Of Borders and Economy

Editor’s note: This essay is available in our print issue, A Nation Divided. Buy the issue here.

Too many economists and commentators have approached the topic of Nigeria’s frequent anti-liberal foreign economic policy without understanding the full regional political geography and context that fosters it. Nigeria’s hesitancy in entering into the African Continental Free Trade Agreement (AfCFTA) until 2019, the frequent border closures, and the persistently high levels of tariff and non-tariff trade barriers need to be placed in a historical-structural perspective. One approach is to place Nigeria’s problems within the context of West Africa’s malformation. I have explained this notion in a previous article albeit with a focus on coastal-interior relations.

Malformation, however, is not limited to coastal-interior relations but also applies to trans-coastal relations (relations among the West African countries that border the Atlantic Ocean, from Senegal in the west to Nigeria in the east). One particularly important manifestation of this coastal malformation is the significance of parallel trade in West Africa. This trade is the result of coastal West Africa’s distribution of states and regulatory regimes, the region’s political geography.

WEST AFRICA’S COASTAL POLITICAL GEOGRAPHY

Observant inquirers must wonder why coastal West Africa (the Gulf of Guinea) is made up of eleven states, while there are only four Sahel countries. The Gulf of Guinea fragmentation emerged as a result of the greater economic lustre of coastal territories in the eyes of colonial powers, which scrambled for territories in the nineteenth to early twentieth centuries. There was therefore greater competition for coastal territories during the intense scramble for West Africa among France, Britain, Germany and Portugal (which produced non-contiguous coastal territories) than there was for Sahel and Saharan territories.

An additional contributing factor was the greater pre-colonial political, cultural and ethnolinguistic fragmentation of the forest and coastal zones of West Africa than the Sudano-Sahel. For instance, there were no Atlantic coastal empires that were as expansive as the Ghana, Mali, Songhai and Sokoto empires in the Sudanic interior.

Following colonial consolidation, physical infrastructure and investments in education were concentrated in coastal territories; this was heavily uneven. Conakry (Guinea) and Monrovia (Liberia), for instance, remained peripheral ports despite their excellent natural harbours because there was no large-scale development of commercial crops in their hinterlands. The growth of Porto Novo (Benin), Lomé (Togo), and Bathurst (Gambia) was limited by the relatively small size of their hinterlands compared with those of Dakar (Senegal), Accra (Ghana), and Lagos (Nigeria). This pattern of large coastal territories interspersed with small coastal territories had consequences for trans-coastal economic relations.

THE PROBLEM OF PARALLEL TRADE

This Gulf of Guinea political geography of uneven territorial sizes and opposing colonial powers (and therefore disparate currencies, monetary systems and rival trade regimes) has had important implications for West African trade since the period of colonial rule. This is not only evident in the low level of official cross-border trade between different currency zones, but also in the high level of parallel trade in the region.

Parallel trade refers to the movement of legal goods through illegal or unofficial channels. For example, the CFA franc zone (of which eight West African countries are part of) provides access to foreign exchange, and one country with a traditionally liberal import policy provides the main entry point for imports. Traders import goods cheaply from the ports of a country with low import duties and taxes in order to smuggle them for sale at a higher price due to the destination country’s higher import duties on the same goods coming through its own ports.

Traders could smuggle grain and subsidized agricultural inputs or subsidized petrol from Nigeria or import cement, rice and other finished consumer goods upon which the Nigerian government has placed import duties or import bans. Approximately 75 per cent of West African intra-regional trade is informal, and parallel trade is a significant form of this informal intra-regional trade.

Kate Meagher, a professor in Development Studies at the London School of Economics, identifies three main West African subsystems of parallel activity emerging from the ‘intermingling of zones of convertible and nonconvertible currency’. These are centred on Nigeria (with Benin and Niger being transit zones), Ghana–Côte d’Ivoire (with Togo being the key transit zone), and Senegambia. These small countries (Gambia, Togo and Benin) traditionally maintain liberal import policies to foster re-exports/parallel trade with their larger neighbours.

The largest subsystem, centred on Nigeria, is mainly fostered by neighbouring Benin, which has the largest informal sector of the 27 African and Latin American countries for which comparable data exist. Benin’s cross‐border trade and micro-enterprises are central to its informal economy, with one estimate suggesting that as much as 75 per cent of Benin’s Gross Domestic Product is accounted for by informal cross-border trade.

Dantokpa Market (Benin’s largest workplace) and the port of Cotonou have historically been points of entry for huge quantities of commodities designated for informal trade. Dantokpa Market is therefore one of the state’s most important sources of revenue and the most politically important site in the country. The resources gained from the state-regulated import and informal re-exportation/smuggling of industrial goods mainly to Nigeria were important for sustaining the power of Benin’s longest-serving head of state, Mathieu Kérékou (1972–1991, 1996–2006).

Ironically, Ousmane Badiane, the Africa director for the International Food Policy Research Institute, argues that ‘regional integration as conventionally applied in West Africa has gone hand in hand with inward-looking economic strategies based on import-substituting industrialization.’ He makes reference to research that reveals that out of 16 West African countries, the four biggest trading partners in West Africa (Côte d’Ivoire, Ghana, Nigeria, and Senegal) were in the top or second most inward-looking group (countries with high trade barriers).

Indeed, Nigeria, the largest economy of the region and the West African country with the largest share of intra-regional imports, is the country that is primarily responsible for a proliferation of non-tariff barriers (such as difficult customs procedures) in West Africa. The country heavily protects several industries which face high levels of import competition (such as rice, cars and textiles), while others are subsidized, most prominently petrol.

There is thus a paradoxical situation whereby the large coastal states, possessing larger domestic markets, protect their industries with high import barriers, while at the same time the smaller coastal states undermine such protectionism by fostering parallel cross-border trade. Professor Meagher observes that these smaller states do this because they are ‘too small or poorly endowed to industrialize or prosper on their own.’ They have therefore ‘undermined the development of industry and agriculture throughout the region.’ In fact, Ogunsola Igue and Bio Soulé, authors of The Warehouse State in Benin, define État-Entrepôts (warehouse states) like Gambia, Togo and Benin as ‘living nearly exclusively off the income from trade based on re-exportation.’

Lastly, Nigeria is not only the country that is primarily responsible for the proliferation of non-tariff barriers in West Africa. It is also one of the most inward-looking developing countries in the world. When compared to the three other large Gulf of Guinea countries (Senegal, Ghana and Côte d’Ivoire), it has historically been the one with the least capabilities for industrial policy success. This situation puts Nigeria in constant fear that trade liberalization will undermine its weak manufacturing sector, which never graduates from ‘infant industry’ protection.

As a result of the continuity of these political, geographical and industrial policy difficulties, as well as various economic shocks, parallel trade has only increased over time. From its colonial origins, it entered new phases of increase following decolonization, following the 1973 oil shock, and most recently, the structural adjustment programmes of the 1980s and 1990s.

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Of Borders and Economy

WEST AFRICA’S COASTAL POLITICAL GEOGRAPHY

THE PROBLEM OF PARALLEL TRADE

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