Nigeria’s Closure of Land Borders; What Next?
In August 2019, the Nigerian government announced the partial closure of land borders in the country. The move was accentuated into a full closure in October with the government citing smuggling and lack of adherence to ECOWAS treaty by neighbouring countries as reasons. A month later the Nigerian government engaged officials of Benin Republic and Niger and proposed several conditions for the countries to adhere to. Some of these include the compliance with the rule of origin and agreed packaging standards and the dismantling of warehouses around the borders.
It is important to explore the implications of the land border closure on different aspects of the economy. However, there is a salient point to note about the nature of land border trade between Nigeria and neighbouring countries.
According to data from the National Bureau of Statistics (NBS), Nigeria imported goods worth N4 trillion from April to June 2019. Of this figure, only 0.7% of imports was done via the land borders. 94% of imports were done via the sea and 5% through air. This means that land borders account for less than 1% of total imports in Nigeria. But if this truly is the case, why then are we bothered about the closure of land borders? One main reason is that trade across the land borders is largely informal and, in most cases, undocumented. Given the porous nature of land borders, the incentives to smuggle goods into Nigeria is higher through land, than other mediums. This therefore creates series of concerns as to what the true value of Nigeria’s trade- export and import is and how big is the impact of the informal trade sector on the economy. The dynamics of this informal trade will influence Nigeria’s commitment and ability to leverage the AfCFTA and other trade deals. It is therefore a matter of urgency to sanitise and capture informal trade across border routes as this will ensure effectiveness of Nigeria’s trade policies and instruments.
But what does the closure of land borders really point to for Nigeria?
Land border closure reflects failure of border agencies to efficiently execute their legitimate tasks of effectively policing the borders to prevent smuggling. Before the closure of the land borders, the government introduced higher tariffs and introduction of ban to discourage importation of specific commodities such as rice but overtime we realized that despite these measures, these goods were still smuggled into the country. Part of the reasons for this is lack of effective border policing as well as corruption of officials of border agencies. Even with the recent closure, there are reports of smugglers conniving with border officials to import goods into the country during odd hours. It is therefore obvious that the incentives for some officials of these agencies revolves around fulfilling their personal interests as opposed to the national interests. These are the main institutional problems the Nigerian government should address to ensure that its trade policies have positive effects on the economy.
Land border closure affects Nigerian exporters as well as Nigeria’s trade relation with other Africa countries. Although full land border closure has resulted in higher production of rice and poultry products, it has equally affected local producers of certain commodities like textiles, who target the neighbouring countries, some of which can only be accessed via land route. This has resulted in downtime at factories. On the external side, there are instances where businesses that export legitimate goods including machineries and inputs to Nigeria have been affected. Not only does this dampen our relation with countries that export these types of goods to Nigeria, it also undermines Nigeria’s commitment to the recently signed AfCFTA. In this era of a unified Africa and given the tremendous opportunities that befall Nigeria in terms of dominating African markets, we should not be shutting the land borders unless for urgent security reasons/threats.
The impact on inflation. Closure of land borders was a major factor in the increase in average price level in October 2019. According to the National Bureau of Statistics, inflation rate rose to 11.6% in October, from 11.2% in September. Producers responded to the supply deficit to increase price and make abnormal profits. In addition to the land border closure, there are other factors that suggest higher inflation in the short term. They include high demand as the festive season approaches, introduction on online taxes, planned increase of VAT to 7.5% from 2020, upcoming communication taxes, proposed taxes on carbonated soft drinks and proposed toll charges. This is in addition to infrastructure deficit, poor power supply and logistics bottlenecks that the average producer has to deal with. The outlook for inflation therefore is not bright; and it is important to point out that inflation negatively affects the low-income earners the most as it erodes their purchasing power.
But it’s not all negative. Rice and Poultry producers appear to be the gainers of the policy. The border closure presents an opportunity for producers of goods that are smuggled into Nigeria to expand operations. In the last few weeks, there has been a significant increase in local production of rice and poultry products to meet local demand. For rice, which is a staple commodity in the country, there is an estimated supply deficit of 2.5 million metric tonnes, initially met by importation. With the land border closure, producers have been incentivised to increase production and have taken advantages of the supply gap to raise prices and make abnormal profits. Unfortunately, Nigerians are forced to purchase locally produced rice at a higher price and relatively lower quality in some instances.
Now that the land borders have been shut, how can Nigeria maximise the available opportunities? The following points are crucial:
1. Reform the Nigeria Customs Service. Even with the closure, several reports stated that the borders were usually opened at midnight to allow ‘privileged’ importers to bring in goods into the country. This speaks to corruption and undue bureaucracy by officials of border related agencies. The Customs is one agency among many that requires crucial and urgent reforms to reposition them for effectiveness. The agency focuses more on generating revenue than facilitating trade, which is part of its core mandate.
2. Reform border processes and improve security through technology. Prior to the closure of the land borders, reports show that there were 26 checkpoints and stoppages along the Seme Border route. Exporters often incur expenses at these stoppages and checkpoints and this results in additional costs and delays, which eventually make Nigerian products less competitive. Nigeria needs to simplify and streamline the export processes leveraging technology, to make it easier to export to other countries. The government must invest in border infrastructure- scanners, etc, along with institutional reforms to ensure seamless flow of trade across borders. A comprehensive audit of the export process is crucial going forward.
3. Capture and formalise Nigeria’s huge informal trade economy. In fact, beyond the popular border routes, there are many entry-points of goods and individuals into Nigeria. Goods imported via these routes are largely unaccounted for even though they play a key role in the informal economy. This implies that import and export data released by the NBS are largely underreported. As a way forward, the NBS, Ministry of Trade and relevant government agencies need to make efforts to capture these types of trade, especially because they are crucial in defining Nigeria’s position as we adopt the AfCFTA and other trade deals.
4. Develop national standards for goods produced in Nigeria. Most commodities produced in Nigeria do not have the appropriate standards. Where the standards exist, there are issues of compliance, proper monitoring and enforcement. One way to address this challenge is for regulatory agencies such as SON, NAFDAC, NAQS to provide accreditation to third party organisations to develop these standards for different goods and services and provide certification for local goods in the country. These agencies must work together to enforce and monitor local standards for several products and services in Nigeria.
5. Invest in ports infrastructure. Earlier in 2018, Lomé’s port became West Africa’s leading container port, overtaking ports in Lagos. For decades, ports in neighbouring countries have benefitted from the congestions in Lagos ports, which comes from deficient infrastructure, both within and outside the port as well as complex procedures and processes. The government, working with the private sector, needs to implement intense port reforms and determine the best approach in developing port infrastructure. Adoption of PPPs/concession is one way to finance ports reforms. Also, development of ports in other regions of the country will reduce congestion challenges faced by the Lagos ports.
What remains very clear is that commitment from the Presidency is required to implement the tough reforms that will sanitize Nigeria’s trade environment. The underlining goal should be to support local industries, improve non-oil exports and deliver a competitive Nigerian economy.
To deliver a competitive economy, no doubt, local producers need to be supported with the use of tariffs and non-tariffs measures. However, such support must be specific for select industries and must not come at the expense of other local producers, industries and consumers. Otherwise such policy decision would only create wins for a small section of producers and losses for a larger section of the populace. Lastly, the consultation of key stakeholders remains crucial before policies such as the closure of land borders are implemented.