By Jennifer Y Omiloli
The closure of Nigeria’s border, principally aimed at curbing smuggled goods flows such as rice and tomatoes, effectively cut off trade with neighboring countries such as Benin, Niger and Cameroon.
This came to play just months after Nigeria signed the landmark African Continental Free Trade Agreement, which aims to create the world’s largest free trade bloc.
Such a drastic move by one of the major players in Africa also casts doubt on the broader movement for free trade and cooperation on the continent.
Underpinning the shutdown is a change in economic policy aimed at addressing some of the country’s domestic fragility by driving production at the detriment of imports.
A recent mission to Nigeria from the International Monetary Fund concluded that the pace of economic recovery remains slow because of depressed private consumption and investors ‘ wait-and-see approach.
In the second quarter of 2019, the economy grew by 1.94 percent year-on-year, refreshing from a growth of 2.1 percent in the previous quarter. Nevertheless, per capita GDP (gross domestic product) has been decreasing since peaking in 2014 as population growth outstrips that of GDP, meaning that people become poorer even as the economy grows.
“The access to capital has not been great because the government is crowding out the lending space
“Strong government expenditures combined with weak revenues means that the government has had to borrow a lot of money locally, so it is crowding out private borrowers. Banks are finding it more attractive to lend to the government.” Marshall Stocker, vice president and head of country research at investment firm Eaton Vance, told CNBC.
Policy instability is a second factor weighing on growth, Stocker explained that the frequent medical absences of President Muhammadu Buhari, regularly delayed budgets and late cabinet appointments have all limited visibility on policy change and fed into ebbing trust and lower economic growth.
“To me, it looks like import substitution, or indigenization of the economy, meaning they want to build and grow everything themselves and import nothing
“This is a failed economic experiment — it won’t work out well. The policy change appears to be toward reducing free trade. They’ve limited imports, whether that’s on food goods or raw materials like palm oil, to try and encourage the local industries to develop, but in the end if the local industry does not have a comparative advantage in a tradable sector, you shouldn’t be building those industries.” Stocker told CNBC.
Eaton Vance’s research into Nigeria has concluded that the closure of the border does not reflect a sound economic policy, but a reduction in economic freedom. In fact, it does not seem to work as recent data from Nigerian ports indicate that palm oil imports continued to rise in 2019.
Another controversial move was the CNB’s recent mandate to expand banks ‘ loans, increasing the minimum loan-to-deposit ratio in a bid to force private sector lending.
Stocker said this tackled the symptom but not the cause, which is excessively large government spending which needs to be reduced to make banks less tempted to buy government bonds and raise private-sector investment interest.
“We’ve seen monetization of the fiscal deficit, which means the central bank funding fiscal expenditure, again something that cannot be sustained with a stable or pegged currency
“Managing vulnerabilities arising from large amounts of maturing CBN bills — including those held by non-residents —requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate,” IMF Nigeria Mission Chief Amine Mati said in his report.
