Successive Nigerian governments have shown a strong drive to diversify the economy through specific sector policies, particularly import substitution. This has usually been triggered by foreign exchange crises. Poorva Karkare and Michael Odijie argue that Nigeria must move away from a one-size-fits-all protectionist trade policy, also known as backward integration, to increase technical capacity and ramp up the production of goods and services

Karkare, Poorva

Odijie, Michael

English

LSE Research Online

Poorva Karkare Michael Odijie October 12th, 2022Nigeria’s trade policies on rice and pharmaceuticalshighlight the country’s over-reliance on import substitution0 comments | 9 sharesEstimated reading time: 5 minutesSuccessive Nigerian governments have shown a strong drive to diversify theeconomy through speci c sector policies, particularly import substitution. Thishas usually been triggered by foreign exchange crises. Poorva Karkare andMichael Odijie argue that Nigeria must move away from a one-size- ts-allprotectionist trade policy, also known as backward integration, to increasetechnical capacity and ramp up the production of goods and services.Under backward integration, the importation of a selected product is largely banned;importation licences are restricted to importers that can provide evidence of theirproduction of a domestic replacement. Yet, over-reliance on trade restrictions by thegovernment has taken attention away from implementing other relevant policies.Our research contextualises Nigeria’s trade and industrial policies in two importantsectors: rice and pharmaceuticals.In 2017, Akinwumi Adesina, President of the African Development Bank, predictedthat Nigeria’s Dangote would become the largest exporter of rice in the world by2021. From 2010 to 2015, before being elected President of the Bank, AkinwumiAdesina served as Nigeria’s Agriculture Minister, helping to shape the country’sindustrial policy on rice production. The success he predicted re ected his completefaith in this policy.Under Nigeria’s policy on rice importation, licences and quotas were granted only toimporters that invested in the production chain by building mills and large farms. Thiswas a form of import substitution, wherein quotas effectively provided importers withrents that could be used to increase domestic production. However, there werenumerous problems with the policy.First, the ruling elites used the rents to distribute resources to their supporters. Insome cases, the receivers of quotas had no connection at all with the rice sector.Second, few performance monitoring mechanisms were in place to ensure receivers’accountability for the support. Some traders, uninterested in rice farming, falsi edevidence of domestic investment to obtain import quotas from the government.Based on this fabricated evidence, the Nigerian government continues to exaggeratethe extent of domestic investment in rice production.Third, small- and medium-scale rice farmers who were not traders initially feltcheated by the policy because they were not entitled to import quotas. However, in2015, the Buhari administration broadened the policy to include credit, higher-qualityseedlings, fertiliser, and irrigation. Nevertheless, there are concerns over the viabilityof these policies and programmes as farmers default on repayments- regarding creditas grants.After 2015, these non-trade policies increased the scale of rice cultivation in Nigeriathan the trade restrictions that had started years earlier. (Figure 1)Figure 1: Nigeria area harvest for rice (paddy) production (2006-2020). Credit:FAOSTAT An important obstacle to developing the rice sector in Nigeria is the large-scalesmuggling of imported rice from neighbouring countries, especially Benin. The extentof this smuggling increased astronomically with the consolidation of trade protection.It was in this context that the Nigerian government decided to close the country’sland borders.Although the border closure increased rents, as the price of rice almost doubled, it didnot sustainably increase production. On the contrary, the quantity of milled ricedecreased after the 2019 border closure. As the production graph below shows, theoutput of rice in 2020 was lower than in 2019.Figure 2: Nigeria rice production- paddy vis-a-vis milled rice (1990-2020). Credit:FAOSTAT Nigeria is still not self-su cient in rice production; it continues to import about 2million tonnes per year. Some of the current gaps in Nigeria’s rice production arecreated by non-trade issues like value chain-speci c constraints beyond production.The 2019 land border closure slowed down the development of a regional productionchain between Nigerian mills and paddy from neighbouring countries. Furthermore,the border closure created problems for other sectors that depended on bordercrossings. Although smuggling is a