July 1, 2021/CSL Research
According to media report yesterday, members of the Nigerian House of Representatives were divided over a motion for the full re-opening of Nigeria’s land borders. The motion was sponsored by eleven (11) law makers who cited the economic downturn and its attendant hardship on Nigerians living along these borders as strong reasons to reopen the borders. Eventually the motion was thrown out on the argument that the security of lives and properties trumps any economic implication of the closure. The Federal government, in August 2019, announced closure of its land borders due to several reasons ranging from: prevention of smuggling of illegal goods, prevention of entry of illegal persons to curbing insecurity. However, the Federal Government in December last year, announced the reopening of the country’s four major land borders: Seme, Illela, Maigatari and Mfun.
The closure of the Nigerian land borders continues to generate backlash from the public. We had stated in our previous reports that the total closure of the borders was inadequate to achieve the goal of promoting local production for as long as the local business environment remains hostile. We also suggested the government limit the ban to items for which the country has a decent supply level to meet demand that were still being smuggled in. We noted that the consequence of the total closure would mean upward pressure on prices of goods particularly food items. Truly, food inflation had moved from 13.5% y/y in October 2019 to 22.3% y/y in May 2021, partly due to the closure of the borders though the menace of insecurity that has permeated the food producing states is also a major factor.
The closure of the borders also caused setbacks for Nigerians whose major business activities had depended on the land borders such as the cement producers, manufacturers, freight forwarders and transporters and many other companies with a viable export business. There were reports that many manufacturers closed their export segments because of the border closure. That said, the effects of the policy hasn’t been all negative, some listed companies in Food processing and Agriculture such as Flour Mills of Nigeria, Dangote Sugar, Presco, Okomu etc benefitted significantly from the lack of competition from smuggled products and this was reflected in improved earnings for these firms.
In our opinion, full opening of the land borders will be a good economic decision as it will positively influence the prices of goods in the short to medium term in light of the economic shocks caused by the pandemic and the recent food scarcity brought about by poor harvests, incidences of flood and insecurity in the food producing regions. That said, opening of the borders without effective strategies in place to combat smuggling and improve security may not only result in a reversal of the fortunes of the companies that had previously benefitted from the border closure but may also worsen the already bad security situation of the country.
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