An outright closure of its land borders by Nigeria and a proposed exclusion of food items from the official foreign exchange market have put consumers in a precarious situation, with prices of food items on the brink of heading northwards.
The impacts of the measures are already escalating. Exporters have had their raw materials delayed at the border, paying high demurrages. They also cannot move out their goods, hurting their margins and the possibility of meeting the national non-oil export targets.
Ede Dafinone, chairman, Manufacturers Association of Nigeria Export Group (MANEG), said the losses that will be incurred by genuine exporters would further cut Nigeria’s non-oil export projections.
“Who will be responsible for the additional demurrage to be paid or on the perishables that have now spoilt? The government would not be closing all banks because of the discovery of bank fraud and similarly should not close all land borders to catch those that are smuggling,” Dafinone reasoned.
Food inflation could exacerbate an already stubborn general inflation that has been above the upper band of the country’s target for almost four years.
That’s after President Muhammadu Buhari recently ordered the complete closure of Seme border, the country’s busiest border, to prohibit the fraudulent export of petroleum products and fight against the importation through land borders of second-hand vehicles, rice and some other products.
Analysts say the president did not carefully consider the menace such an order would have on companies and individuals carrying out legitimate exports and imports across the land border.
The country had placed an FX restriction on some food items, preventing them from accessing dollars from the Central Bank of Nigeria’s official window since 2015.
For Africa’s largest economy, the loss from these policies far outweighs the gains in an economy that lacks the production capacity to meet local demand, economists who spoke to BusinessDay said.
“We consider the decision to shut the borders for 28 days as not just an inappropriate mechanism to solve our border challenges as this would hurt legal exports and imports going out and coming into the country, but also a temporary solution to an endemic problem,” analysts at Lagos-based stockbroking firm, CSL said.
“Although policies like border closure are designed to engineer local industrial capacity development, structural and systemic bottlenecks in Nigeria’s operating environment would continue to hinder adequate investments in local production. This ultimately would lead to creation of artificial scarcity, and drive prices of life necessities higher, hurting an already depressed consumer base,” CSL said in a note to clients.
Since the directive by President Muhammadu Buhari, prices of major food items have headed north, with consumers bearing more of the burnt, according to BusinessDay investigation.
For example, the price of a bag of rice rose 16.7 percent to N18, 000 from the N15,500 at which it was previously sold. This culminated in pushing up; the prices of chicken, fish, and tomatoes, since they are all complementary goods.
“The border closure directive by the government is likely to cause food prices to rise in the interim,” said Abimbola Omotola, Head of Research, Growth and Development Asset Management Limited. “The government claims that the reason for doing so is because of the smuggling of goods, especially rice, threatens our self-sufficiency. However, evidence shows that Nigeria barely produces enough rice to feed the nation resulting in the importation and prompting people to smuggle in goods to cover the deficit.”
“This means that the focus of the government is rather misplaced. Closing our borders is likely to cause food inflation to increase given that we are not producing enough to meet domestic demand,” Omotola said in a mail response.
In reality, the supply of agricultural products always tends to be inelastic, hence they do not react sharply or immediately to an increase in price, unlike the demand.
However, in the long run, as supply begins to adjust to meet demand, due to bountiful harvest season from farmers, prices would tend to normalise.
Inflation, which measures the rate at which the prices of goods and services are sold in the country change over time, slowed to 11.08 percent, the lowest value in more than three years. However, there are indications that inflation figures might rise at a faster rate in the month of August when official data are released.
The move would force companies and manufacturers of products that largely depended on imported products as input to engage in backward integration, according to Paul Uzum, an economist and Stockbroker at the Lagos Bourse.