constraint on production, the government over-emphasised trade restrictions in response, with the assumption that it wouldautomatically boost domestic production. This, however, was not the case.In pharmaceuticals, trade policies are also the primary measure used by the Nigeriangovernment to boost domestic production. In 2005, the government introduced aNational Drug Policy that led to a ban on the importation of 17 commonly used drugs.Instead, local drug manufacturers were expected to meet about 70 per cent ofNigeria’s demand for medicines by 2008. The ban is still in place in 2022, and therehas been no signi cant increase in drug production.Nigeria’s pharmaceutical industry has not been able to build the technologicalcapabilities needed to upgrade drug production. Complex drug manufacturingrequires technological expertise that cannot be obtained by trade protection alone.The Nigerian government and its agencies, e.g., the National Agency for Food andDrug Administration and Control (NAFDAC) lacks the technical capacity required toidentify gaps in production. This is coupled with the failure to upgrade productionthrough appropriate technology transfer, ideally negotiated and monitored by thegovernment and relevant agencies.While drug production in Nigeria has remained largely insu cient to meet domesticneeds, there is also limited focus on creating demand for these drugs by, for instance,strengthening the public procurement system and addressing ine ciencies therein.Without a solid foundation for boosting both demand and supply of pharmaceuticals,trade policies alone are unlikely to bring substantial development in this sector.However, the current administration has continued to introduce many other tradepolicies since 2016, such as an import adjustment tax on raw materials, reduction ofduties on intermediate goods while increasing them on  nished products wheredomestic production could replace importation and much more.COVID-19 disruptions have further increased the need to promote domesticproduction to preserve drug security. This has led to the creation of a credit supportscheme for drug manufacturers in the healthcare sector, including pharmaceuticals.While production has increased to some extent, there seems to be a mismatchbetween the policy and actual production problems.Nigeria’s one-size- ts-all policy approachThe obvious problem with sector policies in Nigeria is that they tend to take a “one-size- ts-all” approach. Although rice and pharmaceuticals are different in almost allrespects, especially in the nature of production constraints they face, the sectorpolicies are similar.A proper sector policy must  rst de ne the production constraints in each area andthen create a set of strategies that match and can effectively address the constraints.For example, constraints on electricity, transportation, the supply of agrochemicalsand fertilisers, as well as the adoption of modern varieties and security problems arekey production problems in the rice value chain. While a regional production networkcould create opportunities to solve some of these problems, an emphasis on tradeprotection reduces the possibility of  nding solutions. Drug production may requirethe kind of policy that would guarantee knowledge transfer from joint ventures withestablished producers, and a guaranteed market both at the national and regionallevel through harmonisation of standards.While industrial policies are required to boost industrial production in Nigeria, theyneed a wider array of tools than simply import restrictions. These policies should ful la vital function of strategic coordination to address binding constraints in sectordevelopment.Photo: Samuel Wöl  from PexelsAbout the authorPosted In: Economics | Recent | Trade Policy ProgrammeLeave a ReplyPoorva Karkare is a policy o cer at ECDPM working on questions of economictransformation through industrialisation and how this interacts with regionalintegration. With a master’s degree in development economics from the Schoolof Oriental and African Studies (SOAS), she worked with several multilateralorganisations including the World Bank in Mozambique. She also worked atSwaziland’s ministry of economic planning and development as an OverseasDevelopment Institute (ODI) fellow. In India, at the Federation of IndianChambers of Commerce and Industry (FICCI) she analysed trade and investmentrelations between India and Africa.Poorva KarkareMichael Odijie is currently a Research Fellow at University College London (UCL).Michael Odijie

Nigeria's trade policies on rice and pharmaceuticals highlight the country's over-reliance on import substitution

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Nigeria's trade policies on rice and pharmaceuticals highlight the country's over-reliance on import substitution

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