Nigeria: Informal Trade With Neighboring Countries

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Nigeria: Informal Trade With Neighboring Countries

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Introduction

• Informal cross border trade (ICBT) is thriving globally, especially in Africa, and constitutes a significant proportion of the informal sector activities in Nigeria.
• ICBT provides employment and has an "enormous impact on food security" by allowing peasants and herders to mitigate surpluses and shortages of staple foods, alleviating price fluctuations and contributing to poverty reduction.
• Balance of payments (BOP) compilers in Nigeria historically relied on staff estimates to adjust formal trade numbers because of inadequate information on the nature and magnitude of cross-border trade with immediate neighbours.
• The Central Bank of Nigeria (CBN) commissioned a study in 2013/2014 to monitor and document ICBT across Nigeria’s international land/sea borders to address magnitude, pattern, and composition of cross border informal trade.
• Key quantitative findings reported:
  • The ratio of net errors and omissions (NEO) to GDP averaged 2.9 percent between 2010 and 2013.
  • ICBT accounts for about 4.0 percent of Nigeria’s total trade.
  • ICBT accounts for about 7.0 percent of imports and 3.0 percent of exports.
  • ICBT accounts for about 10.0 percent of total non-oil imports (products other the petroleum products).
  • After the 2014 study and subsequent recording of informal trade in the goods account of Nigeria’s BOP, the ratio of NEO/GDP decreased to 1.4 per cent of GDP.

Scope, Methodology, Compilation Practices, and Data Sources

• Coverage:
  • The coverage adjustment in the goods account of Nigeria’s BOP targets unrecorded trade transactions across Nigerian borders not captured in official customs statistics.
  • Focus is on low-value but frequent imports and exports across various borders/adjoining routes, reflective of day-to-day activities of border dwellers and special market-day trade.
• Specific objectives of the 2013/2014 CBN study:
  • a) identify the category of commodities being traded informally across the selected border posts;
  • b) determine the direction of unrecorded cross-border trade in Nigeria;
  • c) estimate the values of unrecorded cross-border trade flows; and
  • d) generate unrecorded cross-border trade estimates for BOP compilation.
• Field procedures adopted (based on Ackello-Ogutu (1995) and related literature):
  • Careful selection of border posts based on reconnaissance visits;
  • Selection and training of enumerators;
  • Selection of monitoring periods;
  • Deployment of survey instruments;
  • Border monitoring for a 12 month period;
  • Data entry;
  • Data cleaning; and
  • Data analysis.
• Survey design and execution:
  • Survey period: twelve-month period (June 2013 - May 2014).
  • Monitoring approach: actual recording of all goods going out/coming into Nigeria for one week in each month; survey weeks were randomly selected to account for seasonality.
  • Enumerators used a predesigned questionnaire; products were coded using the Harmonized Commodity Coding and Description System (HS).
  • Data collection forms for imports and exports were prepared (appendices referenced in the study).
• Grossing-up and coverage adjustment techniques:
  • The Minde and Nakhumwa (1998) method was used to gross up trade numbers for non-monitored days by assuming that non-monitored days reflected the pattern recorded during monitored days.
  • Uprating formula used: Yi = [(Xi/7)* Ni ] for i = 1,2,…….,12
  • Where Y represents the total volume of trade in month i, X represents the total volume of trade in the 7 days in which the border was monitored for month i, and N is the number of days in month i.
  • A coverage index was solicited from monitors to adjust for night movements and incomplete daytime capture; coverage indices were derived through discussions with field monitors, stakeholders at the borders, and field supervisors.
  • The study notes comparable capture rates in other countries: Mozambique captured 65 percent and Malawi captured 60 percent of trade volumes in their studies.
• Integration into BOP:
  • No bridging codes are required to integrate the estimates into BOP statistics.
  • The total estimated value of imports/exports from/to neighbouring countries are recorded as coverage adjustments in merchandise trade in the BOP.
  • Monthly estimated ICBT levels provide ratios relative to formal transactions across borders, used for estimating future transactions.

Current Challenges and Conclusions

• Recommendation from the 2013/2014 study: conduct an ICBT survey at regular intervals (minimum of every 5 years) to generate more reliable information for BOP coverage adjustments and food security measurement.
• Policy implications: findings pointed to reforms that could move Nigeria toward greater short- to medium-term self-sufficiency and potentially to become a net exporter of products other than crude oil and natural gas in the long run.
• Planned follow-up:
  • An update to the study was planned for 2019.
  • The BOP team awaits CBN Management approval for a more elaborate study to capture all cross-border informal transactions (not just merchandise trade).
  • Constraints for a larger study include substantial financial requirements and limitations imposed by security concerns and access to certain borders due to political insurgency in parts of the country.
  • The Statistics Department, CBN is fully committed to undertaking the project.

Appendix: HS Code groupings (as used in the study)

• 01-05 Animal & Animal Products
• 06-15 Vegetable Products
• 16-24 Foodstuffs
• 25-27 Mineral Products
• 28-38 Chemicals & Allied Industries
• 39-40 Plastics/Rubbers
• 41-43 Raw Hides, Skins, Leather & Furs
• 44-49 Wood & Wood Products
• 50-63 Textiles
• 64-67 Footwears/Headgear
• 68-71 Stone/Glass
• 72-83 Metals
• 84-85 Machinery/Electrical
• 86-89 Transportation
• 90-97 Miscellaneous

References

• Informal Economy Reports