FDC ECONOMIC BULLETIN – DECEMBER 17, 2020 (Re: Border reopened after inflation spiked)

Dear Subscriber,

Nigeria has re-opened four of its critical land borders after 16-months of closure, others are likely to be re-opened later this year. The borders were closed in August 2019 to minimize smuggling of rice, ammunitions and narcotics among others. This move has inhibited regional trade, which contributes approx. 13.88% to GDP and account for 16.9% of total employment. Informal trade has a significant share in Africa’s regional trade, accounting for approx. 30%-40%.  The region has a GDP size of $2.6trn, with Nigeria accounting for about 21.9%. With talks on the ECO currency and the AfCFTA commencing in January 2021, the re-opening of the land borders will boost regional trade and integration.

The border re-opening is happening at a time when the country’s inflation rate is at an almost 3-year high of 14.89% (November), in line with our forecast (14.8%). Food price pressures were largely responsible for the continued spike in inflation. While some analysts have attributed this to the prolonged closure of the land borders, it is noteworthy that factors such as capacity constraints among local farmers, higher logistics costs, forex restrictions and rationing also mounted pressures on prices. Notwithstanding, the re-opening will help ease supply constraints and reduce the country’s food demand gap, which could be an antidote to rising food inflation. However, inflation is likely to remain in double digits until the lingering insecurity challenges, monetary and forex pressures are addressed.

In the publication, the FDC Think Tank shares its thoughts on the impact of November’s inflation numbers on the economy.

Enjoy your read…