The AfCFTA Challenge Ahead As Nigeria Reintroduces Toll Gates

On Wednesday, the Nigerian Government announced its decision to reintroduce toll gates on federal highways in the country. The announcement came from the Minister of Works and Housing after the Federal Executive Council meeting.

This is coming 15 years after the Obasanjo’s administration scrapped the tolls. For some years now, the Works and Housing Minister, Babatunde Fashola, has been preaching the reintroduction of the toll gates as a necessary evil. A preachment he backed by the success of Lekki Toll Gates. Although the Federal Government was adamant to act upon his suggestion, its empty purse has pushed it to succumb just as it has done in many other tax advice from government agencies.

The introduction of online VAT is one of those: It came just at the time when Nigeria is claiming to encourage her cashless policy: A contradicting step that FinTech startups would pay the price because the likelihood of decline in online transactions for avoidance of the VAT will result in low patronage when the policy takes effect in January 2020.

And there is also the increment of VAT to 7.5% from 5%, which part of the justification by the government and many others is that Nigeria’s VAT is the lowest in the world. The adverse effects these decisions will have on startups and local businesses was maybe, not considered, or was, but pushed aside for the greater interest – revenue generation for the government.

The decision to reintroduce the toll gates is also aimed at revenue generation. Apparently, it is evident that the Government is broke and desperate for funds. The oil based economy is struggling, and the only option that the government seems to have is to tax businesses and the people to make up for the downturn. But it’s a poor step, with a high price that will be paid now, and in the future.

Few months ago, Nigeria joined other African nations to sign the African Continental Free Trade Area (AfCFTA) agreement. A bold step the African Continent has taken to promote intra-continental trade. Though Nigeria was reluctant to join the pact for obvious reasons, the decision to join is looking like a big mistake.

One of the reasons the Manufacturers Association of Nigeria (MAN) and industrialists in Nigeria vehemently opposed AfCFTA is because they know that Nigeria cannot compete with many African countries. Infrastructure and policy making win it all, and many African countries are ahead when it comes to that.

In 2017, the Ghanaian Government announced the abolishment of some taxes aimed to stimulate economic growth. The 1% Special Import Levy, Kayayei market tolls, 17.5% VAT/NHIL on selected imported medicines, 17.5% VAT/NHIL on financial services, 17.5% VAT/NHIL on domestic airline tickets, 5% VAT/NHIL on Real estate sales, duty on imported spare parts, excise duty on petroleum.

As a result of this abolishment, the Ghanaian GDP grew to 7.8% in the first half of 2017, against 2.7% in 2016, while inflation reduced to 11.6% by October 2017, from 15.4% in December 2016. Evidently, the tax cuts and abolishment boosted Ghanaian macro-economy that the government initiated further tax cuts in 2018 to encourage micro-economy. That included cutting income tax rates for people earning below 20, 000 Cedis from 35 to 30%. Reviewing of corporate income tax from 25% to 20%, replacing the 17.5% VAT/NHIL with 3% flat rate for traders. There was also tax waiver for entrepreneurs. The economic progress stemming from these fiscal policies attracted applause from the International Monetary Fund (IMF) and economists. And it spurred the country to do more.

In April, in a bid to curtail smuggling, Ghana announced a benchmark review of her import duties, reducing it by 30% and 50% for vehicles. While Ghana is fertilizing her soil for economic growth through tax cuts, Nigeria is increasing taxes to generate revenue for the government at detriment of her economy. Among other anti-economic measures taken by the Nigerian Government is the closure of its land borders in an attempt to curb smuggling, and there’s report that Nigerian Custom Services is invading hotels, impounding vehicles to extract custom duties.

As AfCFTA unfolds into reality, its fortune favors only the countries who made preparations for it. The cost of production in Nigeria is high that it cannot compete with products from many African countries; and that’s due to lack of infrastructure, poor fiscal policies and government imposed levies (like the toll gates) that have left producers with no option than to increase the cost of their products. So in trade related infrastructure and productive capacity, Nigeria is lost based on her current fiscal policies. 

The factor market agreement of AfCFTA enables integration, which means that every African country will have equal right to sell goods and services in member states. And the competition will beckon prosperity only on those whose infrastructure has cut the cost of their production. The cheaper the goods and services, the more patronage. It wouldn’t take Nigeria long to realize how much it has cheated herself through the revenue generating policies and basic infrastructural decay of today.