We have heard a lot about trade this year. More than we have heard in a while, to be honest. The biggest reason is that there were severe issues in trade that had become so polarising and popular they were discussed from board rooms to bars 2019 in Trade law began with a bang with the execution of the instruments of ratification of the African Continental Free Trade Area (AfCFTA) agreement on April 29, 2019, by 22 countries. The AfCFTA entered into force on May 30, 2019. It is a historic Trade agreement that has taken years to create.
Fifty-four African nations met to work out an agreement on the pan-continental free trade zone. The AfCFTA could potentially unite 1.3 billion people, create a $3.4 trillion economic bloc and boost trade within the continent itself radically
The agreement could make it easier for businesses to expand operations across the region.
However, for Nigeria, it was complicated as we held off from signing for months. Our Government got cold feet over issues of consumer protection, dumping and protectionism of Nigerian businesses. While our concerns were valid, they would have been addressed by Municipal legislation and enforcement of the current laws we have in place. We eventually ratified the agreement, however, scarcely had the ink dried on the agreement before we landed into another trade fiasco. Well, we signed the Trade Agreement, for Free Trade then closed our borders. One of the biggest stories this year was Nigeria’s newly acquired, populist, protectionist stance.
This stance is now Part of our Public Policy as the Benin-Nigeria border has been closed for months to check “massive smuggling activities, especially of rice”, taking place on that corridor. According to President Buhari, the partial closure of the country’s western border was to allow Nigeria’s security forces to develop a credible strategy on how to stem the dangerous trend of smuggling and its full ramifications.
Following the initial directive on border closure, the Federal Government took the newfound hardline policy to the next level by banning the discharge of petroleum products to petroleum filling stations within twenty kilometres of our Nigeria’s land borders. This step was in line with the Federal Government’s zero-tolerance stance on the illicit trade in Nigeria’s petroleum products across the Western Border. Furthermore, the policy will go a long way to discourage round-tripping as well as help save Nigeria’s subsidy-related expenditure. These steps were deemed critical because PMS is sold at a much lower price in Nigeria than most of our African Neighbours. Thus, the price discrepancy clearly creates room for (risky) arbitrage. This fear is compounded with the existence of Nigeria’s porous Western border.
Petroleum Marketers before this policy would obtain PMS at Nigeria’s subsidised rates proceed to distribute the same PMS at prices that were significantly lower than the pump price of Nigeria’s West African neighbours and make a tidy profit. This round-tripping poses the immense potential to exacerbate Nigeria’s further already- critically high under-recovery costs. Market indications point to the fact that the policy is indeed working and has slightly cut down Nigeria’s subsidy bill.
However, we opine that there are more efficient solutions- such as more stringent licensing requirements for marketers and adequate, tech-savvy border policing will undoubtedly do better than outrightly cutting off the supply of PMS to the communities along the Western Border. The truth is, eventually individuals and businesses in and around the Western border communities will also have a legitimate need fuel for commercial and domestic ends and will lack access to obtain same as result of the ban.
The border closure has been most unfortunate for businesses. It has resulted in a hefty supply deficit of food items such as rice, oil and frozen foods, amongst others. The result is the rising prices of goods. The Federal Government’s directive to halt the supply of all petroleum products to border communities has also triggered a ridiculous increase in the price of PMS in those areas.
The result of these trade policies of these translated to sky-high inflation factors rate as seen in November 11.85%.To a considerable extent, the rise in the inflation rate is expected to persist as we approach the festive seasons. Intense demand for staples, such as rice, vegetable oil, frozen foods and pepper amongst others will trigger a continued rise in the inflation rate.
The upward review of the Nigerian worker’s minimum wage from NGN18,000 to NGN30,000 will not help matters. The implementation of the new wage structure begins in December 2019. The increase in minimum wage was approved in order to help stimulate consumer spending and act as a catalyst to the Nigerian economy eventually. It is noteworthy that the impact of border closure is not solely domestic. For Benin republic’s economy, whose major agricultural produce export is to Nigeria (about 20% of its national GDP), the significant loss has been incurred from unsold agricultural produce that is rotting away in warehouses. Shutting the doors at neighbouring countries with which Nigeria has signed a free trade agreement will make it even more challenging to achieve a regional integration agenda.
Also, the social wellbeing of Nigerians who live in border communities in Nigeria has been hampered by the loss of their means of livelihood as they have been unable to move their goods into neighbouring countries, whom they transact with. This is just the tip of the iceberg, as there is now a credible threat of reciprocity in Ghana and the potential of a west African Trade war in coming years if we do not move cautiously. The news is not all doom and gloom as several market players are making great progress as financial gain as a result of the border closure. Pasta producers, for instance, have reportedly benefited immensely from the mandate. They have reported increased patronage, as individuals have begun to substitute pasta for Asian produced rice.
The Border closure has increased the patronise of local rice millers and poultry and maize farmers. There remains a question of adequate supply to meet the teeming demands of consumers. However, the increased patronage of locak producers has helped push towards the Nations economic objectives of revitalising the Nigerian economy(GDP in Q2 adjudged as 2.12% and GDP in Q3 adjudged as 2.28%) and creating employment opportunities. Nonetheless, as market forces in the aftermath of the border closure have now shown, separating the private sector players from their external competitors will not in itself stimulate innovation. Fierce competition will, however. Thus, trade protectionism will only go so far to handling Nigeria’s problems. Players in the domestic market will require much more in order to properly scale and compete, such as access to inexpensive credit and availability of reasonable infrastructure (electricity, etc.). These are what will also help business thrive in Nigeria.
Technically, Nigeria’s closure of its borders can only offer short-term solutions. By the time the borders are reopened in January 2020[1], it will be a return to business as usual as the quality and pricing of domestically produced commodities remain uncompetitive.
The Federal Government in its defence has taken a cue from the Chinese border c; closure during Chairman Mao’s Cultural Revolution. Taking cues from China’s border closure, the closure of the Chinese borders came at a time when all the necessary resources and technology needed to make the great nation self-sufficient were readily available. Moreover, the border closure alone was not sufficient as a tool to drive Chinese economic success. Instead, the Chinese under Deng Xiaoping and now under President Xi Jinping have made very intentional efforts at diversification of their economy through a critical emphasis on technology-based education, deliberate infrastructural development, mass urbanisation and the general enhancement of domestic capacity facilitated self-sufficiency. All these policies worked simultaneously with the border closure initiative to catalyse rapid and enormous economic growth.
We also opine that the Federal Government should first offer a transition phase before embarking on implementation critical decisions and changes in government policy, such as a complete closure of the borders. This transition stage will afford all the necessary stakeholders opportunities to give their two cents to the policy, plan their affairs and help the Government check elevated inflationary pressures that might arise from the execution of the policy.
[1] Editors note- The border remains closed as at February 2020
