Balancing Protection and Incentives in Nigeria’s Trade Policy

Protective walls have long shaped Nigeria’s trade strategy. Tariffs on rice, poultry, and dozens of other imports were designed to secure domestic industries, yet trade data suggests the outcome is less straightforward. In Q1 2025, imports still totaled 43% of overall trade, with more than half sourced from Asia in machinery, fuels, and chemicals. Exports tell a narrower story: crude oil generated nearly 63% of earnings, while manufactured goods contributed only 1.5%. Agricultural exports of ₦1.7 trillion in cocoa, cashew, and sesame are expanding, but remain largely unprocessed. Meanwhile, billions are spent importing raw sugar, wheat, and equipment that could be produced locally if capacity were stronger. Protection has, in effect, created survival rather than competitiveness. The core policy challenge is no longer whether tariffs can shield local producers, but how Nigeria can recalibrate trade policy toward incentives that enable growth, efficiency, and long-term competitiveness.

The Tariff Paradox

Nigeria’s tariff system has become a blunt instrument designed to protect, but it often undermines the very industries it seeks to nurture. Import duties remain one of the government’s largest revenue streams, yet exemptions and waivers erode the gains. According to NBS, In 2023, the state lost an estimated ₦1.8 trillion to import duty exemptions, much of it through poorly targeted incentives that offered little return in productivity. Weak oversight compounded the problem, with “ghost” factories and misclassified imports exploiting the system until recent reforms introduced the Incentive Monitoring and Evaluation Platform (IMEP). But the deeper issue is effectiveness. Protection has not translated into competitiveness. In Q1 2025, agriculture exports climbed to ₦1.7 trillion, but these were largely raw cocoa, cashew, and sesame commodities trapped at the lowest end of the value chain. Manufacturing tells an even starker story of ₦7.8 trillion in traded manufactured goods, only ₦294 billion left in Nigeria as exports. Tariffs may have shielded firms from foreign rivals, but they also made essential inputs, such as machinery, chemicals, and raw materials, more expensive, stunting growth before it could take off. Policy volatility adds another layer. Frequent tariff adjustments, such as temporary waivers on grains to ease food inflation, send mixed signals to investors. Businesses making long-term bets on local production see the ground shift beneath them, discouraging capital-intensive commitments in processing and manufacturing. Meanwhile, consumers carry the cost of inefficiency. According to NBS consumer price data, Cement prices now hover above ₦9,000 per bag, and food inflation remains elevated despite ad-hoc waivers. The intended protection of producers ends up inflating the cost of living, forcing the government into a cycle of reactive fixes that further erode predictability. What emerges is a clear paradox: Nigeria’s tariff regime protects in name, but in practice it drains revenue, discourages investment, weakens competitiveness, and burdens households. Unless recalibrated toward incentives that enable productivity, tariffs will remain a secure but stagnant rather than a platform for growth.

Incentives to Competitiveness

Nigeria’s reliance on tariffs has not delivered competitiveness because the deeper issues of infrastructure, energy, and financing remain unresolved. Even with high import duties, industries face production costs that outstrip global competitors. Agriculture shows the contradiction: tariffs exist to protect local farmers, yet Nigeria still imports wheat in large volumes, while exports remain concentrated in raw cocoa and cashew. Protection becomes a ceiling, not a springboard. If tariffs fall short, incentives should fill the gap, but their design has often undermined their purpose. Duty waivers and tax exemptions are handed out broadly, with little monitoring or conditionality. Without tying relief to measurable outcomes such as export growth, local content use, or processing investment, incentives lose their power to transform. Instead of accelerating industrial growth, they drain public revenue. This is where Senegal’s approach offers a contrast worth studying. By linking benefits in Special Economic Zones and co-investment schemes to clear performance benchmarks, Senegal ensures that incentives reward results, not just connections. That clarity has drawn investors willing to commit to multi-year projects, something Nigeria has struggled to achieve under its more discretionary regime. The problem is compounded by volatility. In Nigeria, tariff rates and exemptions frequently shift, often as temporary measures to address food inflation or shortages. These swings create uncertainty that discourages long-term planning. Senegal, on the other hand, has maintained greater stability within its SEZ framework, giving firms confidence that today’s rules will still apply tomorrow. Predictability, not protection, is what convinces capital to stay. Ultimately, Nigeria’s trade policy remains reactive rather than strategic, designed to manage crises rather than chart competitiveness. Tariffs rise when shortages bite; waivers appear when prices spike. Rarely are these tools embedded in a coherent plan for productivity. Recalibrated incentives, backed by accountability and consistency, could change that. They would turn protection from a fragile shield into a genuine platform for growth.

