Nigeria’s economy counts gain of border closure
Sanya Adejokun in this report looks at the gains so far recorded by the decision of President Muhammadu Buhari to close all land borders.
With distressing statistics from local and international agencies on unemployment, poverty and general human development indices, it was past time for Nigerian authorities to take drastic steps to remedy the daily deteriorating situation. Already, a United Nations study in 2015 projected that Nigeria’s population will move from the current 200 million+ to 264 million by 2030 making it the fifth most populated country.
Going by current trend, this would be disastrous for, as at end of September 2018, National Bureau of Statistics said the number of economically active or working age population (15 – 64 years of age) increased to 115.5 million. Of the number, only 69.54 million engaged in any form of employment. The agency explained that 51.3 million of this number had full time employment while 18.2 were just managing to do anything at all while 21 million able bodied adults were absolutely jobless. “The number of people within the labour force who did not have a job and did nothing at all (unemployed) and those that were in some part time work (underemployed) rose respectively from 15.9 million and 18.0 million in Q3 2017, to 20.9 million and 18.2 million in Q3, 2018. Total combined unemployment and underemployment rates increased from 40.0 per cent in Q3 2017 to 43.3 per cent in Q3, 2018.”
Nigeria, a country with lots of promises at independence progressively declined realistically between 1960 and 2019. From a net exporter of groundnuts, hides and skin, cotton and textile, grains, cocoa, kola nuts, cashew, oil palm and others in the 1960s, the country slid to spending $22 billion on food importation in 2018 according to former Minister of Agriculture, Chief Audu Ogbe. As a result, farmers left the farms, while textile and garment factories in Kano, Kaduna, Lagos, Ado-Ekiti and the East shut down.
With fiscal authorities appearing to be oblivious of the looming danger, Central Bank of Nigeria (CBN) decided to step in and create the paradigm shift needed to reverse the negative trend of unemployment, poverty and underdevelopment in the country through its development finance initiatives. The apex bank launched several initiatives including Anchor Borrowers Programme (ABP), with rice becoming the most successful produce, restricted official foreign exchange to importation of items on 43 items. Other products promoted by CBN under the ABP include poultry, fish and maize.
However, with the billions sunk by both Central Bank and Federal Government into revamping the economy through promotion of entrepreneurship and agriculture, beneficiaries continued to complain about lack of patronage and they continued to incur losses under deliberate sabotage of smuggling by some powerful Nigerians, multinational corporations and authorities of some neighbouring countries.
According to the World Bank, the economy of Republic of Benin, which the Federal Government believes is the worst culprit in the smuggling siege, is heavily reliant on the informal re-export and transit trade with Nigeria, which accounts for about 20 percent of its GDP, or national income while about 80 per cent of imports into Benin are destined for Nigeria, the bank says. Federal Government banned importation of rice through Benin in 2004 but extended the ban through all land borders in 2016. Foreign rice can only be imported through the ports with 70 percent import charges effective since 2013.
In 2014 Benin lowered its tariffs on rice imports from 35 percent to seven percent while Cameroon erased it completely from 10 percent. The consequence was that Benin immediately witnessed an astronomical rise in imports from Thailand, the world’s second-largest producer. At a point, it was estimated that at the rate of importation each of Benin’s 11.5 million citizens would have had to consume at least 150kg of rice from Thailand alone with the rate of rice importation.
Since the land borders were closed on August 21, the volume of petroleum products transported from the Nigerian National Petroleum Corporation (NNPC) fuel depots also reduced drastically as shown in reports by Petroleum Products Pricing Regulatory Agency (PPPRA). In a monitoring report weeks after the closure, the agency said it observed a declining trend in the supply of petrol since the federal government announced the partial closure of the country’s borders. It noted that between the August 12 and 18, there was a drop of about 35 per cent in the volume of petrol trucked-out against the figures recorded the previous year, attributing the drop to the reduction in the volume of activities at various fuel depots during the Sallah holiday.
However, between August 19 and 25, which falls within the period the borders were partially closed, it recorded an average daily truck-out figure of about 57 million litres which falls below the daily average figure recorded prior to the announcement. Similarly, between August 26 and September 1, a total of about 371.82 million litres of petrol was trucked out, averaging a daily figure of 53 million litres. This represents a decline of about 4 million litres when compared to the previous week’s figures.
Between September 2 and 8, “daily average truck out figure for that week was 50.22million litres, indicating a further reduction of 2.9 million litres. The high truck-out volume recorded before the partial closure of the nation’s borders could be attributed to the seepage of petroleum products across the borders, coupled with the widening fuel price arbitrage with neighbouring West African countries.” It should be added, however, that there has been a resurgence in truck out in recent weeks, which saw the number put at 78.5 million litres on October 29, 2019.
Also, the Brookings Institution, reported that the border closures will have particularly negative consequences for traders, especially informal ones, along the Benin-Nigeria border. It noted that informal trade generates substantial income and employment in Benin, and Benin’s government collects substantial revenues on entrepôt trade—goods imported legally and either legally re-exported to Nigeria, or illegally diverted into Nigeria through smuggling.
“Informal sector throughout West Africa, and particularly in Benin, represents approximately 50 percent of GDP (70 percent in Benin, in fact) and 90 percent of employment. Unsurprisingly, informal cross-border trade (ICBT) is pervasive and has a long history given the region’s artificial and often porous borders, a long history of regional trade, weak border enforcement, corruption, and, perhaps most importantly, lack of coordination of economic policies among neighboring countries.
