RESTRICTED
WORLD TRADE WT/BOP/R/25
27March 1997
ORGANIZATION(97-1257)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE CONSULTATIONS WITH NIGERIA
1. TheWTOCommitteeonBalance-of-PaymentsRestrictionsresumeditsconsultationswithNigeria,
suspended inSeptember 1996, on3and4March 1997. Theconsultation washeldunder the
Chairmanship ofMr.Peter Jenkins (United Kingdom), inaccordance withtheCommittee 'sterms of
reference, pursuant toArticle XVIII:12 (b)ofGATT 1994 andtheUnderstanding onthe
Balance-of-Payments Provisions oftheGATT 1994. TheInternational Monetary Fund wasinvited
toparticipate intheconsultation inaccordance withArticle XV:2 ofGATT 1994.
2. TheCommittee hadbefore itthefollowing documents:
Basic Document supplied byNigeria WT/BOP/6/Rev.1
Addendum toBasic Document supplied byNigeria WT/BOP/6/Rev.1/Add.2
Background Paper bytheSecretariat WT/BOP/W/9
IMF Nigeria: Statistical Appendix, 27December 1996
Opening Statement oftheRepresentative ofNigeria
3. Theopening statement oftherepresentative ofNigeria isattached asAnnex I.
Statement bytherepresentative oftheInternational Monetary Fund
4. Thestatement bytherepresentative oftheInternational Monetary Fund isattached asAnnex II.
Discussion intheCommittee
5. Members reacted negatively totheNigerian proposal thatimport prohibitions bephased out
bytheyear2010. Members recalled thatNigeria hadundertaken, inFebruary 1996, tomake all
restrictive trade measures price-based andtodisinvoke Article XVIII; andthatsubsequently, in
September, theCommittee hadbeeninformed thatpositive recommendations hadbeenputbefore
Government toeliminate these prohibitions, withtheexpectation ofadecision totheeffect thatthey
would beadopted withthe1997Budget. Itwasfurther recalled thattheCommittee hadalready agreed
inSeptember (WT/BOP/R/18) thatbalance-of-payments restrictions could nolonger bejustified; since
then, reserves hadrisenfurther (tofivemonths ofimport coverage atend-December 1996). Several
Members expressed theview thatprohibitions should beeliminated immediately. Some Members
suggested thateconomic prospects remained fragile, andtimelagsintheimpact ofmacroeconomic
policies could justify alonger time-frame forelimination.WT/BOP/R/25
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6. Several Members agreed withtheIMF'sanalysis thatappropriate macroeconomic policies,
nottrade restrictions, heldthekeytoasustained improvement intheoverall balance ofpayments.
Members emphasized thatsuchpolicies would involve atighter monetary policy, areduced public
deficit andgreater transparency inorder tocreate amore favourable investment climate.
7. Members sought information onthecurrent bound tariff rates ontheitems stillsubject to
quantitativerestrictionsjustifiedforbalance-of-paymentsreasons.TheNigerianrepresentativeresponded
thatthethreeagriculture items werebound at150percentwhile theothers wereunbound. Inresponse
tosuggestions thatNigeria hadample flexibility tomaintain effective price-based restrictions, arguing
evenmore fortheimmediate elimination ofquantitative restrictions, theNigerian representative noted
thatthese restrictions were, interalia,necessary toprevent smuggling. Hethought itpossible that,
onceareform ofthecustoms administration wascompleted, probably within thenexttwoyears, price-
based measures (tariffs) could berelied on.
8. Therepresentative ofNigeria proposed thatthetimeframe forelimination bereduced to2005,
but,inthelightofcontinued objections fromtheCommittee, agreed toconsult withtrading partners
andtoprovide atime-schedule forelimination oftheprohibitions inadvance ofaresumed consultation
inJuly1997. Hereaffirmed Nigeria 'scommitment totheconclusion oftheSeptember (1996)
consultation.
Conclusions
9. TheCommittee recalled thatatitsprevious meeting, Members considered thattheimport
prohibitions inforceinNigeria could nolonger bejustified under Article XVIII:B andtheUnderstanding
ontheBalance-of-Payments Provisions oftheGATT. Atthattime, Nigeria hadstated itscommitment
toproceed withtheirearly elimination andtodisinvoke Article XVIII:B. Members welcomed the
removal oftwoitems from theimport prohibition list,butexpressed disappointment thatsixitems
onthelistremained inplace. While some Members urged immediate elimination, others feltthata
phase-out could bejustified. TheCommittee didnotfindacceptable Nigeria 'sproposal ofaphase-out
by2005.
