By Cobus De Hart – Chief Economist West and North Africa, NKC African Economics
After trending lower for three consecutive months, headline inflation increased by a larger-than-anticipated margin in September.
The consumer price index (CPI) rose by 11.2% y-o-y last month compared to an 11.0% y-o-y rise in August. While fairly broad-based, upward pressure stemmed primarily from the food price channel, with the reading on the sub-index up by 30 bps to 13.5% in September. So-called core inflation (all items less farm produce) also trended higher, rising from 8.7% to 8.9%.
Nigeria decided to shut its border with Benin in late August, reportedly to clamp down on smuggling. According to Reuters, this strategy has now been elevated to a whole new level.
On October 15, the news agency quoted Hameed Ali, comptroller-general of the Nigeria Customs Service, as stating: “All goods for now are banned from being exported or imported through our land borders and that is to ensure we have total control over what comes in.”
Reporters at the news conference in Abuja understood Mr Ali’s comments in the context of stating that legal trade across land borders will also be stopped, at least temporarily or until authorities come up with a plan on “how best the goods can be handled when we eventually get to the point where this operation will relax for the influx of goods”.
While not explicitly mentioned, certain points are reportedly equipped with special scanners where goods will still be allowed to cross the border.
The closure of the land borders will have a significant impact on both the monetary and real sides of the economy. The latest inflation print, with upward price pressures fairly broad-based but still disproportionally stemming from higher food prices, may already be an indication of the effect of the partial border closures announced in August.
Again, as has been the case with Nigeria on numerous occasions over recent years, the appropriateness of the latest policy is highly debatable.
One can certainly see the merit of the case being made in favour of formalising trade and ensuring the necessary rules and costs are abided by; however, outright banning of all land-based trade seems extreme.
The real issue arguably reflects the ineffectiveness of border controls more than the incentive for people to smuggle goods, with the latter partially stemming from the domestic opportunity arising as a result of market inefficiencies and a lack of capacity and competitiveness.
Regardless, the land-border closure will now add significant upward pressure on inflation in the coming months as food items in particular will be in shorter supply. Exporters of certain goods will also be affected. The extent of the impact will partly depend on the duration of the land-border closure and whether traders can find alternative routes.
Smugglers will likely be more capable of finding these alternatives, with the real burden then falling on the law-abiding poor.