CEM REPORT, MARKET | Importers in Nigeria are caught in a perplexing situation. While the Naira has shown impressive gains against the US Dollar in recent weeks, the exchange rate used for calculating customs import duties remains stubbornly high. This disparity between the official market rate and the customs duty rate is raising concerns and impacting businesses.
Naira Remarkable Rally
Since mid-March, the Naira has embarked on a remarkable strengthening spree. Data from the Central Bank of Nigeria (CBN) reveals that the exchange rate for the US Dollar on the official Investors and Exporters (I&E) window plummeted from a peak of ₦1,612.28 on March 16th to ₦1,278.00 on April 3rd, 2024. This translates to a significant drop of ₦281.92, or a decrease of 17.46%, in just two weeks.
Looking beyond the past fortnight, the entire month of March witnessed a historic surge in the Naira’s value. Compared to February’s closing rate, the Naira appreciated by a staggering 21.8%. This marks the most significant increase in Naira’s value against the USD in the past five years, offering a glimmer of hope for the Nigerian economy.
Customs Duty Rate: A Different Story
However, for importers, the story unfolds differently. Checks on the Nigeria Customs Service (NCS) exchange rate portal reveal a stark contrast. As of April 3rd, 2024, the exchange rate used for calculating customs duties stands at ₦1,330.36 per USD. This rate is considerably higher than the official market rate of ₦1,278.00 and even surpasses the stronger parallel market rate, currently hovering around ₦1,250.00 per USD.
Importers Express Frustration
This discrepancy between the official market rate and the customs duty rate has caused frustration among importers. “It doesn’t make sense,” remarked Adebayo, a Lagos-based importer. “The Naira is getting stronger, but we’re still paying a higher rate for customs duties. This is eating into our profits and making it difficult to compete.”
Reasons Behind the Discrepancy
The reasons behind this disparity remain unclear. However, some experts speculate that the frequent fluctuations in the exchange rate could be a contributing factor. The CBN has been actively intervening in the forex market to stabilize the Naira, leading to adjustments in the official rate. However, the customs duty rate might not be updated as frequently, causing a temporary lag.
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Impact on Businesses
This situation presents a challenge for businesses that rely on imports. The higher customs duty rate translates to increased import costs, ultimately leading to higher prices for consumers. Additionally, the uncertainty surrounding the customs rate makes it difficult for businesses to plan and budget effectively.
Potential Solutions
Addressing this disparity requires a collaborative effort. The NCS could benefit from a more transparent and dynamic system for adjusting customs duty rates in line with the prevailing market conditions. Additionally, improved communication between the CBN and the NCS would ensure a more synchronized approach to foreign exchange management.
Looking Ahead
While a stronger Naira is a positive development for the Nigerian economy, the current situation with customs duty rates presents a hurdle for importers. Finding a solution that balances the need for a stable exchange rate with the need for efficient and transparent import processes is crucial. Only then can businesses fully benefit from the recent positive developments in the foreign exchange market.
