What Is The Effect Of International Trading On A Nation’s (Nigeria) Economy?
The external of an economy captures the international trading activities.
The effect on the economy can be determined through her balance of payment (BoP) position. The BoP has two major components i.e. current account (balance of trade) and capital & financial account.
These accounts consider visible and invisible items respectively. I will focus on the visible items since the discourse is on ‘border closure’. Just like other nations, international trade has some effects on the Nigerian economy.
From the positive angle, over time, Nigeria has been able to access the global market, increase consumption and production of varieties of commodities, accretion of foreign reserves, knowledge transfer, free movement of goods and people with little or no resistance across borders.
However, Nigeria has suffered some setbacks because it depends mainly on crude oil as the major source of revenue and this has lots of consequences for example, since 2005, the foreign direct investment inflows is not encouraging. It has been declining thanks to the neglect of other sectors such as agriculture.
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The economy is susceptible to the vagaries of external shocks from oil price fluctuations. And as such, the economy will continue to experience a downturn unless it diversifies massively from oil.
For example, the government has been subsidizing refined petroleum products because her four refineries are in comatose.
Of course, this system is not sustainable because it has been a major source of corruption or ‘drain pipe’ on government finances.
What Do You Think Will Happen To Nigeria’S Economy As The Border Closure Extends Beyond January 2020?
After the recession, the economy has been growing slowly since 2017. And since the border closure, it has experienced inflationary pressure consistently.
And this has been adduced to the recent action taken by government which has affected the supply of raw material to her domestic economy through the land borders.
Hence, an extension will affect her economy badly in the short to medium term depending on the resolutions reached and how fast they are being implemented.
And if otherwise, it may normalize as soon as the logistic problems of the supply of raw materials are resolved through another means.
It is important to know that Nigeria’s major trading partners are countries from Asia and Europe respectively.
However, countries from the ECOWAS bloc are its major partner in Africa. Data from the National Bureau of Statistics (NBS) shows that her exports to this bloc increase to 78% in third quarter (when the ban started) from 38% in the previous Quarter.
Just imagine that! While her imports fell from 60% to 18% in Q2 and Q3 respectively. For the first time, Ghana emerged as her ‘number one’ trading partner during this period of border closure, leading the likes of China and India that has been at the top for quite some time now.
And for these reasons, one may be tempted to subscribe to an extension of the closure if the neighboring countries fail to implement the agreed terms before the border is open.
As a matter of fact, the main trading logistics used are maritime (over 90%) and air. This explains Nigeria’s penchant for trading with countries from other continents instead of Africa (neighbouring countries).
Is Nigeria Violating Any International Trade Law (Such As ECOWAS) By Closing Its Border?
No, Nigeria has not violated any international protocol by closing her borders. The reasons given are within the ECOWAS Protocol on free movement of goods and people. Nigeria’s borders are so porous that the rate of cross border crimes has been on the increase and as well as smuggling of goods and small and assorted ammunitions into the country.
The Nigerian government has been complaining about these anomalies for a very long time. The countries are Chad, Niger, Benin, and Cameroun.
On several occasions, the Nigerian government has accused her neighbours for non-cooperation.
For instance, goods such as rice are being smuggled into the country from Benin Republic through the Western part of Nigeria and this has affected the local production of the commodity.
The protocol gave each member states the right to refuse admission any community citizens who according to her domestic laws are considered to be inadmissible.
Although, it is limited on the grounds that the expulsion or non-admission is for national interest, public order or morality, public health (as in the case of Ebola) or non-fulfilment of an essential condition.
The condition for free trade within the bloc is for goods and people to enter or exit through the recognized legal points.
Anything short of that is considered illegal and a violation of the protocol.
Will The Continual Closure Of The Border Indeed Improve Local Production And Maybe Enhance Exportation?
The Q3 data shows that export has improved. For instance, domestic rice production and consumption has increased and in fact, Nigeria is now number one in Africa in terms of production.
However, there are still some security challenges across the country. And this implies that the small gains can be wiped away as quickly as possible.
In my own opinion, I will advise government to seek alternative ways of resolving this impasse on border closure.
Nigeria has over 1500 entry points, there are no enough personnel to man these borders, hence, there need for the utilization of advance technology to support them and as well as cooperation from the neighbouring countries to make it work.
Any Comment On Nigeria’s Economy And How You Think It Can Be Improved?
Nigeria’s economy depends on oil as a source of revenue and this has led to the neglect of other sectors such as agriculture.
It is so obsessed with foreign goods and this has affected her economy badly. Since 1981, Nigeria’s non-oil exports has never surpassed her non-oil imports.
The gap is so huge that any slack in oil demand will lead to economic slowdown. The economy experienced unfavourable balance of trade six (6) times during the observed periods.
The most recent was in 2016 when it entered into recession.
According to the government, it has achieved some gains from the recent border closure; higher import revenue, lower domestic fuel consumption, increase (in domestic) rice production, curbing of arms smuggling for terrorism and banditry, reduction in the smuggling of goods and illicit drugs and reduction in illegal immigration.
However, some of these claims are debatable, looking at the current economic and insecurity situation in the country.
In summary, I will suggest that there should be a total deregulation of the petroleum downstream sector, economic restructuring so as to diversify the revenue base, massive digitalization of the border security system, strengthen socio-economic ties with neighbouring countries, extension of similar loan schemes to other sectors just like the Anchor Borrowers’ Scheme for rice farmers and other mechanisms that will aid the ease of doing business. The above listed and some other numerous measures can help in improving the economy for good.
Interviewee Short Bio:
Yusuf is an Economist with career interests and expertise in energy economics, economic policy and analysis and management.
As a budding energy economist, he had facilitated manpower training and development programme and the most recent is for NNPC Staff at Abuja and Mosimi, Ogun state).
He has experience in energy modeling of fiscal regime, global energy-related matters, research and analysis.
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