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Affordable Housing

Impact of Import Duty Waivers on Affordable Housing

In spite of contrary interests, the Federal Government, under President Muhammadu Buhari, reduced import duties on more than 89 items in various sectors of the nation’s economy.

The reduction according to the government was to promote development in critical sectors of the economy including housing, and is part of its Fiscal Policy Measures.

At the time of announcement, the directive was made up of the Supplementary Protection Measures (SPM) for implementation together with the ECOWAS CET 2015 – 2019.

Then minister of Finance, Kemi Adeosun, explained that the ECOWAS CET, which will cover the 2017 to 2019 fiscal periods, is composed of three categories made up of an Import Adjustment Tax list of 173 tariff lines, a national list consisting of 91 items and an import prohibition list of 25 items, which is applicable to certain goods originating from non-ECOWAS member states.

Waivers, if well administered, are mechanisms for achieving set economic goals such as protection of local industries, job creation, export promotion as well as generation and preservation of foreign exchange. China, India, Malaysia, Japan and many other economies have at various times used waivers, concessions and grants to protect and build local manufacturing and agriculture. Sadly, none of such objectives has been met in Nigeria. Nonetheless, the interest of the local industry must be defended if the country would make any breakthrough or progress, and this is only possible if there is an enabling environment.

But there should be cause for optimism if the government’s commitment to due diligence, integrity and transparency is anything to go by.

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Delivering affordable and adequate housing in Nigeria has always been a major challenge, with many policies, and sometimes lack of, posing as threats to achieving the goal of reducing the country’s immense housing deficit.

A lot of people believe that placing heavy import duties on imported products, especially those related to housing construction and development can help develop the local housing industry, but the reverse is actually the case.

The cost of local production and manufacturing in Nigeria is incredibly high, and only when those issues that lead to such high cost of production are resolved that we can argue more for the placement of heavy import duties.

Import Duty Waivers and Affordable Housing

It makes patriotic sense to place heavy import duties on importation, especially if there is an existent and vibrant local production industry, but it doesn’t make economic sense to do so if the local production and manufacturing industry lacks the capacity to operate independently with the ability to also minimize cost. Nigeria is grappling with perennial problems of infrastructure, which sometimes make local production an impossible dream. For those who can manage the local conditions, the quality of output is usually a far cry from what is acceptable as international standard. This has also been a bane for Nigeria export ambitions, as products usually fail to meet required standards.

Effective local manufacturing can only thrive and save cost if infrastructures like energy and power, water, market, roads, transportation and even personnel expertise are readily available. In the absence of this, it can even be cheaper to import quality products with the incentive of duty waivers.

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The cost of producing building and construction materials in Nigeria are usually double the cost abroad because the manufacturers in Nigeria will have to bear extra cost of providing private power through the installation and fuelling of generators, building of private water supplies, company access roads, security, specialised transportation etc.

Manufacturing in Nigeria is definitely not a cake walk, and this is why local industry stakeholders would rather import finished products at lesser costs, and even better and cheaper for everyone, including the buyers when government can introduce temporary duty waivers.

These measures go a long way in reducing the cost of housing in Nigeria. Today, low and medium income earners who have between N5million to N10million can own their own homes. The demand for such low cost but high quality homes have spiked since these import waivers were introduced.

The Problem of Corruption

However, there have been concerns in some quarters that government policies like import duty waivers, concessions and grants tend to mainly favour cabals that are close to the government of the day. Worse still, the system has been too corrupted. Some beneficiaries are known to sell duly-approved waivers for essential goods to importers of other products that are of little or no benefit to the economy. Unfortunately, some defaulting companies in duties and levies to the Federal Government, notwithstanding their conduct, even got fresh waivers to import more in an era of impunity where monitoring was zero and the system was run without conscience.

This abuse got an official mention in 2015 at the Senate following a passionate submission by Senator Ibrahim Gubir. The upper chamber then decided on an ad hoc panel for a review to ensure full recovery of all government revenue related to the policy. Regrettably, as in most other investigations, the report has not been made public.

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The expectation now is that such practises be reversed. A regime that favours economic cartels and selfish barons should have no place in the Nigerian economy. The controversies surrounding the import duty waivers are only present because of such backdoor practises.

Until Nigeria can fix its infrastructure problems like power outage, roads, water supply, etc., it will make more economic sense to import finished products. The purchasing cost, as we have seen in housing will come down and will create more economic stability. Of course the greater wish of Nigerians is for the country to have an active local industry where its goods and services can be made, but until a conducive environment is provided for that to happen, it will be cheaper to import, and import duty waivers are very important in that regard.

By Ojonugbwa Felix Ugboja

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