Benin rice imports more than doubled between 2015 and 2017. Its a tiny country, slightly smaller than Pennsylvania, with a population of 11 million. Yet it is now the world’s largest importer of Thai rice. Why?

Turns out the answer has little to do with cuisine, and a lot to do with incentives. Benin shares a border with Nigeria, a much larger country that put strict tariffs on rice in 2014. Smuggling rice from Benin into Nigeria became big business. (see here, here, and here)

Unintended consequences of trade policy permeate Nigerian life. One of the richest people is a cement manufacturer. It just so happens that cement has a 60% tariff. Oh, and Nigeria doesn’t exactly have great infrastructure. Basically the only businesses of any size that can survive depend on some sort of favorable policy. The textile industry can’t really compete with cheap foreign imports, for example.

Favored importers get access to USD at a favorable rate. Petroleum importers, and the politically connected get an even better rate. Everyone else has to pay nearly twice as much of the local currency (naira) to access USD on the black market. I’m not sure if there is a secondary market in whatever documents importers can use to access cheaper USD, but if there is, these documents could be quite valuable.

Department of Unintended Consequences

Tariffs and exchange controls are not necessarily bad. One can hardly blame Nigerian policy makers. Powerful political constituencies depend on favorable policy. Nigeria has had a rough few decades, and opening up to foreign competition can create disruption. But trying to understand an economy requires looking beyond immediate impact, and finding second order impacts that are the unintended consequences of intervention. Even in neighboring countries. Never underestimate the power of incentives.

Perhaps Nigeria also needs a Department of Unintended Consequences.

See also:

The value of improvisation and informal processes