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.”


Oil prices rise as faith in supply cuts grows

Updated 26 May 2020

Oil prices rise as faith in supply cuts grows

  • Producers are following through on commitments to cut supplies as fuel demand picks up with coronavirus restrictions easing
  • OPEC+ countries are due to meet again in early June to discuss maintaining their supply cuts to shore up prices

NEW YORK: Oil prices rose on Tuesday, supported by growing confidence that producers are following through on commitments to cut supplies and as fuel demand picks up with coronavirus restrictions easing.
Brent crude futures were up 45 cents, or 1.3%, at $35.98 a barrel by 1:09 p.m. EDT (1709 GMT). US West Texas Intermediate (WTI) crude futures gained 89 cents, or 2.7%, to $34.14.
The Organization of the Petroleum Exporting Countries and other leading oil producers including Russia, a group known as OPEC+, agreed last month to cut their combined output by almost 10 million barrels per day in May-June to shore up prices and demand, which has been hit by the coronavirus pandemic.
Russian Energy Minister Alexander Novak is due to meet oil major producers on Tuesday to discuss the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.
The RIA news agency said Russian oil production volumes were near the country’s target of 8.5 million bpd for May and June.
On Monday, Russia’s energy ministry quoted Novak as saying that a rise in fuel demand should help to cut a global surplus of about 7 million to 12 million bpd by June or July.
OPEC+ countries are due to meet again in early June to discuss maintaining their supply cuts to shore up prices, which are still down about 45% since the start of the year.
“The 16 million bpd oversupply in crude during April could be reversed altogether by June, helped by a 4 million-bpd recovery in crude demand and a 12 million-bpd cut in crude supply,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy.
“OPEC+ is pulling the most weight by far, effectively reducing supply by nearly 9 million bpd while non-OPEC+ crude supply is down by more than 3.5 million bpd from March levels.”
In an indication of lower supply in the future, data from energy services business Baker Hughes showed that the US rig count hit a record low of 318 last week.