Border closure has mixed impact for Nigeria’s economy

Nigeria closed its land borders with Benin, Cameroon, Chad and Niger in Auguest, claiming it needed to protect itself from smuggling. (Reuters)
Updated 21 October 2019

Border closure has mixed impact for Nigeria’s economy

  • Smuggling crackdown creates pressures for Africa’s most populous country
  • Sales of gasoline in Nigeria fell by 12.7 percent after the border closure in August.

LAGOS: Two months ago, Nigeria slapped restrictions on cross-border trade with its neighbors, but there are mixed signals as to whether the controversial move is benefitting the country.

On August 19, President Muhammadu Buhari dramatically closed Nigeria’s land frontiers to goods traded with Benin, Cameroon, Chad and Niger, saying its economy needed to be protected from rampant smuggling.

The move has met with howls of pain in Benin especially, and cast a shadow over a newly-minted agreement to scrap restrictions on trade among African economies.

But has it been beneficial for Nigeria, as the government has sought?

Evidence seen by AFP suggests that any benefits are at the macro level — and the country’s many poor are likely to be among the losers.

The two main commodities being smuggled were petrol and rice.

Petrol was being sneaked out from Nigeria, where subsidies make the fuel half as cheap as in its neighbors, and resold.

Rice, on the other hand, was being brought into Nigeria, where consumers favor imported Asian-grown varieties over the locally-grown competitor, from Benin via its port in Cotonou.

The most visible winner from the closure is the Nigerian treasury, which has benefitted from the falling cost of petrol subsidies and from a rise in customs receipts.

“Nigeria, to its detriment, may have inadvertently subsidised (fuel) supply to a few West African countries for more than 12 years,” the Nigerian consultancy Cardinal Stone said in a report this month.

Sales of gasoline in Nigeria fell by 12.7 percent after the border closure, which indicates that millions of subsidised liters are being secretly taken abroad for resale, it said.

The reduction in consumption, if sustained at current levels, could lead to subsidy savings of around 13.5 billion naira ($37 million) monthly and 162.1 billion naira annually, it estimated.

In early October, Nigeria’s customs chief, Hameed Ali, said customs receipts had reached a record level, of five billion naira daily, since the closure, with the bustling port of Lagos benefitting most as imports rise through official channels.

As for rice, the country’s agriculture lobby is loudly supporting the border closure.

Ade Adefeko, a senior executive in charge of corporate relations with the food giant Olam, said investment in the Nigerian agricultural sector was being hamstrung by the rice trafficking, which is estimated to reach two million tons a year.

Olam has the biggest rice-growing business in Nigeria, owning 13,000 hectares of cultivable land of which only 4,500 hectares are being used because the sector is “not profitable” in the face of competition from Asian rice, he said.

However, “since the border closure, locally-milled rice has started selling, and the entire rice value chain has been positively impacted by the closure,” Adefeko said.

He called for the border closure to be maintained “until the end of the year, and see how it goes on a longer term.”

On Monday, Hameed told reporters there was no “time limit ... It will continue as long as we can get the desired results.”

But if the border closure is a boost for domestic growers, it has led to price increases for consumers.

The price of a 50 kilogram bag has more than doubled to 20,000 naira, roughly the entire monthly income of a Nigerian living in extreme poverty — of whom there are an estimated 87 million in the country.

Traders in Lagos Island, a vast market of “made in China” textiles and gadgets, say the closure of the borders had crippled supplies via Benin’s largest city Cotonou.

“Lagos’ port is too slow, and you have to pay too many bribes to get your goods out,” said a swimsuit hawker, adding “I have to cut down my margin by half.”

The annual inflation rate edged up to 11.24 percent in September, while food inflation ran at 13.51 percent.

A similar complaint is heard among people in Nigeria’s industrial sector, which is already struggling with the country’s notoriously poor transport system, as well as its frequent electricity shortages.

Trade with neighbors is essential, they say.

“The intention of stopping smuggling is praiseworthy but the point is that measures have an impact on us,” said a foreign investor who specializes in the import and export of manufactured goods.

“As usual in Nigeria, it’s all down to a question of strength — you crush first and talk later.”

Between 10 and 20 percent of Nigerian manufactured goods are sold to other countries in West Africa, with many of these items, such as pasta and cosmetics, exported through informal routes, mainly through small sellers who travel around the region.

“We need direct investments, we need industries to create jobs in this country,” said Muda Yusuf, director of the Chamber of Commerce in Lagos.

“Some people can celebrate but while they put their money to the bank, the rest of the people are suffering.”


Investment and energy experts welcome ‘sensible’ Saudi Aramco IPO valuation

Updated 24 min 2 sec ago

Investment and energy experts welcome ‘sensible’ Saudi Aramco IPO valuation

  • Price regarded as a sensible compromise and that it will sell the IPO
  • Experts said the Aramco valuation was justified by the financial metrics

DUBAI: Investment professionals and energy experts delivered a mainly enthusiastic response to the pricing of shares in Saudi Aramco and the overall valuation of the biggest oil company in the world at between $1.6 trillion and $1.7 trillion.

Al Mal Capital, a Dubai-based investment bank, said that it was positive on the Aramco initial public offering (IPO) on that kind of valuation, which it said was justified by the financial metrics.

“We believe Aramco’s IPO is a central pillar of Saudi Arabia’s Vision 2030. In our view, the broader privatization of state assets will likely accelerate the flow of foreign capital into the Kingdom, improve liquidity and transparency as well as continue to help diversify its economy away from its dependency on oil. While many investors were skeptical about the ability of Saudi Arabia to roll out its ambitious agenda, they seem to be right on track.”

Tarek Fadhallah, chief executive officer of Nomura Asset Management in the Middle East, said via Twitter: “My first impression is that the price is a sensible compromise and that it will sell the IPO. Aramco should easily raise the $8.5bn from retail investors but the 29 global coordinators, managers and financial advisers will need to find the other $17 billion. A few billion from China would help.”

Robin Mills, chief executive of the Qamar Energy consultancy, said; “I think it’s a reasonable compromise. The price is well above most independent valuations but well below the aspirational price. It implies dividend yields a bit lower than the super-majors (the independent oil companies), but a similar price earnings ratio (the measure of the share price rated according to profits). Retail and local investors should be sufficient. We’ll have to see about the foreign investors.”

Ellen Wald, energy markets consultant and author of the book Saudi, Inc., said American investor would still be undecided on the IPO. 

“Remember, investors don’t put money in because they think the value is accurate. Smart investors put money in because they think the value will rise. It all depends on whether they see signs the price will rise during their time frame.”

American oil finance expert David Hodson, managing director of BluePearl Management, said: “This valuation seems to be more reasonable based on the fundamentals. Potential investors in Western markets will base their decision on cold hard facts like dividends and growth prospects. From what we now know, Aramco is offering them a compelling investment proposition to consider.”