Nigeria’s land borders have been a no-go area since last month after the country’s government announced a total ban on imports/exports via land borders. However, the border measures can be traced to August 2019 when an initial “partial” border closure was first announced.
Since then, the prices of various food commodities have skyrocketed in Nigeria and aggrieved traders in neighbouring countries have shutdown businesses belonging to Nigerians in retaliation. There have also been calls for the Nigerian government to give affected traders one week to move goods stuck in Nigeria to other countries.
Even as the hike in food prices since the border closure already points to the idea that the border measures may be causing more harm than good, it seems things are going from bad to worse for some companies in Nigeria.
A report from FSDH Merchant Bank Limited suggests that some textile companies in one of Nigeria’s commercial city, Kano, have shut down operations.
According to the FSDH macroeconomic report for October, some textile firms in Kano have halted operations with a large pile of inventories due to the inability to export to other African countries via the borders.
FSDH stated that for firms that rely on imported inputs via the land borders, the closure had resulted in higher production costs and this would have further implications on Nigeria’s outputs in the fourth quarter of 2019.
Analysts at FSDH believe that the border closure comes with high inflationary pressure and this does not look good for the economy. Basically, FSDH stated that although almost 99% of Nigeria’s formal trade is done via air with land borders largely dominated by informal trade, the border closure is expected to have implications on food prices and core inflation in the economy.
“While Inflation has moderated in the first nine months of 2019, inflationary pressures are imminent in the remaining part of the year. These pressures would stem from higher government spending, potential tax increase and the recent closure of the land borders,” the report reads.
According to FSDH, the closure of the land borders is expected to have a mixed impact on investments and trade. Analysts at the firm believe the introduction of such a policy without embarking on measures to improve local capacities would only result in higher prices and firms’ redundancy.
“Already, several local firms involved in exports via land borders have shut production plants, with a piled-up inventory. This is expected to negatively affect investments.
“In addition, closure of land border without commensurate and prior investment in ports infrastructure and implementation of port reforms would lead to increased pressure on the existing ports, and result in reduced trade volumes.”
Providing a forecast for the Nigerian economy, FSDH stated that the Nigerian economic outlook remains weak as pressures build on the country’s reserves, prices, and output.
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