Estimating effective rates of protection in Nigeria's protected cement industry

Abstract

Trade protection for selected products is a key element of smart industrial policy in many developing countries. Understanding quantitative measures of trade protection for industrial and consumer commodities is therefore a key requisite to determining the effectiveness of export-led growth in particular, and overall industrial policy. However, accurate estimates for trade policy incentives provided to industrial products are few and comparable datasets are sparse, with the most recent published country datasets dated as far back as 2012, yet with limited sector indices. This study estimates the effective rate of protection (ERP), a key index of trade protection and industrial policy, for the cement industry, one of the largest manufacturing industries in Nigeria. Time series data for 16 years, on the actual cost of trade protection, including tariff barriers and import prohibition bans, from 2000 to 2015 is used. With the ERP, the true cost of protection of domestic manufactures from imported goods, is computed using input shares and tariff data from the United Nations COMTRADE database. The data show the basis for computation and provides a re-useable template for central planners in the computation of effective rate of protection for similar manufacturing industries and other African countries. The computed ERP for the cement industry in Nigeria show a relatively high protection rate, and the overwhelming impact of trade prohibition on the ERP after the implementation of the Federal Government's incentive-led Backward Integration Programme. The evidence is compared with earlier data on Africa. Preliminary findings and trend analysis indicate a high correlation between the ERP and value added to gross domestic product (GDP).