(The Globle Economy) UK cuts tariffs on Nigerian exports

The UK government on Monday said it had cut tariffs and extended duty-free trade in goods exported from Nigeria

 

Mr Ben Llewellyn-Jones, Deputy British High Commissioner to Nigeria said this at the launch of the Developing Countries Trading Scheme (DCTS) which took place at Eko Hotel and Suites, Victoria Island, Lagos.

 

Llewellyn-Jones said the scheme would help to boost Nigeria’s non-oil exports in line with the Federal Government’s wider trade policy objectives and take off in April 2023.

 

He noted that the scheme would reduce import costs by over £750 million per year, thereby reducing prices, and increasing the choice of UK consumers and businesses as well.

 

“ The Uk Government has reduced the tariffs of 90 per cent of goods that Nigeria would export to our country and has also provided a preferential trading scheme for range of other exports that the country might have.

 

“ We have reached out to small and large businesses in different parts of the country and this is intended to help exporters and other people in the trading business to make the United Kingdom an export destination.

 

“This would also serve as an opportunity to grow the non oil and gas sector in Nigeria and create jobs in the country, and most importantly, we are reaching out to people at the grassroot level so they can know what we are doing.

 

“The DCTS is much more generous and simpler than the existing Generalised Scheme of Preferences (GSP),” he said.

 

Llewellyn-Jones revealed that the trade volume between both countries for the year 2022 was 2.2 billion pounds, noting that the oil and gas sector accounted for the majority of the trade.

 

He stressed on the importance of expanding the market and diversifying into other
sectors including exportation.

 

“We have to change focus to non-oil sector, but this takes time, but we are working with experts from Nigeria Export Promotion Council and the Federal Government to grow the economy through expanding of its export.

 

“The key challenge for exporters is finding key partners in the UK to sell their products but we are working on ensuring that we link exporters with potential buyers so as to ensure there is enough demand and supply,” he said.

 

Mr Simon Calvert, Senior Commercial Agriculture Adviser, Foreign Commonwealth and Development Office (FCDO) noted that Nigeria does not require international conventions to enjoy the benefits under the DCTS.

 

He added that the Uk government would help exporters to access finances through its financial institutions.

 

He noted that by making the rules of origin more generous, neighbourng countries can easily make use of components from Nigeria in their Duty Free Exports to the UK

 

“Cutting tariffs for Nigeria would ensure that 3000 new products are duty free for the first time as the average existing tariff on these goods is seven per cent, meaning these changes make Nigerian exports more competitive in the UK.

 

“ Many tariff reductions are on value added goods such as processed sesame oil, cotton clothing and cocoa butter and paste and complement existing duty free trade on raw products.

 

“ We have made it simpler for Nigeria to get and retain these enhanced tariffs by removing the need for Nigeria to ratify and implement certain international conventions,” he said.

 

Damola Oladosu, an official with Boston Consulting Group, said that opportunities in the exporting market remained underutilised.

 

She said that the country could grow its exports to the UK by increasing production on certain products like cocoa, cotton, fertilizer, cashew amongst others.

In the UK, the government has recently decided to cut tariffs on 90% of Nigerian exports as part of a trade agreement between the countries with the aim of promoting economic growth and improving trade relations. A tariff is a tax on imports which increases the costs of production for foreign firms therefore this form of protectionism was claimed unbeneficial for the Nigerian and the British economy. The interaction across these nations is an example of interdependence. Both countries are aiming to reach economic growth mutualistically. Since the UK has left the EU trading bloc, it is making efforts to establish new trade partnerships outside of it and diversifying its trade partners.

While there was tariffs on Nigerian goods, the price was raised from the international trade price of Pw to Pw + 7%. Domestic suppliers used to supply from 0 to Q3 however the total demand is 0 to Q4, so they would import Nigerian goods from Q3 to Q4. Although the quantity supplied by domestic British producers was increased, the quantity demanded shrank. Tariffs evidently help the UK domestic supplier, however by removing tariffs, they are increasing the amount of Nigerian goods in the country that are supply inelastic as they cannot

 

be produced in the UK. In fact, the UK is targetting the Nigerian industry by signalling them to diversify their exports and move away from the oil and sector. The UK government stated that they “have to change focus from non-oil sector”. They are aiming to increase production on products such as “cocoa, cotton, fertilizer, cashew”. As the UK and Nigeria are now interdependant, the reduction of tariffs would reduce the UK’s import costs by “750£ million per year”.

 

Thus British domestic suppliers will be producing from 0 to Q1 and as the total demand is 0 to Q2, imports will be increased to Q1 to Q2. This may result in an increase in consumer surplus for British consumers. Before the removal of the tariff, they were paying for imported goods at a higher price whereas now the consumer surplus has increased as the prices for goods are lower than they’re willing to pay. This rise in exports will make Nigerian goods more competitive in the UK market leading to increased revenues for Nigerian exporters and producers. Moreover, this reduction in tariffs is beneficial for the UK as it increases the choice for consumers increasing purchasing power and stimulating growth across the country. As the countries are interdependant, Nigeria is obtaining the business while the UK needs the imports. The improvement in trade relations between these two countries allows them to strengthen their political and economic ties without the risk of retaliation.

Without diversifying it’s products, Nigeria is using the majority of it’s factors of production to produce in the oil and gas sector. It is therefore allocating a significant amount of it’s resources to point A. Without tariffs, Nigeria is encouraged to diversify it’s products and change their allocation of resources to point B. By shifting their allocation of resources to the non oil and gas sector, they can only benefit as there is more potential for these goods to be exported to the UK.

 

The British government had many goals for it’s economy such as “expanding their market and diversifying into other sectors”. However, tariffs are a source of government revenue which will now decrease. In Figure 1, the section F of the diagram represents the government’s revenue from the tariff before it was removed. The government’s choice has an opportunity cost as they will have to find alternate sources of revenue to compensate from their loss.

 

On the other hand, for Nigeria, this interdependance with the UK seems to be largely beneficial. The article seems heavily dependant on Nigeria’s needs as it is written from a Nigerian point of view and is mute on the benefits for the UK or what the UK wants in return besides the import of goods. As Nigeria enters the UK’s large consumer market, businesses will sell their goods at a more affordable price, increasing their market share. In fact, as the UK is Nigeria’s largest trading partner, UK firms may invest in Nigeria. The trade relation with the UK may equally transfer knowledge, technology and expertise to Nigeria. This would be beneficial for the country’s development, encouraging their export duties across different nations. As well as that, the British government is planning on helping “exporters to access finances through it's financial institutions.”

 

In conclusion, the UK’s decision to reduce tariffs on Nigerian imports can be claimed beneficial for both countries as partners. However, Nigeria is simply moving from one primary sector activity to another which may restrict the country’s development. Therefore, the scheduled sustained economic growth from this agreement needs to be observed over the long run.