Raw materials, production costs rise as high exchange rate continues to squeeze businesses

Manufacturers’ production and raw materials costs are shifting in the upward direction given the high rate of foreign exchange that results to increased import duty payable on imported commodities at the nation’s seaport.

The situation had become very alarming and difficult for businesses to plan, as the Nigeria Customs Service (NCS) regularly reviews the import duty on cargo to reflect the exchange rate of the naira to a dollar, therefore eating deep into the manufacturers’ bottom line.

BusinessDay search reveals that the Customs have also adjusted the duty payment on import cargoes from N282 per dollar to N313, to reflect the exchange rate, which further crashed on the Central Bank of Nigeria (CBN) official exchange window.

Recall that the NCS had, through a memo issued to all zonal coordinators and area controllers on July 1, 2016, directed that all commands to calculate duties based on the contemporary rate of the foreign exchange, which at that time stood at N282. The application of N282 to the dollar in calculation of import duty led to 43 percent rise on duties payable on imports.

A source close to the Customs command in Lagos said the management directed the service to work with the official exchange rate, which resulted to the recent adjustment in rate to reflect the prevailing exchange rate, as the nation’s currency now officially trades for N316 to the dollar.

“The new exchange rate on duty payment has put an additional burden on businesses, and it is having an adverse effect on both the manufacturing and other sectors of the economy. This is because it is affecting the cost of import, manufacturers’ stock, production cost and cost of raw material,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, said in an interview with BusinessDay.

According to Yusuf, the importers and other businessmen are currently bearing the burden of high cost of doing business due to the difficulty in accessing foreign exchange, including the high interest rate incurred from borrowing from the bank.

Worried that the import duty is becoming too high for businesses, he called on the government to bring down the exchange rate on duty payment to about N200 to N220, so that the pressure on businesses and investors would be minimal, considering the fact that the manufacturers and other importers are faced with pressure from high interest rate, high energy cost due to erratic power supply, and high transportation cost.

This, he pointed out, can on the long run affect the NCS revenue drive, because if the charges are high, people will find it difficult to import.

Jonathan Nicole, president, Shippers’ Association of Lagos State, who noted that it was very unfortunate for the Customs to be calculating import duty using the black market rate, which shows that they have no respect for the rule of law, said it was not right for the CBN to treat importers that way.

“Calculating import duty based on current foreign exchange rate is very wrong and it means that the importers require more money to pay for a transaction that was already entered into with the Federal Government in a form ‘M’ with a particular rate, and it is supposed to be irreversible,” he said.