• Tuesday, June 25, 2024
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Border closure: Impact on the Nigerian economy

Border closure: Impact on the Nigerian economy

The federal government of Nigeria closed the land borders to the country on the 20th of August 2019 with a view to curtailing the smuggling of goods into the country from neighbouring countries as well as ensuring compliance with existing trade rules as to how trade should be conducted.

Statistics show that there is probably very little to worry about since the volume of intra-Africa trade is low and most of the trade by African countries is done with countries outside the continent. According to the Economic Development in Africa Report 2019 publication by the United Nations Conference on Trade and Development (UNCTAD), Intra-Africa trade was about 16.6 percent of total Africa Exports in 2017 which is low compared to 68.1 percent in Europe and 59.4 percent in Asia. This statistic is somehow misleading though as it fails to capture the value and volume of the informal trade that takes place amongst the African countries. This does not also take into cognizance the amount of smuggling that goes on across the porous land borders.

Benin is one of the countries that border Nigeria and has a population of about 12 million people. From a trade perspective, data from the Thailand Rice Export Association shows that Benin has been the largest importer of rice from Thailand for some time now. To put this in proper context, Benin imports more rice from Thailand than even the most populous country in the world, China. It is clear that Benin does not have the capacity to consume the quantity of rice she imports which means that what they import is most likely repackaged and exported to the countries closest to them.

The countries that share border with Benin include Nigeria with a population of about 190 million, Togo with a population of about 7.8 million and Burkina Faso with a population of about 19.19 million as at 2017 (World Bank). Nigeria is several times the size of Benin and even the other countries bordering her which makes Nigeria the most likely destination for the rice imported by Benin. This however does not reflect in Nigeria’s import figures which provide further credence to the fact that this is most likely smuggled into the country from Benin.

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A close consideration of the volume of petrol consumed in Nigeria shows clearly that a substantial part of it finds their way to neighbouring countries and this makes economic sense. According to a research published by SBMIntel in August 2019, the price of petrol in Nigeria is $0.40 (N145/litre) while the price in neighbouring countries is more than double that figure. In economic terms, goods will normally move to the location where valuation is at its highest and given the porous land borders, there is basically no restriction whatsoever on the movement of goods across the borders and petrol marketers seek to maximize their profit by simply moving the goods across borders.

The Nigerian Immigration Service says that there are more than 1,400 illegal border routes across the country which means that there are several points where petrol can be smuggled out of the country. There is also the part of the poor security around the borders and the high level of corruption amongst immigration officers.

There are some advantages to this border closure but there are lots of disadvantages as well. One major advantage is the increase in government revenue collected via custom duties. The Comptroller General of the Nigerian Customs, Col. Hameed Ali (Rtd.) informed the National Assembly in October that the Nigerian Customs has been collecting an average of between 4.7 billion and 5.8 billion in daily revenue since the border was closed which is way higher than what was obtainable previously. The federal government of Nigeria is in dire need of funds at the moment as can be seen in their aggressive drive to generate funds in recent times as evident in the proposed increase in VAT and the stamp duty already implemented on POS payments above N10,000 among other strategies of government in the offing.

Another advantage is that it helps local production by making local goods comparable in price with other imported goods which come into the country via other channels which are still open as the importers will pay the applicable tariff on these goods which will increase the price. It also reduces the volume of goods which find their way into the country thereby providing ample opportunity for local producers to sell their products to local consumers.

The disadvantages of the land border closure include increase in the price of staple foods in Nigeria especially rice which is one of the most popular foods in the country. It is a known fact that many states in Nigeria are yet to implement the minimum wage for workers and any increase in staples or any other product for that matter will make many Nigerians worse off. Also, local farmers were not particularly ready for the sudden increase in demand that came about as a result of the land border closure and have not been able to react fast enough to take advantage of it.

Another major disadvantage is the negative effect it has on informal trade that take place across the land borders. It is almost impossible to estimate the value and volume of the informal trade that takes place across the land border since there is no available data but without doubt, this will run into several millions of naira on a daily basis providing several thousand with a daily means of livelihood. The importance of this informal trade must not be underestimated as it is the major source of funds for many and the Federal Government is not able to provide enough jobs or opportunities to reduce the adverse effect of the land border closure.

In essence, there are both advantages and disadvantages to this land border closure. It is difficult to ascertain which outweighs the other but one thing is for sure, the government cannot continue to make the citizens pay for their inefficiencies. It is the duty of the government to secure and safeguard the land borders and their inability to effectively do this should not result in a measure with adverse effect on the citizenry especially with no palliative or prior information to prepare them adequately for the closure.

Oguntoye has background in Economics and spent about 8 years with Citibank Nigeria Limited.