Since 20 August 2019, Nigeria has closed its borders with Benin on the grounds of combating smuggling and developing the local economy. The Nigerian authorities have placed particular emphasis on banning the entry of food products such as rice, meat and frozen offal from Benin. Can this protectionist measure on agricultural products effectively combat smuggling and promote the development of “made in Nigeria”?
Nigeria is the second-largest rice importer in the world after China. This position as an importer is mainly due to the inadequacy of its local production in relation to market needs. Under these conditions, closing Nigeria’s borders with its neighbours is nonsense, and it can only lead to a shortage and therefore a sharp increase in the price of rice. Moreover, it has already more than doubled, from 9,000 Naira for a 50 kg bag to 22,000 Naira, thus exceeding the minimum wage of 18,000 Naira. This is precisely the opposite of the expected effect because the law of supply and demand that governs the market is being flouted.
Local production, which the government claims to protect by this measure, is penalised because the closure of Nigerian borders deprives Nigerian companies of access to cheap inputs but also affordable intermediate products, which erodes their competitiveness. For example, the tomato processing plant set up by Aliko Dangote was deprived of raw materials because it was unable to import tomatoes produced in Benin and Togo. Similarly, fruit juice factories are deprived of fruit grown in Benin, notably pineapple.
Finally, the Nigerian government forgets that to stimulate local production, competition is an excellent incentive for companies, which allows to rationalise their costs, improve the services offered, but also innovate. As a reminder, if Nigerian products are shunned, it is because they are more expensive and of mediocre quality. Therefore, even protecting them from foreign competition, they will always be ignored, which means that the government will only develop the black market and smuggling. All of these counterproductive effects of border closures force us to resort to better therapy by researching the real roots of the problems that the Nigerian government wants to solve.
Officially the leading African economic power with a gross domestic product of $384 billion, Nigeria is nevertheless a weak competitor because of several dysfunctions. On land, for example, it is costly, since farmers face formalisation difficulties that represent an additional cost in the production chain making their products more expensive. According to the property transfer index of the “Doing business” ranking 2019, 11.1% of the value of the property and a procedure of 105 days are required, compared with averages of 7.6% and 53.9 days respectively in sub-Saharan Africa. Similarly, the nationalisation of agricultural land hardly favours long-term investments because the notion of property is not respected. This hampers the financing of the means of production needed to improve yields, achieve optimal value for money and thus be competitive in the market.
Even though Nigeria has excellent access to credit overall, this reality is not valid in the rural world where agricultural producers have serious problems with access to credit. In fact, the financing of agriculture, which is accessible only in banks, requires formalisation procedures that make access to credit too expensive (interest rates, guarantees). But this price is also the lack of competition between banks that sometimes offer rates that are incompatible with the level of income of farms.
Insecurity and corruption
Other costs, less mentioned but with direct impacts on agricultural production in Nigeria and on the economy in general and on meat production in particular, are due to insecurity. Indeed, the conflicts between farmers and herders in 2018, more than 1300 deaths and more than 300,000 displaced according to official figures. These conflicts are limited in the Northern States the sowing campaigns, the production of meat and the fishing; which in the end has repercussions on the national output which is insufficient, expensive and not very competitive. The worsening of this situation has led the United Nations Food Fund (FAO) to intervene in northern Nigeria to combat food insecurity.
Similarly, corruption is almost endemic and deeply handicaps efforts to boost the economy. This corruption is even more pronounced at the borders where border control agents let smuggled goods such as gasoline, rice and many more for bribes. Moreover, on Transparency International Corruption Perception Index 2018, Nigeria is 144th out of 180 countries considered in the ranking. The frequent diversion of agricultural subsidies also manifests this corruption. A situation that should lead the government to liberalise the agricultural sector including the delivery of inputs and carry out an audit of previous exercises to punish those responsible for wrongdoing. Finally, the institutional costs (cost of compliance with laws and regulations) should be reduced by simplifying and simplifying the procedures and rules of the game, especially by focusing on dematerialisation and e-government.
In the end, if the government can impose the closure of borders, it can not force Nigerians to buy local rice. Border closures are a counterproductive protectionist measure that does not solve the real obstacles to boosting the competitiveness of Nigerian products. Actions taken in this direction must, therefore, improve access to land, credit and security, but also reduce bureaucratic costs with particular attention to the fight against corruption.