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.”

Japan lower house passes US trade deal but auto tariffs still in limbo

Updated 19 November 2019

Japan lower house passes US trade deal but auto tariffs still in limbo

  • There is uncertainty over how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts
  • Japan has estimated the initial deal will boost its economy by about 0.8 percent over the next 10-20 years

TOKYO: Japan’s lower house of parliament approved on Tuesday a limited trade deal Prime Minister Shinzo Abe agreed with the United States, clearing the way for tariff cuts next year on items including US farm goods and Japanese machine tools.
But there is uncertainty over how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts, casting doubt on Abe’s assurances the deal he signed with US President Donald Trump was “win-win.”
Japan and the United States last month formally signed the limited trade deal to cut tariffs on US farm goods, Japanese machine tools and other products while staving off the threat of higher US car duties.
The government’s proposal to ratify the trade deal will next be brought to the upper house for a vote but its passage in the powerful lower house increases the chances it will come into force in January.
The deal will give Trump a success he can trumpet to voters but Abe has said it will bring as much benefit to Japan as to the United States.
Japan has estimated the initial deal will boost its economy by about 0.8 percent over the next 10-20 years, when the benefits fully kick in. It also estimated ¥212.8 billion of overall tariffs on Japan’s exports to the United States will be reduced.
But the figures were based on the assumption the United States would eliminate its tariffs on Japanese autos and auto parts — a major sticking point.
Without those tariff cuts, the reduction in overall US tariffs on Japanese goods would be a little over 10 percent of the government’s projection, according to an estimate by Japan’s Asahi newspaper and Mitsubishi UFJ Research and Consulting.
After the deal is ratified, Japan and the United States have four months to consult on further talks, and Trump has said he wants more trade talks with Japan after the initial deal.
But Japanese government sources familiar with the talks say the momentum to negotiate a deeper deal appears to have waned for now with Washington preoccupied with talks with Beijing.
“It’s unclear whether Washington seriously wants to continue trade talks,” one of the sources said.
“The question is how much time the United States can allocate for talks with Japan, even if we start negotiations. There’s limited time to conclude talks before the presidential elections.”
Japan and the United States already appear to have different interpretations of what was agreed on car tariffs.
Japan has said it has received US assurance that it would scrap tariffs on Japanese cars and car parts, and that the only remaining issue was the timing.
But Washington has not confirmed that.
US Trade Representative Robert Lighthizer has said cars were not included in the agreement, and that it was only Japan’s ambition to discuss car tariffs in the future.
A US document only said customs duties on autos and auto parts “will be subject to further negotiations with respect to the elimination of customs duties.”
“The deal was left vague on the issue of tariff cuts on Japanese auto and auto parts. Otherwise, we couldn’t have reached the agreement,” another source said.
There is also uncertainty on whether Trump will drop threats to impose steep tariffs on Japanese car imports under “Section 232” that gives him authority to do so on national security grounds.
Abe said he had got an assurance from Trump that he would not do that, though analysts say the president could always change his mind, or at least keep Japan guessing.
Opposition parties have attacked Abe for a deal they say is unfair. Critics say Trump could drag his feet on further negotiations unless he is sure he can win more concessions.
“There’s a chance Trump will put pressure on Japan on trade to appeal to his voters,” said Junichi Sugawara, senior research officer at Mizuho Research Institute. “There’s a possibility he could renew his threat over auto tariffs.”