Protectionism is a trade policy implemented with the sole aim of protecting local industries from unfair competition and other trade vices by restricting imports from other countries through import tariffs, import quotas, goods ban etc. The Nigerian border closure was implemented as a protectionist policy, to prevent smuggling of goods, promote local production of goods and improve the Nigerian economy. However, the opposite might result on a long term analysis due to a number of factors exposed in this article including; lack of economical and infrastructural capacity to support a sole producing economy, inability of local producers to meet the increased demand that followed the implementation of the policy, inflation of goods due to local monopoly, inferior goods and lack of innovation result from lack of competition, counter-effect of increased smuggling as a result of border closure, unemployment and financial loss on the part of international traders and loss of revenue from import taxes on the part of the government and threat of retaliatory protectionist policies from other countries, all of which contribute to economical drain. Thus while it may serve some good for a while, on a long term basis, it is a pathway to economic doom.
International trade has been recognised as one of the bedrocks of international relations over the years. It is the exchange of capital, goods and services across international borders and territories which represents a significant part of the gross domestic product of most countries. This concept of international trade owes its origin to the principle of comparative advantage attributed to the works of economists like Adam Smith, John Stuart Mill and David Richardo, that if countries should specialise in the production of goods where they have lower opportunity cost, then there will be an increase in economic welfare. This is because countries are endowed with different raw materials and infrastructural capacities and thus may produce the same goods more efficiently and sell it more cheaply than other countries. Thus, if a country cannot efficiently produce an item, it can obtain that item by trading with another country that can.
As with most theories, the theory of international trade has two opposing views; free trade, which encourages no limitation to trade and protectionism which makes use of protectionist policies like tariffs, import quotas and ultimately government regulations like border closure in a bid to regulate international trade. In the course of this article, the Nigerian border closure policy, a protectionist move shall be examined in the light of its economic effect on the nation.
1.1 Concept of Protectionism
Protectionism is an economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas and a variety of government regulations. It refers to trade policies that protect local businesses from foreign competition. It could take the form of import tariffs, import quotas, trade embargoes, and local subsidies. Some have argued that no major country has ever successfully industrialised without some form of protectionism. Its effect on a particular economy can be likened to that of a double edged sword, either shielding producing businesses and workers of the import-competing in the country from foreign competitors or serving as an instrument of economic doom, reducing trade and adversely affecting consumers in general by raising the cost of goods and harming producers and workers in the export sector both in the country implementing it and the country against. Thus while it delivers short term goals, it could cause long term economical problems in a state.
1.2 International Protectionist Countries and its Economic Effects- China and Singapore
China is one country that is notable for its protectionist policies. In the 2000s, it was the centre of the world trading system dominating both Asia and intercontinental change. However, it wasn’t satisfied with this role and decided to pursue a less interdependent, self- contained economy and pioneered The Made in China 2025 initiative with a goal to achieve 70% self- sufficiency in its industries by 2025. As rosy as this sounds, according to the international committee, this is a troubling development in that it not only creates a new competition for U.S, Japanese, European and South Korean companies but also disrupts global supply chains leading to China’s de-globalisation at a very rapid rate. Many have asserted that a world of self-contained national supply chains is probably going to be less efficient and more dangerous than a world of distributed international production.
Singapore is another country which significant protectionist policies. Trade protectionism is cited as the top risks by local economists as suggested by the Monetary Authority of Singapore (MAS). While it gives short gains, it also leaves short term damage in its propagation of economic damage. Some of its problems include; local business unproductivity, retaliatory tariffs or protectionist policies from other countries, export constraint by internal producing companies amongst others.
2.0 NIGERIA’S BORDER CLOSURE AS A PROTECTIONIST POLICY ON A PATH TO ECONOMIC DOOM
2.1 Overview of Nigeria’s Border Closure Policy
Border closure is a protectionist policy that prevents the movement of goods or people between different jurisdictions with limited or no exceptions associated with this movement.
Following the worldwide drop in the price of crude oil in 2014, Nigeria’s economy declined in 2015 and deteriorated by 1.6% in 2016. The economic state of the country which further worsened until it fell into a recession in 2018. The fall in the value of the naira as a result of shortages in foreign exchange and the plunge of foreign direct investment caused the government to implement stringent policies. The crippling weight on the oil sector being a major source of the country’s income got worse with the recent oil crisis. Consequent upon these, the government perhaps thought that running an independent economy will suffice, which is in fact not the best choice a country like Nigeria has made.
