and economic development. The importance of international trade to the national economy cannot be overemphasised. It is on record that trade currently represents about 35% of world’s GDP and is estimated to grow to 50% by 2020

D. The political will to sustain the reform policy
E.  A clearly defined strategic plan of action
F.  Involvement of and close cooperation with the business community

Comparative Analysis of The NCS and Its Peers Around The World
Logistics Performance Index: Efficiency of customs clearance process (1=low to 5=high). Data are from Logistics Performance Index surveys conducted by the World Bank in partnership with academic and international institutions, private companies and individuals engaged in international logistics. Respondents evaluated efficiency of customs clearance processes (i.e. speed, simplicity and predictability of formalities).

Global Best Practice
In order to achieve effective custom service delivery in Nigeria, the following global best practices must be adopted as a matter of importance:
1. Increased use of information technology
2. 48-hour border clearance timeline
3. Improved management of special customs procedures
4. Simplified procedures and selective controls
5. Developing human capital
6. Enhanced transparency and partnerships with the private sector

NCS’s Contribution to Non-Oil Revenue/GDP
Nigeria’s non-oil export to Europe, America and Asia recorded an all time low, declining by over ₦33 billion in 2012. This decline further heightens apprehension over a possible major economic crisis in the country, which follows the decision of the United States to cut the volume of crude oil purchase from Nigeria.

Economic and trade statistics released by the Nigeria Customs Service shows that 116,525 metric tonnes of non-oil commodities valued at ₦129.9 billion were exported through the Lagos Port complex between January and December 2012.

Effective trade facilitation increases custom productivity, improves tax collection at the border and helps attract foreign direct investment. Overcoming trade facilitation barriers is associated with a wider range of goods and inputs being available on the domestic market. A multilateral agreement on trade facilitation would expedite the movement of goods across borders and would improve the transparency and predictability of trade/doing business in the country. Jobs are created when exporting firms are able to sell more abroad. A boost to the gross domestic product is also likely to stimulate employment.