The Centre for the Promotion of Privat Enterprise (CPPE) has said that the recent decision by the Central Bank to increase the customs exchange rate from N783 to N952/$ would worsen the already prohibitive production and operating costs for businesses in the country.
DR Muda Yusuf, Chief Executive Officer of CPPE who stated this in a press statement said it would also inflict more pain on the citizens, erode profit margins, reduce purchasing power, and put the survival of businesses at an elevated risk.
Yusuf noted that the frequent changes in rates are also creating serious issues of uncertainty for investors and making the international trade process increasingly unpredictable.
According to him, the CBN had on June 24, 2023, adjusted the exchange rate from N422.30/$ to N589/$. On July 6, it was re-adjusted to N770.88/$, and again on November 14, it was re-adjusted to N783.174/$, and now reviewed to N951.941/$.
The CEO noted that already businesses are contending with an incredibly difficult operating environment arising from severe macroeconomic headwinds.
He stated that the persistent currency depreciation is making access to intermediate products very difficult for manufacturers, energy cost remains very high, purchasing power is weak, investors’ confidence is declining and consumer confidence is on a downward trend.
“This is not a good time for the CBN to increase the exchange rate for the computation of import duty and the clearing of cargo by importers.
This review will impact the cost of all imports, including raw materials for manufacturers, pharmaceutical products, machinery, energy products, petroleum products, and many more.
This will make a bad situation worse for investors in the economy. It will worsen the misery of the citizens amid an excruciating inflationary condition.
The CPPE strongly appeals to the CBN and the Coordinating Minister of the Economy to review the increase,” he said.
Yusuf said that trade policy measures should not be subjected to the full vagaries of the philosophy of market forces.
He advised that the CBN should allow for a concessionary rate for the computation of import duty to protect the economy and the citizens from the reality of unbearable inflationary pressures.
“We propose that going forward, CBN should fix the customs duty rate at 20% less than the official exchange rate in the light of the prevailing harsh economic conditions,” he said.
The implication of the recent review
Yusuf noted that the recent review will make the cost of importation through official channels even more prohibitive, and this may result in greater incentives for smuggling, more industries that are dependent on the imported raw materials may shut down, customs revenue may decline as imports through official channels become difficult,
Others according to him include worsening an already bad inflation situation, worsening an already bad poverty situation and the welfare conditions of the citizens, heightened corruption vulnerabilities in the international trade ecosystem and an increase in the influx of substandard products amid high and increasing costs of products.
“In the light of these realities, the CPPE recommends that the CBN should review its decision to increase the exchange rate for customs duty computation.
The frequency of rate reviews should also be reduced to minimize uncertainty and risk for investors,” he said.
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