The recent border closure trend in Nigeria started in August 2019 when President Mohammadu Buhari ordered the closure of Nigeria’s land border with Benin, preventing the import of goods. The move was said to be in a bid to curb smuggling of rice staple and associated corruption. However, on the 14th of October 2014 Nigeria ordered the closure of all of Nigeria’s borders with Benin as well as those with all other countries thereby stopping trade flow with its neighbours for same reasons. The goods caught in the ban include rice, poultry birds, frozen foods, weapons and ammunition, bagged cement, second hand clothing and lots more. Buhari’s government in effect restricted the import of rice in order to encourage Nigerian rice production. In this light the policy was implemented as a protectionist policy. This border closure policy has raised a lot of whirlwind amongst the masses and the international community. Some Nigerians have expressed satisfaction especially those into farming while others have expressed their dissatisfaction especially those into the trade business. Mr Bimbo Ashiru, former commissioner of commerce and industry, Ogun state expressed his concern on the increased dumping of goods by neighbouring countries into Nigeria and sees the border closure as a preventive measure to such. However, many have expressed concerns as to the danger head of this protectionist move.
2.2 Arguments as to Why a Border Closure Policy Is One on a Path to Economic Doom
It has been widely expressed that blocking trade in the hope of giving domestic infant industries a chance to grow hurts the economy. Specifically, it harms the country’s economy’s long term prospects. Below are some of the arguments canvassed as to why this policy will slowly lead to economic doom.
2.2.1 Economic and infrastructural capacity of Nigeria
The economic and infrastructural conditions of any country must be considered and reflect in its economic policies both nationally and internationally. Thus, the big question is whether Nigeria regarding its economic and infrastructural status is capable of running an independent supply chain. Although it is not a total witless exercise in the light of reducing import expenses curbing smuggling and tackling insecurity, running a closed border policy requires the institution of infrastructural facilities to aid efficient production of otherwise imported goods for the masses. However, the infrastructural facilities and economic condition of the country is sufficiently buoyant to carry the burden of sole production of its goods. For instance, a ban has been placed on the importation of rice but are there sufficient mills to aid the production of a quantity that would meet the demand of the consumers? Following the implementation of the closed border policy, the price of rice and other commodities skyrocketed. A bag of rice that was previously sold at N13,000 and N15000 skyrocketed to N20,000-25,000, an increase rate of about 40%. It seems Nigeria did not consider its revenue crisis and denying itself before closing the borders and denying itself from trade across borders. Business Day also reports that Nigeria’s trade sector has slumped into recession as economic across the nation’s land borders remain grounded. According to the reports of National Bureau of Statistics (NBS), the trade sector shrank by 1.45% in the third quarter of 2019 from a decline of 0.25% in the preceding quarter. These factors contribute to the reduction of her comparative advantage and make sole production too much of a burden to carry.
2.2.2 Effect on local businesses
The question also arises as to the effect of this policy on local businesses. What happens to businesses that run on this goods which might not be readily available or are sold at high prices because of monopoly? The cost of running such businesses might definitely increase and the burden will fall back on the citizens and lead to higher cost of living. For instance, a restaurant which use to make use of a bag of rice daily sold at N13,000 starts spending N20000 daily on a bag of rice due to the increase in the cost of goods after the border closure will increase the price per serving. A person who gets satisfied after a serving of N100 will have to spend more to get that level of satisfaction in the present time. This is in a country that is yet to implement the minimum wage for workers, increase in the price of staple foods especially rice which is one of the most popular foods in the country will make many Nigerians worse off.
In free market economies, the existence of market competition takes its tollin reducing lousy products in the market, as such every business is inclined to make good products that can favourably compete in the market. However, a protectionist system like border closure policy stifles this process. Domestic companies will no longer need to compete with other imported goods resulting in local monopoly, inflation and most times sub-standard goods. Not only will there be a lack of international competition, but also a slope in innovation and goods become more expensive. Food or items that do not grow or are not produced simply disappears from the market in the country resulting in accumulation of debt due to the imbalance between money spent on industries and lack of growth. Therefore, while there is a purported benefit, it is only short term and will bring about difficulties on the long run. When such goes on for a long time it will generate an economic problem, this is because, when domestic businesses have been uncompetitive for too long it becomes difficult to reverse protectionist policies.