10. TheCommittee agreed withtheIMFanalysis thatacontinued boldandcredible programme
ofeconomic andtradereforms wasessential toachieving lasting improvements inNigeria 'sbalance-of-
payments position. TheCommittee tooknoteofthereaffirmation bytheNigerian delegation ofits
continuing commitment tophase outtheremaining import restrictions. TheCommittee called onthe
Nigerian authorities toconsult those Members whoexpressed aninterest andtodrawupatime-schedule
fortheelimination ofthese WTO-incompatible measures. TheCommittee invited Nigeria toresume
consultations intheweek beginning 7July1997and,tothatend,requested Nigeria tocirculate, three
weeks inadvance, proposals foratime-schedule.
11. Meanwhile, Members reserved theirrights under GATT 1994.WT/BOP/R/25
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ANNEX I
Statement bytheRepresentative ofNigeria
Letmebegin bycongratulating youonyourelection asChairman oftheWTO Committee
onBalance-of-Payments Restrictions. Nigeria isconfident thatunder your ableleadership, this
Committee willbeabletoreach balanced conclusions inthepursuit ofglobal trade liberalization.
Wepledge oursupport toyourtenure asChairman ofthisCommittee. Iwould alsoliketoseizethis
opportunity, onbehalf ofmydelegation, toconvey ourgratitude, through you,toyourpredecessor
Mr.Peter Witt, fortheableandastute manner inwhich heconducted theaffairs oftheCommittee.
AttheResumed Consultation between thisCommittee andNigeria, inSeptember 1996, the
Committee tooknoteofthetechnical andlegislative processes which hadbeeninitiated withaview
toeliminating theimport prohibitions based onbalance-of-payments grounds. Itwasagreed thatif
allitems were removed inthe1997 Budget, there would benoneedforfurther consultations.
Followingthatmeeting,IwishtoreportthattheNigerianGovernmentcomprehensivelyreviewed
ourrecommendations withaviewtoeliminating andphasing-out theimport prohibitions.
Asaresult ofthatreview, Government removed twoitems from theimport prohibition list
inthe1997 fiscal year, namely textiles andfurniture, listed asitems 13and15inAnnex IofWTO
documents WT/BOP/W/9, BOP/W/165 dated 10November 1995. Government hasalsoagreed, in
principle, tophase-out theremaining restrictive trade measures bytheyear2010. Itisrelevant for
theCommittee tonotethattheGovernment ofNigeria hasadopted acomprehensive economic and
socio-political programme entitled "Vision 2010". Theabove decisions byGovernment tookaccount
oftheoverall performance oftheNigerian economy, particularly thecontinued fragility anduncertainty
ofthebalance-of-payments situation, andthegeneral policy framework under theVision 2010
Programme.
However, Government hasdecided forhealth, safety andmoral reasons toretain theimport
prohibitions onthefollowing items:
(i) mosquito repellent coils;
(ii) retreaded/used tyres;
(iii) motor vehicle andmotorcycles above eight years old;and
(iv) gaming machines.
Iwould liketoreiterate asstated atourSeptember consultations thatNigeria isadeveloping
country confronted withtremendous domestic andglobal economic challenges. Oneofthecentral
tasks ofGovernment, therefore, istoreduce poverty, increase thematerial prosperity ofourpeople,
andtheirgeneral well-being, aswellasenhance theircapacity andthatofourenterprises tocompete
globally.
Inconclusion, Mr.Chairman, Ilookforward tothecontinuing understanding andco-operation
oftheCommittee.WT/BOP/R/25
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ANNEX II
Statement bytheIMFRepresentative
1. Background
Nigeria'smacroeconomicperformanceduring1991-94wasdisappointing,withrealGDPgrowth
averaging lessthan3percentayear, inflation surging to77percentin1994 (end-period), gross
international reserves falling toUS$0.9 billion (1.3months ofimports ofgoods andnonfactor services)
byend-1994, andlargeexternal payments arrears accumulating. Inresponse tothisperformance, the
Government began toadopt anumber ofcorrective measures in1995. First, thesystem ofadministered
foreign exchange allocation wasreplaced withadualexchange raterégime, consisting ofanautonomous
foreign exchange market (AFEM) rate(N80=US$1) andtheofficial exchange rate(N22=US$1).