Balancing Protection with Growth

The problem is not protection itself, but protection in isolation, shielding industries without creating the incentives and conditions that allow them to grow stronger behind the barrier. A first step is to retarget exemptions and waivers. Much of Nigeria’s import relief has historically gone to finished goods, directly undermining local producers. A first step is to retarget exemptions and waivers. Much of Nigeria’s import relief has historically gone to finished goods, directly undermining local producers. According to the Ministry of Finance, ₦1.8 trillion was lost to import duty exemptions in 2023, with little evidence of value creation. Redirecting these incentives toward critical inputs such as agro-processing machinery, specialised chemicals, or raw materials not available locally would lower production costs and help firms move up the value chain. This approach shifts the logic of trade policy from rewarding consumption to enabling production. Yet incentives only work if they are conditional. The current blanket structure encourages rent-seeking, not performance. Other countries have shown a different path: India, for example, tied auto-sector protection in the 1990s to phased localisation requirements and export targets. Nigeria can adopt a similar approach by linking duty waivers and tax holidays to measurable commitments like job creation, export performance, and the use of local raw materials. Firms that fail to deliver would lose access, while those meeting milestones would gain extended relief. This transforms exemptions from handouts into contracts for competitiveness.

The next challenge is enforcement and transparency. Weak monitoring has allowed “ghost factories” to secure waivers, while genuine firms operate without predictable support. The government’s recent Incentive Monitoring and Evaluation Platform (IMEP) is a step forward, but it must evolve into a comprehensive digital system that tracks exemptions in real time, geo-tags beneficiaries, and automatically triggers clawbacks for non-compliance. Making aggregate data public, such as total exemptions by sector and compliance rates, would also deter abuse and restore credibility. Still, even the best-designed trade policy cannot offset Nigeria’s structural cost disadvantages. Energy remains unreliable, transport infrastructure drives up logistics costs, and FX volatility keeps firms from planning investments. Without tackling these bottlenecks, tariffs only keep consumer prices high while industries remain uncompetitive. Trade measures, therefore, need to be paired with complementary reforms: industrial corridors with reliable power, predictable FX access for priority sectors, and blended finance mechanisms that lower the cost of capital-intensive investments. Protection should buy time, not paper over inefficiencies. Finally, Nigeria must situate its trade policy within a regional framework. Aligning with ECOWAS’s Common External Tariff and the AfCFTA schedule would reduce policy volatility and give investors predictability, while also expanding the potential market for Nigerian firms. At present, frequent tariff shifts isolate Nigeria even as regional competitors build scale under continental agreements. Integration does not mean abandoning protection it means making it consistent, strategic, and outward-looking.

Conclusion

Nigeria’s trade policy has long leaned on tariffs and exemptions as a shield for domestic industries. Yet, the evidence shows that protection without productivity only entrenches inefficiency, raises consumer costs, and deters investment. The challenge is not whether to protect, but how to protect while building competitiveness. A smarter balance requires narrowing incentives to inputs that expand productive capacity, attaching conditions to waivers, and embedding transparency into monitoring. It also demands complementary reforms to stable infrastructure, energy, and financing that allow firms to compete beyond sheltered markets. Senegal’s experience demonstrates that when protection is paired with clear performance targets and consistent enforcement, local industries can grow into regional exporters rather than perpetual dependents. For Nigeria, the policy focus should shift toward making protection time-bound and performance-driven, ensuring that incentives are matched by measurable outcomes. This balance will not only reduce distortions in the short term but also create the foundation for a more competitive and resilient economy in the long run.