2.2.3 Reaction of the international community
Another area of concern is the reaction of the international community, retaliatory protectionist policies and stifled trade flow for the country. Border closures are not new in Africa, but Nigeria’s actions raise serious concerns about the seriousness and prospects of regional integration in Africa. Nigeria’s epic decision came just three months after she signed the African Continental Free Trade Agreement. The agreement was aimed at creating the world’s largest free trade area and promoting intra-African trade. Closing its borders three months later is a deflection from that pact. Even though the major regional blocs African Union (AU) and Economic Community of West African States (ECOWAS) have not taken any drastic steps towards the policy, largely because of the important place of Nigeria in the continent, Nigeria faces a threat of retaliatory trade policies from other countries in the nearest future, for instance many of these countries who used to import oil from Nigeria might cut trade relations and start importing from other countries which would constitute a big blow on our national revenue. Others countries cannot sit back and bear the brunt alone, if they cannot sell to your country, they will ensure that your country doesn’t sell to them either. Such situation will be unfavourable to our export trade and will tell in our Gross Domestic Product. This might result in a deadlock in trade flow or what is termed a protectionist spiral and protracted conditions like that could lead to trade wars. Some industries do not rely on the domestic market like the petroleum industry, so in order to make profits, they need to export to other countries that need it, but what happens when protectionist policies like border closure are put in place, other countries might raise their own retaliatory policies which prevent them from buying abroad and the protectionist policy that was meant to help domestic companies becomes a threat to them.. it is also oxymoronic that we run such policy and belong to the World Trade Organisation (WTO) which is concerned with the regulation of international trade between nations and prohibits discrimination between trade partners. Nations depend on each other a lot more than we can imagine because of their different comparative advantage, thus, if retaliatory actions are taken against Nigeria now or in future based on the present border closure crisis, the effect may be devastating.
2.2.4 Inability to meet increase demand by local producers
It is not certain as to whether Nigerian farmers are ready for the increase in demand that followed the border closure and have not been able to react fast enough to take advantage of it. Thus, there are concerns about whether domestic food production can meet demand of a population of over 200 million people. In 2017 alone, the demand for rice in Nigeria reached 6.7 million tons almost double the 3.7 million tons produced domestically and this has contributed to the drastic increase in price. This good for the farmers but very bad for consumer.
2.2.5 Unemployment and trade loss:
The implementation of the border closure policy not only saw the laying-off of a lot of workers especially in the importing and exporting business but also significant financial loss. Most importers of perishable goods, valued at millions of naira had their consignment of goods trapped in coutonou, for several weeks because the Seme and Idiroko borders were closed without warning, resulting in huge financial loss and debt for those operating on loaned funds. Aside that, a lot of workers and labourers got laid-off thereby increasing unemployment in the society.
2.2.6 Smuggling practices:
This is the most glaring of all the face off from the protectionist border closure policy. This is because it happens to be one of the acclaimed major reasons for its implementation. As report by Channels Tv, smuggling practices have doubled since the implementation of the border closure policy with the discovery of about 1000 illegal routes into the country. This does not only serve to defeat the purpose of the protectionist policy, the entrance of inferior goods and contraband goods have also increased making the country remain the feared dumping ground and the revenue that otherwise would have been made via import duties is lost. The Comptroller General of the Customs Service, Col Hameed Ali (retd), lamented on this issue to Punch news. He complained that rice and other prohibited goods still found their way into Nigeria. He also disclosed that the Nigerian Customs Services has intercepted smuggled Pangolin scales valued at N10.26bn and seized $8.06m cash off the tarmac at the international wing of the Murtala Mohammed Airport. According to him, the fact that we have border closure and people still bring rice and other items into the country shows that we have a natural tendency to commit crime…before you know it, illicit drugs, weapons and other dangerous materials will come in and your children and relations will become victims of these dangerous items’. The effect of smuggling on the economy is a serious problem as it deprives the government of revenues from uncollected taxes and customs duties, it also affects local industries by distorting prices of commodities, causes production slow-down which leads to mass lay-offs, bankruptcies and lower tax-collection. Thus, while the intention of curbing smuggling is laudable, Nigeria seems to be experiencing a counter-effect.
In the midst of the uproar, there are opinions to wit: the border closure is an implicit admission of the incompetence of immigration if the policy was as acclaimed implemented to curb smuggling. To thwart smuggling, the country should strengthen the capacity of customs and immigration officers and effectively administer our trade policies and laws. For instance, when it was faced with that hazard, Hong kong started profiling all goods, vehicle and private cars crossing the border using detailed inspections and technology. Apart from this, the country’s yard is very porous. There are many illegal paths through which smuggled goods are being transported. In simple terms there are others ways to curb smuggling and related crimes which are less harmful or more beneficial to the economy than closing the borders.
Protectionist policies like border closure generally come with good intentions on the part of the government either to protect local industries or to check unfair competition and influx of substandard goods. However, as emphasized earlier it comes with short term benefits which in the course of time creates economic issues in a state, that is why it has been referred to not as an economic doom but a pathway to economic doom.
About the Author
Kalu Rejoice Chioma is a law student of the University of Nigeria. She has interests in corporate law, human rights, intellectual property law, public speaking, research and advocacy, and a strong desire to rise to the best of her abilities in the legal world and beyond.