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FG Considers Reopening of the Land Borders

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Thursday, November 26, 2020 /11:40 AM / by CSL Research/ Header Image Credit: Nollywood Alive

News reports say the Minister of Finance, Budget and National Planning, Zainab Ahmed, in an interview with State House correspondents after the Federal Executive meeting on Wednesday, said the committee on border closure set up by the President would soon submit its report, noting that the borders would soon be reopened. Recently, the Federal Government decided to grant limited approval to some companies such as Dangote Cement and BUA cement waiver to export its products via land borders. This, many interpreted as a sign that the government may be softening its stance on the land border closure.

We recall that last year, the Federal government 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. We had stated that the total closure of the border was inadequate to achieve the goal of promoting local production for as long as the local business environment remained hostile. We also suggested the government limit the ban to items that were been smuggled where the country has a decent supply level to meet demand. We noted that the consequence of the total closure would mean upward pressure on prices of goods particularly food items. Food inflation has been on the rise, increasing to 17.38% in October 2020 from 14.09% in October 2019 when the full border closure was announced. The last GDP numbers announced also showed a contraction of the Trade sector (down 12.1% y/y). We note the steep contraction in the Trade sector GDP is reflective of not only covid-19 related pressures but also adverse trade policies such as closure of land borders.

There have been both losers and beneficiaries emerging from the closure of the borders in the last 15 months. Some listed companies in Food processing and Agriculture such as Flour Mills of Nigeria, Dangote Sugar, Presco, Okomu etc have benefitted significantly from the lack of competition from smuggled products and have seen significant growth in earnings since the border closure. On the other hand, manufacturers, freight forwarders and transporters, who operate across the land borders, have been negatively affected. There have been reports that many manufacturers have closed down their export segments because of border closure.

That said, we believe the closure of the border has negatively impacted the overall economy much more than any benefit that could have accrued to the economy. Overall, in our view, the most adverse effect of the border closure is the steep rise in prices of goods and services especially food prices. The Nigerian consumer's purchasing power has been significantly stiffled and an opening of the land borders would be a welcome development.