More industries that are dependent on imported raw materials may shut down in coming months while Nigeria Customs Service revenue is expected to decline as imports through official channels become more difficult due to high import duty, a new research report has revealed.
The Central Bank of Nigeria had on Thursday increased the exchange rate for cargo clearance from N783/dollar to N952/dollar.
Clearing agents and importers had said the development would deplete the fortune of operators in the maritime sector, lamenting that the industry was already reeling under the burden of a worsening business climate.
The new report was released on Sunday by the Centre for Promotion of Private Enterprise, a local think tank.
The Chief Executive Officer of CPPE, Dr. Muda Yusuf, in the report said the hike in exchange rate for cargo clearance was a greater incentive for smuggling.
Before Thursday’s hike, the CBN had in June adjusted the exchange rate from N422.30/$ to N589/$. In July, it was re-adjusted to N770.88/$, and again in November, it was re-adjusted to N783.174/$.
Muda said that the latest review would make the cost of importation through official channels even more prohibitive.
The report stated, “The move would serve as a greater incentive 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. 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. Increase in the influx of substandard products amid high and increasing cost of products,”
He said the situation would worsen the already prohibitive production and operating costs for businesses in the country.
Muda said that the development would also inflict more pain on the citizens, erode profit margins, reduce purchasing power, and put the survival of businesses at an elevated risk.
The report further read, “The frequent changes in rates are also creating serious issues of uncertainty for investors and making the international trade process increasingly unpredictable.
The report added, “Already businesses are contending with an incredibly difficult operating environment arising from severe macroeconomic headwinds. 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 the downward trend.”
According to the report, it is not a good time for the CBN to raise 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 report further stated
CPPE boss appealed to the CBN and the Coordinating Minister of the Economy to review the increase.
He added that trade policy measures should not be subjected to the full vagaries of the philosophy of market forces.
He added, “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 light of the prevailing harsh economic conditions. In 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.”