CEM REPORT, INDUSTRY| Nigeria’s business community is facing a significant challenge: the constant fluctuations in the exchange rate used to calculate custom import duties. This volatility, according to the Centre for Promotion of Public Enterprise (CPPE), is hindering production planning, pushing up inflation, and discouraging investment.
Muda Yusuf, Chief Executive Officer of the CPPE, expressed his concern in a recent statement. He highlighted the detrimental effects of the irregular changes in the Customs Duty FX Rate. “These frequent adjustments are detrimental to production planning and other real sector activities in the Nigerian economy,” Dr. Yusuf remarked.
The statement by the CPPE sheds light on the alarming frequency of these changes. In the first quarter of 2024 alone, the exchange rate was adjusted a staggering 28 times. April saw an additional 10 adjustments, further compounding the uncertainty faced by Nigerian businesses engaged in international trade.
This lack of stability makes it incredibly difficult for companies to plan effectively. Import costs become unpredictable, hindering businesses’ ability to accurately price their products and services. The resulting uncertainty discourages investment and ultimately weakens the country’s economic growth prospects.
CPPE Proposes Quarterly Custom Rate
In their statement, the CPPE proposed a solution to address this issue. They urged the CBN to implement a framework that minimizes the volatility of the Customs Duty FX Rate. This framework, they suggest, should establish a fixed exchange rate for import duties that is reviewed on a quarterly basis.
Yusuf elaborated further, stating, “The Centre for the Promotion of Private Enterprise appeals to the CBN to adopt a framework to minimize volatility in the customs duty exchange rate… Such a framework should adopt a quarterly customs duty exchange rate, after due consultation with the fiscal authorities.”
The CPPE also proposed a starting point for the quarterly rate, suggesting a fixed exchange rate of N1,000 per US dollar for import duties. They emphasized the importance of consulting with the fiscal authorities before implementing such a change, acknowledging the potential trade policy implications.
CBN’s Move
The CBN, in an attempt to address these concerns, recently announced that the exchange rate used for import duty assessment will be based on the date the Form M for importation is opened, regardless of when the goods are cleared. However, this policy change does not eliminate the underlying issue of frequent rate adjustments.
Read Also: CBN Raises Import Duty by 14%
The Need for Stability and Predictability in the FX Market
A stable and predictable foreign exchange market is crucial for a healthy business environment. When businesses can rely on a consistent exchange rate for import duties, they can plan their operations more effectively, manage costs more efficiently, and ultimately contribute to a more robust economy.
The CPPE’s proposal for a quarterly Customs Duty FX Rate represents a step towards achieving greater stability. By implementing such a framework, the CBN can provide businesses with the predictability they need to thrive and contribute to Nigeria’s economic growth.
If You Ask Me
The debate surrounding the Customs Duty FX Rate is ongoing. The CBN must carefully consider the concerns raised by the business community and stakeholders. Finding a solution that balances the need for stability with the realities of the foreign exchange market is crucial.
The proposed quarterly rate system presents a potential solution, but further discussions and analysis are necessary before implementation. The impact on government revenue, trade policies, and overall economic stability needs to be thoroughly evaluated.
Read Also: Nigerian Stocks See Surge in Foreign Investment After CBN Reforms
One thing is clear: the current system of frequent adjustments is hindering business operations and investment. Moving towards a more stable and predictable system for calculating import duty exchange rates is essential for fostering a thriving business environment and achieving sustainable economic growth in Nigeria.
