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Case against illicit trade

By Providence Emmanuel

It is known that no economy run by illicit trading activities can grow its local manufacturing, improve quality of life and generate employment for her people.

Illicit trade is the production and distribution of goods that fall short of governing rules, laws and regulations in the relevant industry/sector and in particular jurisdiction.

This cuts across consumer goods and brands: electronics, apparel and alcoholic drinks, vehicles and auto parts, drugs, arms, pharmaceuticals, cigarettes, counterfeit currency as well as humans. It impacts every product, industry and country.

From left: A former Director General of the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr. John Isemede; Mr. Olusegun Sotola, a research fellow with IPPA, and Dr. Olajide Damilola of the University of Aberdeen, United Kingdom, at the event.

The Institute for Public Policy Analysis, IPPA, at a round table meeting held in Lagos and themed: ‘Business Environment: Maximising Economic Opportunities through Effective Anti-Illicit Trade Enforcement,’ said illicit trade was a threat to global economy and that it was estimated to account for about eight to 15 percent of global GDP, and reaching $12 trillion in 2014 (World Economic Forum 2015).

Therefore, fighting illicit trade is key to protecting national security, this is consequent upon a proven fact that illicit trade, especially products counterfeiting, smuggling of narcotics, weapons and tobacco is a source of revenue for organised criminal groups in Africa and beyond.

A research conducted by the institute showed that illicit trade was linked to financing terrorism, which translates to lower unemployment rate and less demand on public funds. Consequently, Illicit products pose serious health risks to consumers.

Illicit trade reduces tax revenues and increases instability; reduces market share and capacity of local businesses; damages brand image of licit manufacturers and underground economy does not reflect in country’s GDP.

In a paper presentation titled: “Business Environment and Illicit Trade: Linkages and Evidence”, Dr. Olajide Damilola, from the University of Aberdeen, U.K, explained that illicit trade is driven by a common set of factors globally, including consumer preferences; business environment and regulatory framework.

Damilola said: “Consumers in search of lower prices and greater product variety drive sales of illicit products. Conditions within local markets influence the attractiveness of trade within a country. ineffective regulation and weak enforcement allow illicit trade. Economies, through their action and/or inaction create incentives for illicit trade (governance approach)

“Actors of illicit trade can be individuals, industry or governments. Example: China is a major source of the counterfeit goods. North Korea engage in illicit trades involving drugs, arms, and counterfeit currency.

“Even though illicit trade is perceived to strive in the Americas, anti-illicit trade policies in the USA also prevent the extent of illicit trade in neighbouring economies. Economies differ in the factors that contribute to curbing illicit trade within their domain,” he said.

Against this background, the Economic Intelligence Unit, UK, developed the Global Illicit Trade Environment Index, GITEI, to measure the extent to which the environment enables illicit trade that economies create through action and inaction across four main areas: Government policy; Supply and Demand; Transparency and Trade; and Customs Environment.

In the GTEI Index, the high ranked countries are those that have successfully curbed illicit trade in all its ramifications while countries ranked low are those struggling to curb illicit trade. Nigeria is not yet included in the index which evaluates 84 economies on their structural capability to protect against illicit trade.

Speaking on the Nigeria business environment, Executive Director of IPPA, Mr. Thompson Ayodele, said the increase in excise could potentially embolden criminals and smugglers to conceal imports as well as abuse certain customs and excise procedures if unchecked, this would completely negate the accruable benefit to the government, adding that Illicit trade exposes the general public to the dangers of sub-standard and low quality products, as usage of such illicit products have been known to cause grievous health issues or compromised infrastructural integrity.

Ayodele who was represented by a research fellow, IPPA, Mr. Olusegun Sotola, added that to maximize revenue opportunity from the increased excise tax ,an improved enforcement framework is required for successful policy actions to rein in illicit trade that must be complemented by robust and coordinated law enforcement activities.

“The strengthening of relevant law enforcement authorities (e.g Customs) is pertinent and greater inter-agency cooperation nationally and trans-nationally is necessary for effective enforcement that would stifle illicit trade. Enhanced bilateral cooperation with major source and transit countries inclusive of cross-border coordination and cooperation is necessary with appropriate sanctions and guarantees.

“As an emerging economy, the challenges of doing business in Nigeria are several and these issues affect the growth of the economy as well as making it difficult to attract investors and investment. The challenges range from multiple infrastructural inadequacy, policy inconsistencies, corruption, insecurity, bureaucratic bottlenecks, infringements on the rule of law and sometimes a lack of political will to implement business friendly policies. In such an adverse environment, companies operating legally as net economic contributors deserve government encouragement and protection of their goods and services from losing commercial viability to illicit perpetrators.

“Recently there was a duty hike for excisable goods in Nigeria. Agreed that taxation is the primary means of generating government revenue, this has become more critical as we seek to evolve from a mono to diversified economy to enhance government revenue which is used to provide social infrastructure for the citizenry.

“However, It is conventional wisdom that taxation should be stable, predictable and progressive when appropriate to serve as catalyst for achieving government’s socio-economic objectives. We have instances where aggressive taxation without adequate enforcement of fundamentals create business uncertainty, inadvertently providing incentive for illicit trade to flourish thereby eroding the very economic objective government set to achieve by rendering legal businesses and tax payers comatose due to the unrestrained activities of illicit trade purveyors. Consequently it has been established beyond any doubt with empirical evidence that unreasonable taxation is the biggest factor driving illicit trade, he said.

Former Director-General of National Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Dr. John Isemede, said the fundamentals behind Nigeria’s trade policy were faulty and should urgently be restructured. He lamented that Nigeria had become a dumping ground for all forms of sub-standard products partly due to failure of relevant government agencies to effectively check influx of such goods through the borders.

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