January 21, 2020

Economic Implications of the Recent Border Closure

By Basil Anthony Abia

In Brief
On 20 August 2019, Nigeria partially closed its land borders with Benin, Togo, Niger, Cameroon and Chad – citing the irate level of smuggling of goods into the country, especially staple food commodities like rice, cooking (vegetable) oil, poultry, tomato, flour and pasta. The closure of Nigeria’s land borders has now been fully consolidated – with further restrictions on import and export of goods through land borders.

Since the border closure announcement and its immediate implementation in August, inflation has been on the rise.
The latest consumer price index (CPI) report released by the National Bureau of Statistics (NBS) in November 2019 proved that the year-on-year food inflation rate increased from 13.2% in August 2019 to 13.51% in September 2019 and then from 13.51% in September 2019 to 14.09% in October 2019. This was a 1.33% month-on-month increase – with rice, poultry products, frozen fish, cooking oil/fats and bread/cereals recording the highest increase in cost prices nationally. A huge contrast with regards to decelerating food inflation rates usually recorded during a harvest season.
With the food sub index of the CPI recording an 18-month high in October 2019, it unsurprisingly contributed to the rise in CPI from 11.24% in September 2019 to 11.61% in October 2019.

Staple food commodities like rice, vegetable (cooking) oil, frozen fish, poultry products and packed beef are among the highest hit on the national spectrum in terms of the inflation in food prices since the enforcement of Nigeria’s land border policy.
Rice as one of the main national staple food commodity unsurprisingly has claimed its place as a topic for constant national debate. With context to its massive demand, inability of domestic supply to meet demand, cultural reverence and taste preference, it is inevitable to discuss the land border closure without talking about rice.
The United States Department of Agriculture (USDA) estimates that local demand for rice in Nigeria alone is at 7.3 million metric tonnes. Currently, local production stands at 4.8 million metric tonnes yearly. This suggests that the inability of domestic supply to meet local food demand will cause an inflation of food prices when and if food imports are proscribed.
With Benin and Togo posturing themselves as entrepôt states to Nigeria – where Nigeria’s manufacturing and agro production distortions are actively exploited, Nigeria’s consumption habits over the last three decades has been shaped by its over-dependence on imports from the re-exports of these two neighboring entrepôt states (in particular) into the country.
Given the significance of food import via the entrepôt states for meeting the observed supply gap, abrupt closure of the land border cut that supply channel, further entrenching the observed supply gap. This is where the excess demand is now driving up prices.
For a country with the highest number of extremely poor people in the world, any significant spike in food inflation can cause devastating effects to its already poor population, making social upward mobility more difficult. Hence, policies that further reduce purchasing power predispose the poor to higher vulnerability.
The core question on the national discourse table is what exactly this land border closure aims to achieve – government claims the policy will help curb smuggling of goods through its land borders thereby bolstering domestic food production and national productivity levels in all sectors.
This goal of the government in particular, indirectly implies the ineffectiveness of its customs and immigration service especially with the inability of the country to protect its borders and effectively enforce import restrictions on certain goods. It is not likely that this border policy will achieve its end-goal in the short-term or in the long-term as even with the blanket ban on imports through its land borders, bolstering domestic food production and raising national productivity levels almost immediately will be extremely difficult to attain due to the structural problems abound in the country.

Getting it right
To achieve this set out goal of curbing smuggling and bolstering domestic capacity to attain national productivity at all levels, there should be a multi-pronged approach from government: to improve the capacities of its customs and immigration services, embark on land reforms, improve access to micro and macro-credit for farmers and entrepreneurs, enhance accessibility to affordable and reliable electricity as well as incentivize private sector investments. This is the first step to getting things right – by ensuring government policies improve lives.

With Nigerians already feeling the negative consequences of the land border closure – rising food inflation which in turn is reducing their relative purchasing power, it is important for government to rethink its border policy as it doesn’t sufficiently address the causal factors for irate smuggling and dwindling national productivity in the country.