The recent 48.5 percent hike in customs duty by the Central Bank of Nigeria (CBN), through the upward adjustment of the exchange rate for calculating import duties, is expected to push up production costs for manufacturers that import critical production inputs.
The development also comes with policy uncertainty that threatens investor confidence and the nation’s investment climate.
Frequent policy changes create problems of uncertainty and volatility for investors, and between June 2023 and now, there have been six changes in Customs’ FX rate, Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said during a television interview.
He said the changes have implications for trade, investment and planning.
“The cost of imports is already extremely high by currency devaluation and if there is any window of opportunity for the government to bring relief within the fiscal policy environment, it is through trade because it is extremely difficult for citizens that are dealing with a situation of highly depreciated currency and high import duty at the same time,” Yusuf said.
He appealed to the apex bank to review the pace at which it adjusts the exchange rate for calculating customs duties to an investment-friendly policy in light of the excruciating conditions that the citizens are facing.
Faulting the immediacy with which Customs implements new rates, Yusuf appealed to the fiscal authorities to consider exempting already established import processes that had opened Form M.
With the implementation of the floating foreign exchange rate regime by the central bank in July 2023, the recent adjustment in rate is the sixth since the coming into power of the new government.
On June 24, 2023, Customs adjusted the exchange rate from N422.30/$ to N589/$; on July 6, 2023, it was adjusted to N770.88/$; on November 14, 2023, it was adjusted to N783.174/$; in December, it was adjusted to N951.941/$; on February 2 it was moved to N1,356.883/$; and on February 3, it was raised to N1, 413.62/$.
Also speaking, Bisiriyu Lasisi Fanu, former chairman of the Association of Nigeria Licensed Customs Agents at Seme Border, said many importers would abandon their cargo at the port due to a lack of funds to clear them.
He said the frequency at which the CBN was adjusting the exchange rate had become worrisome, attributing it to the rising number of overtime cargo at the ports.
“CBN can’t change the rate and expect the importer who has made his calculation on what the landing cost and profit will be based on the December exchange rate to survive. How do you expect the importer to generate the difference immediately to clear the goods from the port? It is not possible. We understand that the Federal Government, through Nigeria Customs, wants to generate revenue, but this is not the way,” Fanu said.
He said Nigeria is an import-dependent nation and the hike in customs duty through high FX rates will affect all goods in the market because every commodity in the market has imported input in them.
“This will impact the prices and the masses will be most affected because the prices will be alarming and people’s salaries remain the same, thereby affecting people’s purchasing power,” Fanu added.
Giving insight into Nigeria’s fiscal policy, Lucky Amiwero, national president of the National Council of Managing Directors of Licensed Customs Agents, said the central bank controls the exchange rate and Customs must reflect the change in rate immediately if there is an increase.
“When this government came in, they adopted a floating exchange rate, which is not beneficial to a country like Nigeria that does not have reserves. This policy has worsened the situation coupled with the hike in pump prices of fuel and diesel,” he said.
According to Amiwero, there is a gradual inflow of poverty into the economy and a lot of people are moving down the poverty line because every increase in exchange rate affects every commodity in the market.
He said that most of the commodities in the market today, have foreign input, which triggers the exchange rate.
“A trade transaction should be predictable, consistent, and transparent and this policy of floating naira and frequent exchange rate adjustment lack these three qualities, which is detrimental to the common man. People’s take-home pay has been affected by the transport cost and surging prices,” he said.
Eugene Nweke, a clearing and forwarding expert, warned that the CBN needs to desist from the incessant increment of exchange rates for customs duty.
Nweke said the central bank needs to pay attention to how many businesses are closing up shop, how many are downsizing, the population of Nigerians that are out of jobs and how the inflation rate has affected the purchasing power of the citizenry.
He said the policy contributes to economic hardship and poverty in the land, which also leads to insecurity.