Second, thefederal government budget deficit (onacommitment basis) wasreduced from itspeak
ofabout 18percentofGDP in1993 to3.7percentin1995. Third, eventhough theinterest rate
ceiling (21percent) wasretained in1995, thegrowth ofmoney supply wassubstantially reduced.
Finally, onthestructural front, theexchange system wasliberalized, import tariffs were lowered
markedly, restrictions onforeign investment relaxed, anddistress inthebanking system wasreduced.
Thesecorrectivemeasureshavehadsomesuccessinrestoringmacroeconomicstability.Inflation
decreased to52percentin1995(end-period) andfurther toanestimated 28percentin1996. While
thecapininterest rates andthesectoral credit allocation guidelines were removed effective
1October 1996, interest ratesnonetheless remained negative inrealterms. TheAFEM rateremained
within therange ofN80-N85 perU.S.dollar, andthisentailed a37percentappreciation ofthereal
effective exchange rate.Based ondataproved bytheNigerian authorities, andtheFundstaffadjustments
toreflect abetter coverage oftheunderlying transactions, itisestimated thatthefederal government
budget recorded asurplus of0.6percentofGDP in1996. Inaddition, theexternal current account
hasbeenimproving, withthedeficit being almost halved in1995, to1.7percentofGDP, andwith
ashifttoasurplus in1996, estimated at5.0percentofGDP, thanks largely totherecent increases
inworld oilprices. Nigeria 'sgross international reserves arereported tohave increased to
US$4.1 billion (5.2months ofimports) atend-December 1996, fromUS$1.4 billion (1.8months of
imports) ayearearlier. Nevertheless, economic activity hasremained weak, withnon-oil GDPgrowing
byanestimated 2.4percentinboth1995 and1996.
2. Policy directions in1997
The1997federal government budget waspresented inJanuary. Thebudget envisages adeficit
equivalent to2.2percentofGDP, compared withthereported surplus of0.6percentofGDPin1996.
Total government expenditure istoincrease to15percentofGDP from13percentofGDPin1996,
while totalfederally retained revenue isestimated tobe12.8percentofGDP in1997, representing
areduction of0.7percentofGDPfromestimated receipts in1996. Tofurther address financial sector
distress, theauthorities haveundertaken anumber ofmeasures, including increasing theminimum
paid-in capital requirement ofbanks andrequiring therecapitalization/liquidation ofalldistressed banks.
Asregards privatization, theGovernment announced thatitwillsetupacommittee toexamine the
various options before anyprivatization exercises areembarked upon. TheGovernment intends to
maintain itspolicy ofcommercialization ofpublic enterprises andencourage efficient management of
these bodies.
Intheviewofthefund, the1997federal government budget isdisappointing andtheenvisaged
budget deficit isinappropriate. Theplanned increase inexpenditure isexcessive, particularly inviewWT/BOP/R/25
Page5
ofthefragility ofoilprices, andlarge expenditure items stillremain inareas thatshould beleftto
theprivate sector. itisalsonecessary toestablish amechanism forraising domestic petroleum prices
tointernationallevels.Moreover,theFundisconcernedthatthebudgetenvisagesafurtheraccumulation
ofexternal arrears. While theelimination ofthecaponinterest ratesandtheremoval ofthemandatory
sectoral credit allocation guidelines arewelcome, itiscritical thatrealpositive interest ratesareachieved
without delay. TheFundisalsoconcerned about therecent measure tobring theCentral BankofNigeria
under theMinistry ofFinance, which could undermine thecentral bank'sindependence intheconduct
ofmonetary policy. Furthermore, itisregrettable thattheauthorities have decided todelay the
privatization oftheoil,power, andtelecommunications sectors, rather thanmoving ahead expeditiously
withtheneeded privatization. Finally, inorder tostrengthen public andinvestor confidence, itiscrucial
toenhance thetransparency offiscal policy andtoputinplace theinstitutional framework tohelp
eliminate theperception ofwidespread corruption.
