The newly adjusted Customs exchange rate for duty payment on imported goods may increase investor uncertainty as regards doing business in Nigeria, encourage smuggling, increase corruption and market prices of goods, analysts say.
Recall that earlier last month, the Central Bank of Nigeria (CBN) increased the exchange rate for Customs duty by 6.5 percent to N326/$ from N306/$ with the aim of generating more revenue.
By implication, importers and exporters who bring in products into the country through the seaports will now have to pay additional N20 per dollar for cargo clearing at the ports.
Also, the introduction of a new exchange rate for Customs duty payment implies a deviation from the customary use of the official rate in clearing imported products, and this adds to the increasing concerns on multiple exchange rate system.
According to a recent report by CSL Stockbrokers, a Lagos-based firm, the adjusted rate creates a new exchange rate in the economy in addition to the Nigerian Autonomous Foreign Exchange Rate Fixing rate (NAFEX), official rate, parallel market rates, thus increasing the multiple exchange rate saga.
“The practice of a multiple exchange rate system in Nigeria will only continue to increase investor uncertainty and hamper growth of Foreign Direct Investments into the country,” the report stated.
The report furthermore stated that importers and exporters will pay more to clear their goods, which would trigger an increase in the rate of smuggling into the country as traders attempt to evade high charges.
“We also believe that increase in the cost of clearing goods at the ports would only further encourage smuggling as well as increase corruption among Customs officials. Thus, this implies a ripple effect on business which has suffered from the impact of smuggling activities,” the CSL Stockbrokers report further stated.
The high rate of smuggling through the Nigerian borders has had negative impacts on several businesses. For example, earlier this year, major sugar producers or refineries in Nigeria such as Dangote Sugar Refinery Plc, a subsidiary of Dangote Industries Limited; Golden Penny Sugar, a subsidiary of Flour Mills of Nigeria (FMN), and BUA Sugar Refinery Limited, complained that the high rate of smuggling of cheap unlicensed sugar into the country affected their revenues in 2018.
In addition, consumer pricing that is expected to rise due to the Nigeria’s reliance on importation of production inputs and finished products.
“This will definitely increase the cost of imported goods as the naira value of duties will rise. Also, for manufacturing companies, this will further squeeze their margins due to the inability to pass on the additional cost to the consumers amid squeezing consumer spending,” Ayodeji Ebo, managing director of Afrinvest Securities Limited, said on phone.
Nigeria has been enjoying favourable trade value and volumes. The National Bureau of Statistics (NBS) said the country recorded a total trade value of N32.3 trillion in 2018, representing 39.3 percent increase from N23.2 trillion in 2017.
“The increased tariffs may discourage manufacturers who claim they are already moving to nearby countries with better trade policies. Thus, this may impact trade volumes and the increase in revenue the government desires, may never come,” Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers, said.
Although, Ayo Akinwunmi, head of Research, FSDH Merchant Bank, said that the new tariff is a positive development as this will generate more revenue for the government, its downside is making the naira value of imported commodities to go higher.
BUNMI BAILEY
