African Free Trade Stumbles With Nigerian Blockade of Benin

LAGOS (Capital Markets in Africa) – Nigeria and Benin are embroiled in a trade dispute two months after signing an agreement to free up the movement of goods and services in Africa.

Nigerian President Muhammadu Buhari ordered the partial closing of its boundary with Benin last month to curb the smuggling of rice and other commodities. The blockade has had a ripple effect across West Africa, with factories and traders struggling to import key raw materials and having to use alternative routes for their exports, according to the Lagos Chamber of Commerce.

The border restrictions come after Nigeria and Benin in July agreed to join the African Continental Free Trade Area, which targets greater economic integration through the removal of trade barriers and tariffs on 90% of commodities. The duty-free movement of goods is expected to boost trade in the market of 1.2 billion people, similar in size to India, and a combined gross domestic product of $2.5 trillion.

“Over 80% of West African cross-border trade is by road,” said Muda Yusuf, the head of the Lagos business chamber in the Nigerian commercial hub. “The cost is quite enormous and the closure is not sustainable.”

Benin is a key transit route for traders and operates a system that allows landlocked neighboring countries to use its harbors for imports.

The impact of the dispute is being felt as far afield as Ghana, which is separated from Nigeria by Benin and Togo. Manufacturers have complained about the impact on costs, John Defor, research director at the Association of Ghana Industries, said by phone. In Nigeria, units of multinational companies including Unilever NV are in talks with the government to find a solution.

The restrictions are the latest taken by Nigeria to protect its foreign-currency reserves by curbing imports. The central bank has restricted access to dollars for the import of more than 40 items from cement to soap, while the government wants Africa’s most populous nation to become self-sufficient in the production of staples such as rice.

Protectionist Policies
Traders and smugglers in Benin have taken advantage of Nigeria’s protectionist policies to import and re-export goods to their bigger neighbor, said Ahmadou Aly Mbaye, an economics professor at Cheikh Anta Diop University in Senegal’s capital, Dakar.

Rice is a good example. Benin, with a population of 11 million that is barely 5% of Nigeria’s, is the biggest buyer of the grain from Thailand, the world’s second-largest exporter. Official shipments from Thailand to Nigeria have dwindled to almost nothing from more than 1.2 million tons in 2014, while those to Benin have increased by more than half.

“Benin is basically importing for Nigeria,” Mbaye, who is a senior fellow at the Washington D.C.-based Brookings Institution, said by phone. “Protectionism is difficult to implement in a globalized world because people find ways around it.”

Buhari defended the blockade at a meeting in Japan with Beninese President Patrice Talon at the end of last month. He said Benin and its northern neighbor, Niger, should take “strict and comprehensive measures” to curtail smuggling across their borders.

While Nigeria is committed to the African free-trade deal, the agreement “must not only promote free trade but legal trade of quality made-in-Africa goods,” Buhari said in a Sept. 20 speech, which a spokesman shared in response to questions.

A spokesman for Talon declined to comment.

Countries that have ratified the African free-trade agreement are expected to start trading with slashed tariffs from July 2020.

Source: Bloomberg Business News