In August 2019, Nigeria unexpectedly closed all its land borders with Niger, Cameroon and Benin, to stop all movement of goods, except oil, import or export. The closure of the Nigeria-Benin border was made without any formal communication with government officials from neighboring countries.
The closure is part of Nigeria's economic strategy to address the smuggling of goods across the border, increase local production and protect local producers, as set out in its 2017-2020 Economic Growth and Recovery Plan. Smuggling activities across the border between Nigeria and Benin each year represent a loss of commercial income of about 110 billion Naira (more than US $ 300 million).
However, smuggling is nothing new at those borders, with historical roots in the British and French colonial authorities, when colonial rivals applied trade policies to protect local industries from external competition, which increased illicit trade activities to across the border.
The activation of a prolonged trade restriction to solve the continuing smuggling problem will have a negative economic effect in Nigeria and will curb the long-awaited intra-regional trade investment agreement of Africa, the Continental Free Trade Zone of Africa, known as AfCFTA, which is scheduled to begin by July 2020.
AfCFTA – which according to forecasts will add a combined gross domestic product (GDP) of more than 3.4 billion dollars to the African economy – focuses on the creation of a single continental market for goods and services, with free movement of business and investment people, and thus facilitate the way to accelerate the establishment of the Continental Customs Union and the African Customs Union. It is also proposed to expand intra-African trade through better coordination of liberalization and trade facilitation.
Impact in Nigeria, neighboring countries and Africa
The closure of the border has generated an increase in the price of food, which has caused inflation to increase to 11.24%, the highest since June 2019, and is expected to increase further.
Nigeria currently produces about 6.9 million metric tons of rice a year, but the country must import rice worth US $ 4 billion to meet the growing demand.
When the president of Nigeria, Muhammadu Buhari, took office, one of his main objectives was to improve the growth of the agricultural sector to reduce dependence on the oil sector, with a policy to restrict the Central Bank of Nigeria from distributing funds to facilitate Import of food, especially rice.
In addition, border closure will further reduce Nigeria's ability to attract foreign direct investment. The World Bank ranked Nigeria as one of the worst countries in the world in ease of trade across borders, ranked 182 out of 190 countries.
As expected, Benin will be greatly affected by the closure of the dependence on informal trade with Nigeria, which represents 70% of Benin's GDP. However, it is important to note that, in addition to the formal importation of oil from Nigeria, Benin also imports poultry, rice and vegetable oil that represent about one hundred million US dollars of revenue for Nigeria's GDP.
Nigeria could lose this important source of income if it continues to close its borders with Benin and other African countries.
Ghana's leaders are getting impatient with the closure of the border due to negative economic consequences, which could lead to possible political tensions between the two countries. Nigeria could lose some US $ 300 million in export earnings from Ghana if this country retaliates with trade restrictions similar to Nigeria. Ghana relies on the Abidjan-Lagos highway for land access to West African markets, which has been closed due to the closure of the Nigeria-Benin border.
In a recent conversation in Abuja (Nigeria) between the Minister of Foreign Affairs of Nigeria and the Minister of Foreign Affairs of Ghana, Nigeria assured Ghana that they would open the border by January 31, 2020.
However, the Nigerian Government recently made an announcement indicating an extension of the border closure until mid-2020, which led Ghana's Information Minister Kojo Oppong Nkrumah to condemn the plan and cite the risk for the entire Economic Community of West African States (ECOWAS). Nkrumah said:
It is very important for ECOWAS as a bloc to engage Nigeria on the closure of the borders because moves like this have a way of negatively impacting the West African Economic Integration project.
It is very important for ECOWAS as a block to engage Nigeria in closing the borders because such measures can negatively impact the West African economic integration project.
The Association of Trade Unions of Ghana (GUTA) has asked the Government of that country to also close its trade borders in retaliation for what they call “unfair treatment” of Nigeria.
Nigeria is a key regional agent in the economic growth of West Africa and facilitates the growth of informal trade throughout the region. It is expected that this border closure will affect the informal sector, which represents about 50% of the combined GDP of West Africa.
The Minister of Foreign Affairs of Nigeria, Geoffrey Jideofor Kwusike Onyeama, recently announced a list of strict conditions that all ECOWAS members must comply to be accepted as business partners of Nigeria.
The closure of the borders and the strict list of conditions send a negative signal to the world and other African governments about Africa's commitment to boost intra-African business activities by at least 53% through AfCFTA. The treaties are aimed at facilitating fluid intra-regional trade to ensure regional growth, but Nigeria's trade restrictions fail.
A recent article published by the World Bank Group states:
Nigeria's policy of food import substitution, a form of industrial policy, is often at odds with the idea of regional integration… The AfCFTA will only succeed if member countries make the regional strategy part of their national policy and proactively address the tensions that arise between the two. Countries should find the sweet spot that reinforces national economic goals and ensures maximum gains from increased integration, looking beyond a static assessment of their priorities.
Nigeria's food import substitution policy, a form of industrial policy, is often at odds with the idea of regional integration … AfCFTA will only succeed if member countries make the regional strategy part of their national policy and address it in a manner proactive tensions that arise between them. Countries must find the optimum point that reinforces national economic objectives and ensures maximum benefits of greater integration, looking beyond a static evaluation of their priorities.
A step forward for Nigeria
Nigeria's border closure strategy is not new. Nigeria closed its border with Benin in 1984 and 2003 for the same reason – to stop smuggling – but it never succeeded.
In 1987, the Nigerian military government banned barley, an essential product for beer production. The objective, like that of the current ban on rice, was to stop the value of the country's currency, reduce the depletion of foreign exchange reserves and ignite economic growth.
However, exactly the opposite happened with the barley ban. David Hundeyin of the African Report states that he destroyed Nigeria's “local beer industry,” which resulted in the dismissal of “thousands of Nigerian workers” and “delivered almost 90% of the local beer market” to manufacturers of Beer dominated by foreigners.
To resolve the recurring threat of smuggling across borders, Nigeria needs to create a national or regional institutional framework that can monitor and ensure compliance with respect to the verification, certification and supervision of ECOWAS standards or agreements or the Agreement. Africa Free Trade and fix their dysfunctional economic policies.
As many economists have proposed, Nigeria should take effective measures to diversify the economy and cease to rely heavily on the oil and agriculture sector, and apply more market-friendly measures that encourage foreign and local investments in other income-generating sectors.