Between June 2023 and February 2024, the Central Bank of Nigeria (CBN) implemented about seven consecutive increases in the exchange rate applicable for payment of Customs duty.
The first adjustment came in June 2023 when the exchange rate jumped from N422.30/$1 to N589/$1. The next was July 6th 2023, when it increased from N589/$1 to N770.88/$1.
By November 14th 2023 rate rose to N783.174/$1, and by December 7th 2023, it crossed to N951.941/$1.
The year 2024 started experiencing the soaring rate when on February 2nd 2024, it rose to an unprecedented rate of N1,356.883/$1. The same month, that is within 24 hours it crossed to N1,413/$1.
In February alone, the fluctuation has become rampant and embarrassing, such that importers are no longer sure of how much they will pay as Customs duty on their cargoes. This certainly makes planning very difficult for a businessman, who had invested in importation, expecting to make profit.
Certainly, these frequent adjustments have sent shockwaves through various sectors of the economy, leading to heightened concerns among stakeholders about the sustainability of such policies and their broader implications for economic stability and growth.
The concomitant is that prices of virtually all items, from building materials, to food, to household items have all risen astronomically. The simple meaning is that Nigeria’s inflation rate has hit an all-time high.
For instance, a comparative survey of prices of food stuffs and household items carried out by our correspondent revealed the tangible effects of inflation on everyday life. Staple items like rice, beans, and bread have seen substantial price hikes, ranging from 20% to 40%, while cement prices have surged by over 40%. These increases erode the purchasing power of consumers, pushing more people into poverty and exacerbating social inequalities.
The incessant rise in Customs exchange rate orchestrated by the CBN has plunged Nigeria into a cycle of economic uncertainty and hardship. This has led to blame about lack of transparency and consultation in implementing the duty hike regime.
We are aware that, owing to the incessant increase in Customs exchange rate, many of the RoRo terminals are now desolate, while vehicle imports have dropped significantly since December 2023.
Sadly, the most glaring effect is the fact that, terminals that were once bustling with activities are now near-empty. Regrettably, this has been blamed on the exorbitant exchange rate that makes importing vehicles unprofitable
Apart from crippling businesses generally, the duty hike has also seen thousands of abandoned vehicles all over the ports.
We recall that the genesis of the volatile exchange rate for Customs duty was the merger of the forex markets, in the early days of the Tinubu administration.
However, we buy into the proposal that has been put forward by the Comptroller General, Nigeria Customs Service; Adewale Adeniyi to stem the tide of astronomical rise in duty payable on imports.
In a reaction which probably indicated apprehension too, he had suggested that, even though it is the mandate of the Central Bank of Nigeria (CBN) to fix the exchange rate of the Naira vis a vis other currencies, there is need for a meeting point for authorities of government in charge of monetary policies and those in charge of fiscal policies.
Adeniyi pointedly advocated for a time-specific spot rate. “Personally, what I think we can do is to get a kind of a spot rate for a period of time; We can agree that may be for Q1 2024, this should be the spot rate for the payment of Customs duty, or we could say for the first half. We will define the period and we all agree that this will be the spot rate payment of Customs duty”.
While this may sound good and probable, we think it is only a stop-gap. Fluctuating exchange rate for the purpose of calculating Customs duty every quarter is not the solution. This proposal is also speculative, predictive, unstable and it is open to abuse by unscrupulous importers.
The criticisms that have greeted the unprecedented hike say a lot about its danger to the economy and the people. This is more disturbing considering the fact that, our country is extremely import-dependent.
While government through the Nigeria Customs Service hopes to rake-in more revenue from the soaring duty, sadly it is affecting cargo throughput, which has dropped by as much as 30 per cent since last year.
The CG of Customs confirmed this drop at a recent interaction with the Senate. He also attributed the drop to high exchange rate, which was about N951 to $1 as at December 2023. Notably, when this government came into power in May 2023, exchange rate was N422.30 to $1.
We totally agree with the fears raised in some quarters that the current exchange rate for the purpose of calculating Customs duty is unacceptable. It is already inflicting severe pains on the populace, as it has reduced their purchasing power. In addition to these, it has eroded the profit margins of businessmen, while putting the survival of businesses at an elevated risk. As it stands now, it is making the international trade process increasingly unpredictable.
As a key player in the Nigerian maritime industry we strongly oppose this draconian hike. It is a wrong time to increase the exchange rate for the computation of import duty and the clearing of cargo by importers.
Already, it is impacting hugely on the cost of all imports, especially raw materials for manufacturers, pharmaceutical products, machineries, energy products, petroleum products and a host of other items that are essential for daily living.
Finally, we are totally in support of the calls that, the CBN should allow for a concessionary rate for the computation of import duty to protect the economy and Nigerians from the reality of unbearable inflationary pressures.
