April 26, 2022/United Capital Report

According to media reports, the Federal Government has approved the reopening of additional four land borders that were shut in Aug-2019 as part of efforts to curtail the smuggling of illegal arms, drugs, and agricultural products to boost a bid to support local production. The land borders that have been re-opened include the Ogun state border (Idiroko border post), Katsina state border (Jibiya border post), Kebbi state border (Kamba border post), and Cross River state border (Ikom border post).

The full closure of the land borders proved to be a double-edged sword earlier in 2019. Firstly, in the initial aftermath of the closures, we observed a spike in general price levels. According to the NBS Selected Food Price Watch, in the first four months after the closure, the average price of 1kg of local rice increased by 26.0%, from ₦272.8 per kg in Aug-19 to ₦344.0 per kg in Nov-19. Currently, the average price of local rice per kg stands at ₦441.8, which is a 62.0% increment from Aug-19 to Mar-22. Interestingly, in the months after the announcement of the border closure, inflation rate rose for 19 consecutive months, reversing a three-month deceleration before the announcement. However, the closure of the border spelled a good omen for oil palm and sugar producers as the closure of the border restricted imports of cheap and lower-quality substitutes for their products. As a result, they regained pricing power and volume growth, which meant improved revenues and better profitability in the following quarters.

Going forward, we expect the reopening of the four additional borders to have a marginal impact on food prices and general price level. We note that there are more concerning inflationary drivers in the economy which would outweigh any possible positive from improved supply via border channels. Meanwhile, there remains broad uncertainty that smuggling activities via the land borders did not resume after a period of the border closure. For listed oil palm and sugar companies, this may be an unwelcome piece of news for them as the land borders’ security infrastructure remain weak which would continue to aid the activities of smugglers.