The move by the Central Bank of Nigeria (CBN) to raise exchange rate for import duty from N306 to N326 for goods coming into the nation’s seaports could raise cost of production and prices of commodities from bread to fabrics, with a capacity to increase an already double-digit inflation in Africa’s most populous nation.
The development could increase government revenue by another N20, or about 7 percent, from whatever it is collecting as Customs duty before now, said Emma Nwabunwanne, a Lagos-based importer. But it could also result in the reduction of import volume because many people would be out of business due to lack of sufficient funds, he said.
The rate adjustment by the CBN, no doubt, will pressure importers and manufacturers bringing in raw materials and other critical inputs for their production into sourcing for more funds to pay Customs as duty.
For instance, if an importer is supposed to set aside N1 million for duty at N306, now the exchange rate has been adjusted, it means the importer has to source for an additional N400,000 or more amounting to about N1.4 million to pay for the same goods at N326 exchange rate.
“Import duty will increase by 6.54 percent, meaning that inflation will rise because importers paying higher duty recover their monies by increasing the market prices of goods and services. There must be a rise in inflation immediately because Customs has started the implementation,” said Tony Anakebe, managing director, Gold-Link Investment Ltd, in a telephone interview with BusinessDay.
There is also the likelihood that many Nigerian importers will divert their goods to other ports in the neighbouring countries like Togo or Republic of Benin, from where such goods would be smuggled into Nigerian markets through the land borders, thereby bringing down the volume of cargo coming in through the ports, market watchers say.
“With the new development, Customs may likely surpass its N887 billion annual target for this year, but we also see many Nigerian importers leaving Nigerian ports because many of them will require a lot of money to bring in goods into the country. Many other government policies have scared importers away to other West African countries and ports in those countries are becoming hub for Nigerian cargo,” Anakebe said.
According to the Nigerian Ports Authority (NPA) 2018 third quarter operational performance report, the nation’s seaport recorded a significant drop as the number of vessels that called at the ports dropped by 7.3 percent to 969 when compared to 1,045 recorded in the corresponding period of 2017.
The report further stated that the gross registered tonnage of vessels completed stood at 31,747,589, representing a drop of 7 percent over the corresponding period of 2017.
Jonathan Nicol, president, Shippers Association of Lagos State, described the development as a sign of inflation created by government’s determination to raise funds to enable the payment of newly signed N30,000 minimum wage. He said the inflation would definitely affect the exchange rate of naira to dollar.
“The adjustment in rate means that importers would not be able to make projection for their businesses while those who projected based on the old exchange rate will have their fingers burnt because the approved exchange rate on the Form M would be different from the one used for import duty valuation,” Nicol said.
“Already, there has been increase in prices here and there as National Agency for Food and Drug Administration and Control (NAFDAC) recently increased their own charges. Government is always pressuring its agencies to make money. The big question is what government is doing with taxpayers’ money because we have no good roads, no water and no electricity?” he said.
Another angle to the story is that it could also be the CBN’s quiet way of adjusting the country’s exchange rate to the market rate of N360. Experts, however, are divided on this.
On June 11, 2019, the CBN stopped publishing the fixed naira exchange rate on its website, saying that “the rate will be market-determined”, BusinessDay checks showed.
The bank, however, said the following day that there had not been any change in Nigeria’s exchange rate structure.
“There has been NO change in Nigeria’s exchange rate structure,” CBN announced on its Twitter handle at 12:15 AM, June 12, 2019.
The CBN’s previous official rate was N305/$. That rate was used to ensure that traders, including fuel importers, got cheap dollars. But it is almost becoming clear that the rate is not tenable as most of economic agents get dollars at N360/$.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, commenting on whether or not the CBN is trying to use the exchange rate used by Nigerian Customs to allow market to determine the exchange rate, said the rate is not theoretical.
“You know the CBN is trying to ensure that the naira converges. For those that have been enjoying subsidised FX, they would now have to be paying the full value of the exchange rate. But it is not going to trigger any pressure,” Ebo explained.
Andrew S. Nevin, advisory partner and chief economist, PwC, said if the change in the exchange rate used by Nigeria Customs is a further step in harmonising the exchange rate, the CBN will explain its strategy and direction in due course.
“I don’t think the move is particularly differential to importers’ FX costs, which are already largely within that band up to N360 to the dollar,” Rafiq Raji, chief economist at Macroafricaintel, said.
AMAKA ANAGOR-EWUZIE & ENDURANCE OKAFOR
