CPPE: Frequent Raise in FX for Import Duties Will Hurt Businesses

Dike Onwuamaeze

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has stated that frequent increases in the exchange rate for computation of import duty will hurt businesses and aggravate poverty in Nigeria.
Yusuf said yesterday in a press statement that the recent decision by the Central Bank of Nigeria (CBN) to increase the customs exchange rate from N783 to N952/$ would worsen the already prohibitive production and operating costs for businesses in the country.

“It would also inflict more pains on the citizens, erode profit margins, reduce purchasing power and put the survival of businesses at an elevated risk,” he said.
He further said that the frequent changes in the rates was 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/$, and now reviewed to N951.941/$.
He observed that already, businesses  were contending with an incredibly difficult operating environment arising from severe macroeconomic headwinds.
He added that the persistent currency depreciation was making access to intermediate products very difficult for manufacturers, while energy cost remains very high and purchasing power is weakening.

He further lamented that investors’ confidence was declining and consumer confidence was on the 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, machineries, 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,” he said.
The CPPE also appealed to the CBN and the Coordinating Minister of the Economy, Wale Edun, to review the increase.  
“Trade policy measures should not be subjected to the full vagaries of the philosophy of market forces.
“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 per cent less than the official exchange rate in the light of the prevailing harsh economic conditions,” Yusuf said.

He argued further that the recent review would make the cost of importation through official channels even more prohibitive and this may result in the following unintended outcomes like greater incentives for smuggling and closure of industries that are dependent on the imported raw materials.
 “Customs revenue may decline as imports through official channels become difficult, which will worsen an already bad inflation situation and  bad poverty situation and the welfare conditions of the citizens,” he warned.

Other unintended consequences, according to him, are heightened corruption vulnerabilities in the international trade ecosystem and increase in the influx of substandard products, amid high and increasing cost of products.
In the light of the realities, the CPPE recommended 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 minimise uncertainty and risk for investors,” Yusuf said.