“Notably, ICBT takes several forms, not all of which are illegal: For example, trade in traditional agricultural products and livestock in bordering countries may involve little or no intent to deceive the authorities, as peasants and herders ignore artificial and un-policed borders.
“Given Nigeria’s larger population, economy, and natural resource wealth, Benin has adopted a strategy centred on being “entrepôt state,” i.e., serving as a trading hub, importing goods and re-exporting them legally but most often illegally to Nigeria, thus profiting from distortions in Nigeria’s economy.”
Although Benin’s dependence on Nigeria is not apparent from official trade statistics, it is noteworthy that official statistics are very misleading as they do not reflect the vast informal trade along the border.
International estimates put ICBT as generating about 20 percent of Benin’s GDP but since gasoline smuggling employs around 40,000 people, which is about as much as the size of the country’s public sector in Benin. Direct and indirect jobs from used car smuggling into Nigeria are also estimated at around 15,000 and 100,000 people, respectively.
“Benin’s system of import taxation has revolved around maximizing the income from entrepôt trade, by taxing goods when they enter Benin at a rate well below that in Nigeria or taking advantage of Nigeria’s import prohibitions. The country’s revenues are hit hard when there are border closures or there is a recession in Nigeria due to lower demand for products being traded there.”
While advocating that borders remain closed for two years, Mr Emefiele said border closure is a means of rejuvenating Nigeria’s economy and creation of employment opportunities.
According to him, rice millers had two weeks before the border closure complained that nothing less than 25,000 metric tons of milled rice were lying in their warehouses because of the smuggling and dumping of rice through Republic of Benin and other border posts in the country and that he would want something done about it. Members of the Poultry Association of Nigeria also complained that they had thousands of crates of eggs that they could not sell with even some of the processed chickens that they could not sell also arising from problem of smuggling and dumping of poultry products on Nigeria.
“A week after the borders were closed, the same rice millers association called to tell us that all the rice that they had in their warehouses have all been sold. Indeed, a lot of people had been depositing money in their accounts and they have even been telling them ‘please hold on don’t even pay money yet until we finish processing your rice. “The poultry associations have also come to say that they have sold all their eggs, they have sold all their processed chickens and that demand is rising.
“So when you asked, ‘what is the benefit, the benefit of the border closure on the economy of Nigeria’, I just used two products – poultry and rice. The benefit is that it has helped to create jobs for our people, it has helped to bring our integrated rice milling that we have in the country back into business again and they are making money. The poultry business is also doing well, and also maize farmers who produce maize from which feeds are produced are also doing business.
Comptroller-General of Customs, Col. Hameed Ali (retired) says consequent upon the border closure, Nigeria Customs Service (NCS) generated N115 billion in September, the highest so far since the closure of the country’s borders. Ali explained that since the closure of the borders, the revenue being generated by the service was increasing on daily basis. He said that there was never a time NCS generated the revenue or much money like it realised in September. He explained that the measure had compelled those who used to smuggle things into the country to go to the ports and pay necessary duties. According to him, the aim is to ensure that the closure is sustained up till January 2020.
Ali said the main objective of the border closure was to ensure that neighbouring countries complied with the ECOWAS protocols on transit. He explained that the protocol on transit mandated customs in the neighbouring countries to escort items coming to Nigeria to the borders so the importers would not evade payment of duties. In addition, the closure of the borders had helped to reduce the incessant attacks by bandits and that this measure had helped in curtailing the influx of arms and ammunition into the country. Again, the step taken by the joint border security operatives headed by NCS has also reduced the importation of some illicit drugs into the country.
Also speaking at a conference in Abuja last Friday, Deputy Senate President, Ovie Omo-Agege, said the closure of the nation borders enjoyed the blessings of the National Assembly. He said the decisive measure was needed to curb threats posed by influx of small arms, illegal activities of veterans of various armed conflicts and flagrant breach of ECOWAS protocols prohibiting the trans-shipment of imported goods through other ECOWAS countries’ borders.
Stakeholders in the agribusiness community have also expressed support for the policy, drumming up support for the Federal Government’s policies on restriction of foreign exchange to food importers and the decision to close porous borders against smuggling and illicit trading. Chairman of Kebbi State Rice Farmers Association, Mr Suaib Augie, said profitability is difficult as a result of high cost of inputs from off-takers or third parties, though the scheme had empowered a good number of farmers to get back to farm. Executive Director of the Nigerian Institute for Oil Palm Research (NIFOR), Benin City, Edo State, Dr Celestine Ikuenobe, also backed the policy, saying though Nigerians might have to pay some price initially, the long-term economic benefits would far outnumber the temporary setbacks.
Despite overwhelming support for the decision to close the border, there are other Nigerians who have expressed reservations over the issue. Probably as a result of defective distribution system, many Nigerians in the south have been complaining of a rise in price of the commodity. Although In Abuja and most parts of the north, a 50kg of Nigerian rice still goes for between N15,000 and N19,000 many in the south said they purchase it as high as N26,000 per bag.
The border closures will also have negative effects for traders, especially informal ones, along the Benin-Nigeria border, as the two economies are closely intertwined.