Asregards theexchange andtradesystem, theauthorities haveannounced thattheywillcontinue
withtheirpolicy ofguided deregulation oftheexchange rate. Thedualexchange ratesystem will
bemaintained andtheunification ofthese rateshasbeendeferred, thereby maintaining amajor source
ofeconomic distortions. Thenumber ofprohibited import items remains unchanged at14,although
thecomposition haschanged, withfiveitems being removed (i.e.vegetables, processed wood, textile
fabrics, kaolin, andfluorescent tubes andGLSbulbs), andfiveitems being added (i.e.sorghum, millet,
wheat flour, gypsum andgaming machines). Atthesame time, thenumber ofitems ontheexport
prohibition listhasincreased from fourtonine, withrawpalm kernels being removed from thelist,
andscrap metals, rice,yams, maize, cassava, andbeans being added. While theNigerian authorities
havelowered import dutyratesforanumber ofproducts, including writing inks,crushed orpowdered
talc,electric accumulators (automotive batteries), textile fabrics, spare partsforcommercial aircraft,
fertilizer, certain machinery equipment tools, tractors, andwater treatment chemicals, theyhavealso
increased overall ratesbyreducing theimport dutyrebate from 35percentto25percent.
Theauthoritieshaveannouncedtheremovaloflimitationsontheavailabilityofforeignexchange
relating topersonal andbusiness travel allowances, home remittances byforeign nationals, and
remittances foreducation expenses. Theauthorities havefinally announced theremoval oflimitations
onpayments offees,tariffs, andother charges forservices rendered inNigeria, andthelifting ofthe
suspension ofbillsforcollection. While these measures arewelcome, certain exchange restrictions
remain andfurther clarification isrequired inorder toassess whether othermeasures constitute exchange
restrictions.
3 External prospects
Nigeria 'smedium-term prospects depend notonlyondevelopments intheoilsector -which
accounts for98percentofthecountry 'sexports and70percentofgovernment revenue -but,even
more importantly, onthecourse ofitseconomic policies. TheFund'slatest projections indicate that
crude oilprices would remain relatively high, atabout US$20 perbarrel, overthenextthree tofive
years. Under thisassumption, andaprojected steady increase inoilexport volume, oilexport earnings
would riseby12percentofGDP by2001. Theprojected substantial increase inoilreceipts would
not,however, resolve Nigeria 'sexternal financing problems. While thecurrent account would remain
insurplus overthemedium term, thecapital account would continue tobeindeficit asneither direct
investment norloandisbursements could beexpected toincrease significantly intheabsence ofamajor
privatization drive oranimprovement intheinvestment climate. Thisdeficit would more thanoffset
thecurrent account surplus. For1997, acurrent account surplus isagain projected, albeit lessthan
thatestimated for1996. However, itisexpected thatthecapital account would continue tobeindeficit,
resulting inanoverall balance-of-payments deficit.WT/BOP/R/25
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Owing touncertainty regarding thefuture courses ofoilprices, theweak performance ofthe
non-oil export sector, andthecountry 'sheavy debt-service burden, Nigeria 'seconomic prospects
therefore remain fragile. There aresubstantial downside risksthatoilprices might fallintheperiod
ahead. Ifoilprices weretoreturn totheir1995levelofabout US$17 perbarrel, oilexport earnings
would decline sharply in1997, andwould notrecover totheir1996 leveloverthenextfiveyears.
Although theexternal current account could remain approximately inbalance, thecapital account would
continue tobeindeficit intheabsence ofimproved relations withofficial bilateral, multilateral, and
private creditors, resulting inanoverall balance-of-payments deficit. Thisfurther underscores the
needfortheadoption ofappropriate macroeconomic policies.
IntheFund'sview, trade andexchange restrictions arenottheappropriate means totackle
thebalance-of-payments problem. Accordingly, theExecutive Board didnotapprove themaintenance
ofexchange restrictions northemaintenance ofthemultiple currency practice arising fromthecurrent
dualexchange ratesystem thataresubject, respectively, toArticle VIII, Section 2aandSection 3.
Rather, theBoard maintained thatthesteadfast implementation ofstrong macroeconomic policies was
required ifimprovements intheoverall balance ofpayments weretobesustainable. Theauthorities
should, without delay, remove prohibitions onexports andimports, aswellasallremaining restrictions
oncurrent international transactions. Asignificant anddurable improvement ineconomic performance
inNigeria canonlybeachieved through acomprehensive andboldsetofactions, which should
encompass strict fiscal discipline andtransparency, atightmonetary policy, unification ofthedual
exchange rates, removal ofmarket distortions, anambitious privatization drive, astrengthening of
fundamental economic institutions, andtheregularization ofrelations withNigeria 'sexternal creditors.