CEM, REPORT FINANCE | In a move that has sent shockwaves through the Nigerian import community, the Central Bank of Nigeria (CBN) has raised the exchange rate used to calculate import duty by 14%. This comes just a day after the CBN had previously reduced the rate, highlighting the ongoing volatility in the country’s foreign exchange market.
According to information obtained from the Nigeria Customs Service (NCS) official trade portal, the CBN increased the Customs FX duty rate from ₦1,164.84 per dollar to ₦1,327.35 per dollar on Monday, April 29th, 2024.
This translates to a significant 14% increase compared to the previous rate. In practical terms, this means that importers opening Form M (a document used to process import documentation) on Monday would require ₦162.51 more per dollar to clear their goods at the port compared to those who opened Form M over the weekend.
Impact on Businesses and Consumers
The CBN’s decision to raise import duty has been met with dismay by importers who are already struggling with the high cost of doing business in Nigeria. Muda Yusuf, Director-General of the Centre for the Promotion of Private Enterprise (CPPE), expressed his concerns, stating, “This latest increase will further squeeze profit margins for businesses and ultimately lead to higher prices for consumers.”
“This constant fluctuation in the import duty rate is making it impossible to plan or budget effectively,” lamented Aisha Muhammed, a Lagos-based importer of electronics. “We open a Form M at one rate, and by the time the goods arrive, the rate has changed, forcing us to scramble for additional funds.”
Inflation in Nigeria currently sits at a staggering 33.1%, according to the latest figures. The increase in import duty is likely to exacerbate this trend, as businesses pass on the additional costs to consumers through higher product prices. This will disproportionately affect low-income earners who already face difficulties affording basic necessities.
The 14% increase in import duty is likely to have a cascading effect on businesses and consumers. Businesses will be forced to absorb some of the increased costs, leading to potential job cuts or reduced investments. Consumers, on the other hand, will face higher prices for imported goods, further straining their budgets.
Importers Call for a Fixed Import Duty
The CBN’s decision to link import duty to the volatile foreign exchange market has been criticized by some experts who advocate for a fixed rate. Proponents of this approach argue that a fixed rate would provide much-needed stability for businesses and help to moderate inflation.
“A predictable exchange rate for import duty calculations is crucial for proper planning and budgeting,” said Professor Sarah Johnson, an economist at the University of Lagos. “The constant fluctuations create uncertainty and make it difficult for businesses to operate effectively.”
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The CBN, however, has maintained its position that the current system reflects the realities of the foreign exchange market. The bank argues that a fixed rate could create distortions and lead to arbitrage opportunities.
If You Ask Me
The CBN’s decision to raise import duty rates has created a sense of unease amongst Nigerian businesses and consumers. With inflation already at a record high, this move threatens to further destabilize the economy. Moving forward, the CBN needs to consider the long-term consequences of its policies and explore alternative solutions, such as a fixed import duty rate, to promote economic stability and growth.
Additionally, the CBN’s latest move on import duty highlights the complex challenge of balancing stability with the need for a market-driven foreign exchange system in Nigeria. While the bank’s commitment to reflecting market realities is understandable, the ongoing volatility is creating significant challenges for businesses and consumers.
Moving forward, the CBN will need to carefully consider the impact of its policies on the wider economy. Finding a way to reduce volatility in the foreign exchange market, or at least introducing a mechanism for smoother adjustments in import duty rates, could be crucial for fostering a more stable business environment and promoting economic growth.
The import community and consumers alike will be closely watching the CBN’s next steps to see how it plans to address these critical issues.
