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Closed for Business Lessons from Nigeria's Border Closure

Ever since the Treaty Establishing the African Economic Community (The Abuja Treaty) was signed in 1991, the idea of a borderless Africa, which envisions a single African passport and an unrestricted movement for African citizens, has gained widespread support across the continent. The African Continental Free Trade Area (AfCFTA), signed by all African countries except Eritrea, is to become fully operational on 1 July 2020, removing trade barriers and facilitating the free movement of Africans in the region. The deal is expected to boost agriculture and manufacturing, which would speed up structural change and intra-regional trade across Africa.

In a major blow to this pan-African moment, Nigeria indefinitely closed its land borders and halted all trade relations with its neighbours (Benin, Cameroon, Chad, and Niger), in August last year. According to President Buhari, the main reason for the closure was to curtail the smuggling of goods such as rice and textiles to boost domestic production. The Nigerian government also aims to curb the illegal supply of weapons into the country. Although Nigeria has a history of border closures, the present one is unique as it affects all of its neighbours and comes at a crucial time when African countries are trying to remove border restrictions. The implications of this border closure are far-reaching—not only for the West Africa sub-region but also for wider regional integration on the continent. However, the current border closure is a policy mistake that will produce dismal outcomes for Nigeria.

Nigeria’s neighbours are partly to blame for the seemingly unfair state of affairs regarding trade. For example, Benin has tactically become an entrepôt state, because it imports goods and then re-exports them into Nigeria. The country is the largest importer of rice from Thailand. According to a recent report on Benin’s informal trading with Nigeria, more than 90 per cent of this rice is smuggled into Nigeria despite a ban on rice imports through land borders that was implemented in 2016 by the Nigerian government. Other goods such as tomatoes, frozen chicken, and textiles, are similarly smuggled into Nigeria unlawfully or without proper custom procedures. The same report estimates that imports that are destined for re-exportation into Nigeria constitute 50 per cent of Benin’s GDP.

The entrepôt trade has created jobs and generated revenues for Benin to the detriment of Nigerian producers who are barely able to compete. For instance, the business of re-exporting cars into Nigeria is estimated to directly employ over fifteen thousand Beninese people, while providing even more indirect jobs associated with importing, storing and transporting the transit vehicles. In addition, taxes on car imports into Benin accounted for 25 per cent of its customs revenue between 2012 and 2015. In contrast, Nigerian automobile manufacturing has been moribund due to high importation of vehicles and cost of production, despite efforts by the government to revive the industry over the years.

While the trade policies of Nigeria’s neighbours can negatively impact its economy, there are also important internal factors that led to the border closure decision. Nigeria suffers from the resource curse, where oil rents (the difference between the value of crude oil production at world prices and total costs of production) have resulted in a weak agriculture and manufacturing base. Corrupt leaders have failed to deliver on their promises of effective governance and strong institutions that would enable a prosperous economy. Since he returned to power in 2015, President Buhari has reverted to his 1980s protectionist policies that have created further distortions in the economy over the past few years. For instance, Buhari implemented trade restrictions such as foreign exchange controls and import bans on many goods which have artificially increased prices in Nigeria and made smuggling even more lucrative across Nigeria’s porous borders. Nigerian ports are also ranked among the worst in the world due to poor infrastructure and long queues, making them unattractive for trade. Combined, these factors have crippled Nigeria’s development and positioned its neighbours as favourable gateways into the country.

Can Nigeria’s Border Closure Achieve Its Purpose?

The debates concerning the recent border closure centre around two major issues. The first concerns smuggling. The Nigeria Customs Services argues that the border closure is an inevitable step in order to curtail the inflows of illegal goods into the country. Yet this claim is weak because Nigeria’s land borders are porous and transcend contiguous communities with a deep history of trade and social relations that predate the colonial period. Smuggling occurs through hundreds of illegal routes, often in collaboration with corrupt customs officials. Therefore, closing official borders would, at best, reduce the magnitude of smuggling temporarily before new channels and mechanisms are created by the smugglers who are ‘sophisticated and well-organized‘.

Previous Nigerian border closures have been largely ineffective. For example, during his regime as a military dictator, between February 1984 and 1986, Buhari closed Nigeria’s border with Benin to thwart smuggling. The outcome was poor in reducing illegal trade between the two countries as smuggling activities sharply increased afterwards. There is little evidence to prove that the current border closure will be effective.

The second claim about border closure concerns both agricultural and industrial production. Agriculture is a top priority for the current administration as part of its Economic Recovery and Growth Plan. The border closure policy was enacted to protect domestic farmers from competition with producers in other countries. The protection of domestic farmers is a legitimate policy concern for a country with the largest number of poor people in the world. Yet, the present border closure does not provide the best approach to growing Nigeria’s agricultural sector. It creates an environment of policy uncertainty and corruption among businesses and public officials who want to make profits out of economic rents—excessive profit margins that result from increased prices due to the border closure. The policy is likely to attract retaliation from Nigerian neighbours in the future, who might erect trade barriers to thwart imports from Nigeria, thereby denying Nigerian producers the opportunity to access larger African markets.

