Nigeria’s border closure: Why it will not pay off

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By Léopold Ghins and Philipp Heinrigs, OECD Sahel and West Africa Club Secretariat

This blog is part of a series marking the upcoming 
19th International Economic Forum on Africa

Men offload rice at Bodija market, Ibadan, Nigeria. Flickr/IITA

It has been three months since Nigeria closed its land borders and to date there are few indications as to when they will open again. The country said it wants to reduce the smuggling of goods and stop illegal inflows of Asian rice and outflows of subsidised fuel. More fundamentally, Nigerian authorities justify the closure by the need to support the domestic agricultural sector and accelerate national productivity growth.

The closure is badly affecting livelihoods in local border economies. In Benin, communities in areas close to the Seme border near the sea, or further up north near the Owode border, largely depend on Nigerian markets for their sustenance. The sudden shutdown has caused thousands of smallholder farmers to lose their produce and default on credits. In the Dendi region (an area that spans across northern Benin, Niger and Nigeria), economic networks are strongly integrated across borders. Small traders that live on these networks have lost their principal sources of income.

Large numbers of Nigerians are also feeling the negative consequences of the closure. The shutdown is pushing prices up in Nigeria, notably of rice, a major household staple. In Ibadan, a city of more than 3 million inhabitants, the price of local rice increased by almost 9% in the month following the closure, the largest month-on-month increase since 2012.[1] Prices of other foods such as palm oil, fish, meat and bread are also increasing, fuelling rapid inflation. This hits consumers hard in a country where food prices are higher than in the rest of the world at comparable levels of per capita income and approximately half of households’ budgets are spent on food.

Some are nonetheless seeing benefits in the closure. Since its start, there has been a reported 20% decrease in fuel imports, which will reduce the Nigerian state’s hefty fuel subsidy bill. Rising consumer prices heighten profits for suppliers of nationally produced goods that have significant processing and storage capacity, such as Olam, Onyx Rice Mills or Quarra rice.

Beyond these short-term effects, however, the more fundamental question is whether the closure will help the government achieve its goals in the long-run. The answer to that question is almost certainly no, for several reasons. First, the closure in itself only acts as a temporary brake on smuggling. Smuggling takes place because of price differentials between Nigeria and its neighbours, strong demand on Nigerian markets for foods such as rice, and ineffective or overwhelmed customs services. All these factors are likely to persist after borders reopen. Curbing smuggling requires sustained investments in customs capacities and collaborative work with neighbouring countries to implement unified trade regulations. ECOWAS and the recently signed AfCFTA are the appropriate platforms to conduct such work, but unilateral border closures undermine their credibility. The introduction of joint border patrols between Nigeria, Benin and Niger indicate a growing realisation of the importance of cross-country collaboration to address smuggling issues.

Second, although it may generate short-term profits for a small set of large companies, closing land borders is not a good strategy to foster widespread productivity growth. It is a very volatile policy, which arrived abruptly and without indication of duration. A majority of smallholder farmers in Nigeria could not anticipate the closure.

Volatile policy and market environments are not favourable to investments that take a long time to become profitable. This is particularly true for agriculture and the wider food economy, in which investments in land, machinery and storage or transport facilities require amortisation over multiple years. And yet, these are the investments needed to increase the sector’s productivity. Volatile and disruptive policy decisions are not a new phenomenon in Nigeria. For the 2010-16 period, the FAO recorded 23 changes in Nigerian food import regulations (including both changes in tariff rates and bans).[2] Major African industry leaders say that policy volatility is one of the most important constraints to the expansion of their businesses in African regions.

A third issue is that border closures are not enough to stimulate sustained production growth or productivity increases. Supporting private sector development requires more than just protection of domestic producers from imports. It necessitates the provision of key public goods that help establish a conducive business environment and reduce transaction costs for firms. Among other priorities, there is a need to ease access to credit, improve land tenure and land titling systems, ensure access to affordable and stable electricity and enhance connectivity across territories. Insulating domestic markets does not help to reduce the inefficiencies that cause transaction costs to spike. It only forces consumers to bear the burden of these costs.

In sum, while the border closure in Nigeria is having contrasted short-term impacts, it will not help to address the root causes of smuggling and the key constraints to accelerated productive transformation. In the meantime, it severely hurts the legal trade that is vital to livelihoods in local border economies such as the Seme, Owode or Dendi areas.

African decision makers should endorse long-term policies that take potential adverse effects on consumers into consideration and seek to improve the overall business climate. This implies considering the realities of an increasingly interconnected world and relying on well-identified comparative advantages to allow countries to “leap directly into the global economy”. It is hard to believe that keeping borders closed in Africa’s largest economy is a step in that direction.

[1] Authors’ computations based on the FEWS Net Staple Food Price Data, looking at the price change of local rice in Ibadan over August-September 2019.

[2] Number obtained by filtering for ‘Nigeria’, ‘2010-2016’, ‘trade-oriented’ and ‘imports’ on the FAO FAPDA database.

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