Earlier this month, the Nigerian Customs Service (NCS) announced that the exchange rate for customs duty has been increased from the official benchmark of N306/US$ to N326/US$. This implies that importers and exporters whose products are valued and transacted in dollars now have to pay additional N20 per US$ worth of goods. Notably, the new exchange rate was implemented with immediate effect.
In defense of the customs service, the move has been described as a move to improve Government revenue.
However, the decision to hike the exchange rate has been met with strong criticism from importers and exporters alike. It was reported that the president of Shippers Association of Lagos State remarked that the Government must have been ill-advised on this new policy. According to him, the Government’s move in pursuing revenue generation rather than trade facilitation is fast crippling the economy. Our opinion about this decision is not much different.
The prior exchange rate for customs duty was in line with the CBN’s official rate. However, the new N326/US$ rate creates a new exchange rate in the economy in addition to the NAFEX rate, official rate, parallel market rates, increasing the multiple exchange rate saga. The increasing practice of a multiple exchange rate system in Nigeria will only continue to increase investor’s uncertainty as regards doing business and investing in Nigeria.
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Furthermore, stemming the increasing tide of smuggling through Nigerian borders have garnered attention over the past two years given the negative impact it has had on several businesses. We, however, believe policies that increase the cost of clearing goods at the port would only further encourage smuggling as well as increase corruption among customs officials. Thus, this implies a ripple effect on business activities which have suffered from the impact of smuggling activities.
Among the current administration’s major themes of economic development is diversification of the economy from being oil-focused. This has increased the drive to encourage non-oil exports which have led to the CBN banning access to forex for importers of over 50 products. However, the move to increase the exchange rate on customs duty would have the impact of making Nigerian exports more expensive given many of these exports are valued in dollars.
In addition, we believe the ultimate impact of this new policy would lead to an increase in the prices of commodities given Nigeria imports most of its consumption in different forms. Majority of Nigerian local producers rely on foreign inputs in the production of their goods, thus the cost of production would be impacted negatively.
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