A better agricultural strategy would aim to reduce production costs by providing key infrastructure such as roads and water supply, removing financial constraints, ensuring easy access to land, providing comprehensive agricultural extension services to farmers to help them adopt modern techniques, boost yields, adapt to the effects of climate change, and achieve profitability.

 Consequences of the Border Closure

The adverse consequences of the border closure are far-reaching. Food inflation rose to about 15 per cent in November 2019, the highest in several years, according to the National Bureau of Statistics. This is an alarming figure because over 2.6 million Nigerians are food insecure in the northeast region, with the poorest Nigerians spending over 60 per cent of their incomes on food. High food prices also encourage smugglers to continue the illegal smuggling of foodstuff by buying at low prices in neighbouring countries and selling them at higher prices in Nigeria. Although domestic production of staples such as rice has increased recently, it is not rising fast enough to meet the demand of Nigeria’s growing population over the next few years. Nigerian consumers are worse off due to the border closure, especially because there is no compensation from the government in the form of cash payments or food stamps even to the poorest.

The full effects of the border closure have yet to materialize in Nigeria, given that the policy has been present for only five months. Authorities argue that the border closures would, in the long run, create self-sufficiency and help stimulate growth. Yet, it is impossible to correctly ascertain the impacts on agricultural and industrial output due to a lack of available data. The closure has been upheld solely on preliminary statistics relating to government revenue and fuel consumption. Currently, the Nigeria Customs Service reportedly generates more than five billion naira daily from import duties, which is about 30 per cent higher than the usual average of around three billion naira; although some analysts have argued that revenue generation has not actually increased following the border closure. Likewise, domestic fuel consumption has fallen by 10.2 million litres daily since the closure, signifying a decline in the smuggling of fuel out of the country. These are expected to improve public finance by increasing revenues and decreasing the cost of fuel subsidy.

The closure also sets a negative precedent to other countries at a crucial time when African countries are trying to boost regional trade, as mentioned previously. It contravenes the rules of the Economic Community of West African States (ECOWAS), which provides for a common external tariff on goods imported outside of the bloc. Although Nigeria closed its border by exploiting loopholes in the ECOWAS rulebook (by claiming exemptions to justify its actions), the unilateralist, parochial border closure will negate the possibility of cooperation or forging stronger economic ties in the future. This will be a major setback for the move to create a common currency—the Eco, in the West African sub-region, scheduled to be introduced in 2020. The shutdown also highlights the unforeseen hurdles ahead of the single market to be created by the AfCFTA next year.

Furthermore, the border closure could have significant political and security implications in the sub-region. For instance, Nigeria relies on regional military cooperation with Cameroon, Chad, and Niger to fight the Boko Haram insurgency, which has claimed more than 35,000 lives, according to the Council on Foreign Relations. Since Nigeria has turned its back on such strategic partners for economic reasons, these countries may be reluctant to offer the assistance Nigeria needs to tackle its domestic challenges in the future. This may be detrimental to the much-needed economic, security-related, and political cooperation that the sub-region requires to achieve a sustainable economy.

 What is the Way Forward?

Nigeria’s border closure is not fit-for-purpose. Building domestic capacity should not impose significant costs on citizens and escalate trade tensions with immediate neighbours. Nigeria supports its economy, and the entire sub-region through an outward-oriented approach in three ways.

First, Nigerian policymakers ought to remove dysfunctional economic policies that provide incentives for smuggling in the first place. For instance, indiscriminate embargoes on goods should be lifted to allow prices to stabilize at levels comparable to those in neighbouring countries. This could be achieved through the harmonization of tariffs in the sub-region rather than unilateral restrictions on goods.

Second, Nigeria needs to strengthen its institutions to be more efficient in facilitating mutual trade with the rest of the world. This would involve tackling corruption and the weak enforcement of trade protocols by customs officials, deploying technology such as scanners at the border, and overhauling the ports infrastructure to improve ease of trading through sea borders. An integrated framework will enable coordination with neighbours and ensure better-functioning land borders.

Third, Nigeria needs to adopt a collaborative approach to solving trade tensions, instead of harmful, protectionist tactics that deliver sub-optimal results. Bullying neighbours to stifle smuggling has never worked and is unlikely to work now. Rather, Nigeria should leverage rules-based mechanisms and negotiations within ECOWAS and AfCFTA, to ensure a better trade regime as per the rules of origin, which legislates how goods produced outside of the bloc should be treated, and domestic priorities. Similarly, I have suggested in the past that West African countries should require a regional industrial policy that builds on the comparative advantages of individual countries to boost industrial production and stimulate intra-regional trade. African economies can grow quicker, together.

Unfortunately, Nigeria seems reluctant.

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