# _6.3. Smuggling_

This section outlines the steps taken to estimate the baseline magnitude of fuel smuggling out of Nigeria to neighbouring countries.

_The first step_ is to focus on smuggling activity from Nigeria to Benin (and from there to Togo), as detailed estimates are available from the IMF (Mlachila et al., 2016). While Togo does not share a border with Nigeria, its distance to the Nigerian border is under 120 km, and thus extensive smuggling occurs via Benin. The IEA (2016) reports total gasoline consumption for Benin (616 k tonnes) and Togo (175 k tonnes) in 2011. Mlachila et al. (2016) outline that in both Benin and Togo respectively, gasoline is sold on two separate markets: an official market for the sale of legal and regulated gasoline, as well as an informal market for the sale of gasoline smuggled from Nigeria. Mlachila et al. (2016) estimate that the informal market constituted about 85% of total gasoline consumption in Benin in 2011, and 70.7% in Togo. These figures enable the computation of the absolute size of the informal markets (in physical units), which reflects the quantity of fuel smuggled across the Benin-Nigeria border.

The revenues earned by smugglers are then estimated by multiplying the total smuggled quantity of gasoline with the respective price differential between Nigeria’s official subsidised market price and Benin’s (or Togo’s) informal market price. These informal market prices are also reported by Mlachila et al. (2016).

_The second step_ is to extrapolate the smuggling estimates for Benin (and Togo) to Nigeria’s remaining neighbouring countries Niger and Cameroon<sup>9</sup> . Using the border length between Benin and Nigeria (773 km), and by assuming that the smuggled quantity is proportional to the length of the external border, a rough estimate of total smuggling can be obtained. In other words, the longer the border between Nigeria and a neighbouring country, the more smuggling activity takes place towards this country. For instance, Nigeria shares a 773 km border with Benin and 1,497 km with Niger, thus the quantity of fuel smuggled to Niger should be roughly twice as large.

_The third step_ is to refine this extrapolation by making two further adjustments:

- _Population:_ Since the states bordering Benin are particularly populous (and states in Northern Nigeria are sparsely populated), the smuggling estimate is further adjusted proportional to the population size in Nigerian border states. This reflects the presumption that a larger population means that more smugglers are present and that more smuggling takes place. This also accounts for the fact that population densities on two sides of a border tend to be correlated; thus taking into account the number of foreign consumers demanding smuggled fuel.

- _Availability of gasoline:_ The availability of gasoline varies significantly across Nigeria, and directly affects the quantity of gasoline available for smuggling. The states bordering Benin are more developed and urbanised, and offer better access to energy goods; e.g. due to proximity to harbours,

> 9Chad shares a 89 km border with Nigeria. This implies that smuggling quantities to Chad are negligible for the purpose of this study.

16