World Bank Calls on Nigeria to Lift Import Restrictions on Food

The World Bank has called on Nigeria’s federal government to lift its import restrictions on food and fertilizer and adopt a unified tariff structure in line with the Economic Community of West African States (ECOWAS) Common External Tariff.

In its latest Nigeria Development Update (NDU), the international financial institution recognized recent reforms in the country, particularly in the energy and foreign exchange markets, while advocating for additional measures to accelerate economic growth and stability.

The recommendations from the World Bank represent a push towards more open trade policies, which it believes could help alleviate some of Nigeria’s economic challenges, including inflation and foreign exchange shortages.

The World Bank praised Nigeria’s recent moves to improve economic policy, including the removal of the foreign exchange ban on 43 items and the re-launch of the single window trade portal. These measures, according to the bank, are significant first steps toward easing trade restrictions and opening up the economy to global markets. However, it noted that more comprehensive actions are needed to sustain the momentum and further integrate Nigeria into the global trade system.

Specifically, the bank advised that Nigeria should take additional steps to eliminate import bans on various products, such as food, cleaning supplies, apparel, and fertilizers. It also urged the government to align its tariffs with those set by ECOWAS, which would facilitate regional trade and contribute to economic integration within West Africa.

Furthermore, the World Bank emphasized the need for Nigeria to improve tariff transparency and reduce non-tariff barriers in the long term. To achieve this, it suggested that the government streamline trade facilitation processes through better risk management and auditing procedures. These steps are expected to simplify the import and export processes, making it easier for businesses to engage in trade and reducing the costs associated with importing essential goods. Such improvements could enhance the efficiency of Nigeria’s trade sector, thus contributing to economic growth.

The World Bank also provided guidance on how the Central Bank of Nigeria (CBN) can further strengthen the official foreign exchange market. It recommended that the CBN continue its efforts to deepen the market by facilitating formal remittance inflows and allowing international oil companies to channel their foreign exchange sales entirely through the official market.

Additionally, the bank suggested that the CBN restore access to bureaux de change, which had been restricted in recent years, and avoid conducting ad-hoc foreign exchange interventions. It indicated that by providing market participants with greater flexibility in trading foreign exchange, the CBN could enhance the depth and resilience of the FX market, making it more responsive to economic changes.

The context of existing trade restrictions in Nigeria dates back to policies implemented about a decade ago, which have significantly impacted various sectors. In 2015, the Central Bank of Nigeria, under the leadership of Godwin Emefiele, imposed a ban on accessing foreign exchange for 43 items, including rice, textiles, and certain food products, as part of an effort to boost local production and reduce dependency on imports.

While this policy was intended to encourage domestic industries, it faced criticism for driving up inflation and increasing the cost of living for Nigerians. The foreign exchange restrictions made it difficult for businesses to import raw materials and essential goods, leading to supply chain disruptions and contributing to the country’s persistent inflationary pressures. The CBN disclosed that Nigeria lost approximately $1.4 billion between 2015 and 2019 due to the forex restrictions on these 43 items.

In a significant policy shift in October, the CBN lifted the foreign exchange restriction on the 43 items. The move was widely seen as a step toward aligning Nigeria’s trade policies with global best practices, yet uncertainties remain as some of the items continue to be listed on the customs ban, leaving businesses and importers unsure of whether they now qualify for official foreign exchange funding.

The removal of these restrictions was complemented by other measures aimed at stabilizing the economy, including the re-launch of the single window trade portal and the temporary suspension of import duties on certain essential food items. However, the World Bank has highlighted that these initial reforms, while positive, must be followed by broader policy adjustments to truly transform the economy.

In July, the federal government took another significant step by announcing the suspension of import duties on a range of essential food items such as maize, millet, rice, wheat, beans, and grain sorghum. This decision was part of a broader strategy to mitigate the impact of rising food prices and curb inflation, which had reached record levels.

However, as the policy was expected to kick off in August, the Nigeria Customs Service (NCS) clarified that the zero-percent duty policy would apply to companies that meet specific eligibility criteria, including those with established local production capacity. Importers were required to demonstrate that they had verifiable backward integration programs or significant investments in local processing operations to qualify for the duty waivers.

The intention was to prevent the market from being flooded with imports that could undermine local agriculture, while still allowing for the importation of essential goods to stabilize prices.

However, the implementation of this policy has been delayed, causing doubts about the government’s commitment to reducing food inflation. Many argue that the stringent eligibility requirements, such as mandating that companies be operational for at least five years and fully compliant with tax obligations, create barriers that limit the potential impact of the policy.

Additionally, the stipulation that at least 75% of imported goods be sold through recognized commodity exchanges creates another hurdle for importers.

The World Bank’s recommendations extend beyond food import to address broader economic concerns, including the fiscal implications of wage increases and public sector pay adjustments.

While efforts to raise wages can provide some relief to workers amid rising living costs, they also carry the risk of worsening Nigeria’s fiscal deficit, given the already strained government finances. The bank noted that public sector wages are disproportionately high compared to those in the private sector, with additional barriers to entry into public sector jobs locking out poorer Nigerians from accessing these opportunities.

This disparity in wage distribution suggests that policies targeting wage earners may not effectively address the deeper issues of poverty and economic inequality.

This is so because Nigeria’s persistent food inflation and high cost of living continue to pose challenges for economic management. The country remains heavily reliant on food imports, with domestic agricultural productivity struggling to meet the demands of a growing population.

While temporary duty suspensions on food imports aim to alleviate cost pressures, the World Bank also noted that the underlying structural issues in the agricultural sector need to be addressed to achieve long-term price stability.