In August 2019, the Federal Government announced an indefinite closure of all land borders in the country. Just about the time of this announcement, prices of several commodities started to increase at a faster rate. This economic reality indicated quite clearly the importance of land border trade to Nigeria’s economic growth.
When the FG proclaimed the closure of land borders, business pundits began to raise eyebrows against the rationale behind the decision.
The misconception of land border trade as enabling factor in smuggling
It was jarring to all Nigerians, especially those who had consignments outside borders when the order for border closure was made. Surprisingly, the administration claimed the decision was birthed by the need to devise a tactic that would curb the smuggling of goods purposely to improve local production.
Meanwhile, one of the significant issues bedeviling the Nigerian economy is the inability to appropriately account for businesses in the informal sector. This sector, according to the World Bank, holds over 50 percent of business transactions in the country. It is challenging to nail the figure of trades in the informal sector across land borders since they are far unimaginable compared to formal ones. For instance, Nigeria’s neighbor, Benin Republic, is reported to have imported more rice from Thailand than any other country in the world despite its small population of 11 million people.
This could only mean that much of the imported rice in Benin is repackaged and exported to other neighbouring countries, especially Nigeria, with a population of over 200 million people. This, however, does not reflect on Nigeria’s import figures which provide further credence to the fact that this is most likely smuggled into the country from Benin.
The land border has also been a major route for the smuggling of subsidised petroleum products out of Nigeria by some alleged petroleum marketers. According to research published by SBMIntel in August 2019, the price of petrol in Nigeria was $0.40 (N145/litre), while the price in neighbouring countries was more than double that figure.
Economically, goods flow naturally to places where they are priced highest, and so so smugglers capitalised on these weak and porous borders to achieve their illicit trade.
Recently, the Chairman of UBA Group, Mr Tony Elumelu, lamented how so much of Nigerian oil is stolen. According to him, Bonny Terminal ought to be receiving 200,000 barrels of crude oil as against the 3,000 barrels it gets on a daily basis. “Businesses are suffering. How can we be losing over 95% of oil production to thieves? Look at the Bonny Terminal that should be receiving over 200k barrels of crude oil daily, instead, it receives less than 3,000 barrels…”
However, this illegality can be transformed into wealth, especially now that Federal Government is exploring all options in generating more revenue to fund projects. If activities at the borders are formalized and ingeniously managed, the government will have an increase in its revenue through customs duties.
The current Comptroller General of the Nigerian Customs, Col. Hameed Ali (Rtd.), informed the Nigerian Lawmakers at both Chambers that the agency was collecting an average of between 4.7 billion and 5.8 billion Naira in daily revenue. But this figure could shoot up sporadically if government increase the attention on the informal sector and reduce the bureaucracy in customs clearing procedures.
This will not only help the government make more revenue through cross-border trading activities, it will help to put products being smuggled under the government’s coverage and also encourage local manufacturers in the informal sector to up their game and become giants themselves by getting more of their products to other countries through the land borders. The result will be more revenue for the government and reduced smuggling activities.
According to the United Nations Conference on Trade and Development (UNCTAD) 2019 Economic Development in Africa report, Intra-Africa trade was about 16.6 percent of total Africa Exports in 2017 compared to 68.1 percent in Europe and 59.4 percent in Asia.
These statistics may be wrong because there has been a dearth of records of informal trade within African countries, which is considered to be generating substantial income and employment for Africans.
According to Global Initiative Against Trans-border Organised Crime, Informal cross-border trade (ICBT) remains a major form of informal activity in most African countries. In the Southern African Development Community (SADC), for example, it makes up an estimated 30 – 40 percent of total intra-SADC trade, with an estimated value of $17.6bn. 70 percent of these trades include commodities in either raw or semi-processed goods produced in other countries. In West Africa, the informal sector and particularly in Benin represents approximately 50 percent of GDP and 90 per cent of employment.
As much as we detest smuggling and desire to nip the menace in the bud, cross-border trade takes several forms, not all of which are illegal.
For example, a business transaction in traditional agricultural products and livestock in bordering countries engage in land border trade. Thus, the need to harness and recreate incentive approaches to incorporate them into government revenue generation is very imperative.
Besides, encouraging land border trade will further empower local goods to compete in prices as well as in quality with other goods being imported into the country via other routes.
Nigeria must arrest AfCFTA and AU Economic agreement
Three years ago, forty-four African countries signed an agreement establishing the African Continental Free Trade Area (AfCFTA) in Kigali, Rwanda. The AfCFTA aims to create a single continental market for goods and services with free movement of businesses and investments.
According to a representative of a member country who participated in the signing, “The pact could create an African market of over 1.2 billion people with a GDP of 2.5 trillion U.S. dollars.”
The Economic Commission for Africa of the United Nations had estimated that the AfCFTA could boost intra-African trade by 53.2 percent by removing import duties, and double this trade if non-tariff barriers are also reduced.
Meanwhile, while the United Nations was assessing the agreement, it submitted that it would create the “largest free trade area in the world measured by the number of countries participating.
“The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.”
The Nigerian government must seize opportunities provided by AfCFTA to grow its economy. Doing this will require libralisation of land border trade and significant investment in infrastructure to facilitate trade.
We have the human resources, capacity, and initiative to be the leading beneficiary of this pact, but all hands must be on deck to redefine land border trade and facilitate investments in the informal sector to help local producers to provide an alternate source of economic growth and development for the country.