The Effects of Nigeria's Closed Borders on Informal Trade with Benin - Brookings

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Wednesday, October 30, 2019  /  08:35PM  /   OpEd By Stephen Golub, Ahmadou Aly Mbaye, and Christina Golubski  /   Header Image Credit: Brookings/Edu


Nigeria's recent announcement confirming that it is is closing its borders to prevent movement of all goods has been met with harsh criticism from neighbors and regional integration advocates. The Buhari administration has justified the decision as a tactic to curb smuggling of goods of which the country wants to internally increase production, such as rice.

 

The border closures will have particularly negative consequences for traders, especially informal ones, along the Benin-Nigeria border, as  the two economies are closely intertwined.[1] Indeed, this informal trade generates substantial income and employment in Benin, and Benin's government collects substantial revenues on entrepôt trade-goods imported legally and either legally re-exported to Nigeria, or illegally diverted into Nigeria through smuggling.

 

The informal sector throughout West Africa, and particularly in Benin, represents approximately 50 percent of GDP (70 percent in Benin, in fact) and 90 percent of employment. Unsurprisingly, informal cross-border trade (ICBT) is pervasive and has a long history given the region's artificial and often porous borders, a long history of regional trade, weak border enforcement, corruption, and, perhaps most importantly, lack of coordination of economic policies among neighboring countries. Notably, ICBT takes several forms, not all of which are illegal: For example, trade in traditional agricultural products and livestock in bordering countries may involve little or no intent to deceive the authorities, as peasants and herders ignore artificial and un-policed borders.

 

The economic relationship between the two countries, both members of the Economic Community of West African States (ECOWAS), is already asymmetric, with Nigeria exerting much more influence on Benin than vice versa. Given Nigeria's larger population, economy, and natural resource wealth, Benin has adopted a strategy centered on being "entrepot state," i.e., serving as a trading hub, importing goods and re-exporting them legally but most often illegally to Nigeria, thus profiting from distortions in Nigeria's economy.

 

Benin's dependence on Nigeria is not apparent from official trade statistics, as Benin's reported trade with Nigeria accounted for only about 6 percent of Benin's exports and 2 percent of Benin's imports in 2015-17.[2] These official statistics are very misleading, however, as they do not reflect the vast informal trade along the border.

 

NIGERIA'S TRADE POLICIES CREATE DISTORTIONS THAT INCENTIVIZE SMUGGLING

 

Nigeria's heavy dependence on oil and many dysfunctional economic policies have created an environment for ICBT between it and its neighbors, mainly Benin and Togo, to flourish. The wide gap between the official and black-market rates of the naira; Nigeria's subsidized fuel prices; import barriers (Table 1); poor trade facilitation (Table 2); and Benin's poor business climate have incentivized local traders to turn to the informal cross-border trade.

 

Table 1: Nigeria's import barriers on selected products, import tax rates (%), and import bans, 1995-2018

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*The maximum age of cars banned from import has varied over time as more 8 years old in 1995, and 5 years in 2001, back to 8 years in 2007, and 15 years in 2018. In addition, imports are banned via land borders since 2016.**Banned from using the official foreign exchange market. ***Rice imports banned through land borders since 2013.

Sources: Soule (2004), Nigerian customs data provided by the World Bank, Nigerian import prohibition list https://www.customs.gov.ng/ProhibitionList/import.php , online reports, World Trade Organization Nigeria Trade Policy Review 2017.

 

 

To read the full article, go to the post The effects of Nigeria's closed borders on informal trade with Benin which first appeared in Brookings on Tuesday, October 29, 2019.   

 

 


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