Still on the Border closure — Daily Times Nigeria

Still on the Border closure

Much of the discussion around the closure, since August, last year, of the country’s land borders has moved fitfully between hyperbolic claims on the outcomes of the closure and a chain of (oft-conflicting) official reasons for why the borders were boarded up in the first place. It is no surprise, therefore, that we have few generally held agreements on the consequences of this decision.

Could this opacity gain from a back-of-the-envelope cost-benefit analysis? In which case, the first question is, have there been any benefits from the border closure? If government sources are to be believed, domestic rice farmers and millers have been the biggest beneficiaries of our new economic insularity. No longer facing competition from cheap imports, they have blossomed. Presumably, other players in the crop production sector of the economy have seen increasing marginal returns to their operations, even though these may not be on the scale recorded by those in the rice production value chain. And who knows, which other sectors of our informal economy may have been lifted by the elimination of competing goods/services offerings.

And the costs? Fortunately, susurration by food, beverages and tobacco manufacturers of the loss of parallel exports (by their key distributors) is readily met. None is anyway, on present capacity, able to meet domestic demand. And given how small the regional market is vis-à-vis the domestic one, the loss from exports can only be rounding errors on their respective sales ledgers. Of far greater concern, then, in toting up the costs to the economy of the border closure, is the fact that domestic prices have risen. In part because parallel imports have not been completely blocked. They only cost more to bring in.

Net (i.e. were one to back off the costs from the benefits), is there a gain from this policy? Put differently, are the gains (from higher prices) to rice farmers from government having eliminated all non-Nigerian competition large enough to compensate for the increased costs that the citizens must bear as general prices rise? Re-phrased, is it good public policy to bankrupt the larger portion of the populace (that’s the net effect of rising prices) in order to enrich a far smaller cohort of rice farmers?

Apocalyptic as this reading of the policy challenge arising from the border closure may sound, a near-term loss from the introduction of a policy isn’t always such a bad idea. In fact, it has been argued by those who would have petrol subsidies eliminated from the domestic price mix, that the immediate hurt from higher prices will be more than compensated for by the effective resource use that follows disciplined consumption of any good or service once the price mechanism is allowed to determine supply and demand responses. And by the freeing of resources with which an informed government may drive stronger growth through both the design, and funding of better policies.

As policy, does the border closure pass this test? Alas, the answer is a resounding “No!” For, in the end, stripped of all the fancy explanations, we’ve closed our borders because our economy cannot compete, and domestic levels of productivity are frightfully low. Question is, why can’t we compete? And why are levels of productivity across the economy treading water? You need only talk to manufacturers to get a sense of the problem. A Lagos-based manufacturer regales his friends with how he would need 30 days just to process export documents. Another tells of how dairy products leaving a factory in Kano are available on supermarket aisles in Bayer Leverkusen long before they reach Ikeja.

Our roads are a problem. As indeed are our bridges, railways and air freight infrastructure. But then, the penchant of every local government area in the country for levying tariffs on interstate commerce (in search of internally generated revenue) is no less a bottleneck. As is the eventually expensive solicitousness of every police roadblock along the path of commerce in the country. In other words, our economy is as infrastructure-constrained as it is process-challenged.

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These are the problems we must fix, if domestic economic entities are to play regionally — talk less of globally. True, drastic action, including a border closure, might be necessary to secure the domestic space, while reforms are put in place to strengthen the economy and make it more resilient. But the nature of the reform and infrastructure backlog that policymaking must contend with suggests we’d need almost five years of a reforming government to fix the problem. Given the other costs associated with the border closure, are we then justified in keeping our borders shut for that period?

It would seem, once again, that our policy ostrich has opted to bury its head in the sands, in the hope that this problem will go away. But the bigger threat is not that this problem of low levels of productivity and a lack of domestic competitiveness will be there any time we re-open our borders. Rather it is that competition helps hone domestic operations (ask the Chinese). And by circling a domestic economic laager we simply deny to ourselves the opportunity to learn from all that a more sensible part of mankind is doing.

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