Customs’ spot rates adoption: Duty FX rates shift 100 times in 2024, spike prices of goods by 120%
21 August 2024 |
4:34 am
The burden of overall foreign exchange (FX) volatility and particularly in adopting the spot trading rate in determining import duty assessment may be heavier than otherwise assumed with some imported goods increasing by over 120 per cent since January
Over 40% of importers forced out of business, operators claim
The burden of overall foreign exchange (FX) volatility and particularly in adopting the spot trading rate in determining import duty assessment may be heavier than otherwise assumed with some imported goods increasing by over 120 per cent since January, price movement analysis has shown.
The duty FX rate was stable at N951/$ till January when the volatile spot rates were adopted in defiance of the suggested monthly average or a fixed as adopted by the Presidential Committee on Fiscal Policy and Tax Reforms in its recommendation to the Federal Government.
The Nigerian Customs Service (NCS) confirmed the rates were changed 70 times in the first half (H1) alone, a situation that has triggered uncertainty, low importation and a price spiral.
The Comptroller General of the Nigeria Customs Service (NCS), Bashir Adewale Adeniyi, at the 53rd Annual General Meeting (AGM) of the Manufacturers Association of Nigeria (MAN), Apapa Branch, said the import duty rates changed 28 times in the first quarter of the year and 42 times in the second quarter.
The situation may be worse in the second half (H2). With over a month to go in the third quarter, the rates have changed 30 times, leaving importers (including manufacturing input end users who pleaded with the government to be more mindful of the economic consequences of high duties) not only frustrated but also confused.
At its rallying point of N1600/$, the going rate in August is 100 per cent higher than the recommended N800/$ by the Taiwo Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms. The revenue-driven customs have stuck to the volatile rate calls by leading economists and advocacy groups at the detriment of the economy and market stability.
The consequences are dire for import-dependent industries. Importers, who are on the first line of the consequences, said about 40 operators have lost their business footings at the ports as cargo traffic has reduced significantly. Those in operations are not at ease either as they fear more will be thrown out of their jobs if the correct trend continues.
Whereas food items have seen a sharp rise in prices in the past months, The Guardian’s findings suggest other consumables such as drugs, non-essential goods such as televisions and even capital goods like generators have witnessed over 100 per cent changes in prices since the beginning of the year.
For instance, a 4.5kva Elepaq generator currently sells for N435,000, which is 123 per cent higher than the N195,000 it opened the year. Whereas the FX rate has only increased by about 66 per cent, the price of the generating set gas more than doubled, showing the level of price gouging.
Nigerians may do without generators, but drugs, which have equally seen a sharp increase (over 200 per cent, in some cases) are more price inelastic than a generator or a 55-inch LG smart television, which has jumped by about 60 per cent in the same period.
The Guardian also gathered that business owners are reluctant to lower their prices, even when the naira firms up resulting in lower duty rates as witnessed in April. They said the uncertainty of future exchange rates poses a significant risk to their working capital. Hence, prices are extremely sticky downward.
Sadly, prices accelerated more when the naira fell subsequently. For instance, whereas March has gone down in history as the worst month for the naira during which it saw its lowest exchange rate (N1900/$ at the parallel market), prices are already higher than the levels they were in March even with the naira trading at around N1600/$.
Experts have condemned the tendency to hang on the spot rate in determining the value of duty payments in an import-dependent and extremely fragile economy like Nigeria.
President of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero, highlighted how the frequent changes are undermining trade, stifling business planning, stalling investments and complicating the inflation crisis in a chat with The Guardian.
“You go to the market today and buy something for N3,000, the next morning it is N6,000. In the evening of the same day, it was N8,000. This is how unpredictability messes up the condition of living and drives people out of business,” he lamented.
Amiwero called for a more stable and manageable customs duty system that would not be solely dependent on the spot dollar exchange rate.
National Public Relations Officer of the Association of Registered Freight Forwarders of Nigeria (AREFFN), Taiwo Fatomilola, noted that importers lost confidence in the system ever since the exchange rate soared past N1,100/$.
According to him, the fluctuation continues to undermine the confidence of business owners, particularly importers who face unique challenges due to the lengthy processes involved in international trade. He pointed out that importers have suffered significant losses, causing the cost of goods to surge.
Fatomilola explained that a potential appreciation in the exchange rate would not have an immediate positive impact on businesses as the volatile exchange rate has severe, long-term implications on trade, inflation and investments.
“Businesses, especially importation, do not operate with immediacy. The process from purchase to sale takes months. Importation is not like local trade where you can quickly turn around your inventory. It takes months to complete the cycle of purchasing, shipping, clearing and selling. Any current reduction in the exchange rate will not benefit the goods currently in the market, which were imported at much higher rates,” he explained.
He highlighted that traders cannot sell below their cost price as future unpredictability in the dollar value against the naira poses a risk to their capital and ability to trade. He expressed skepticism about the government’s economic policies, noting that sustained stability in the exchange rate over several months is necessary for businesses to regain trust and confidence.
“Everyone is waiting for a consistent period of stability before making new investments. Without that, there is no trust and the business environment remains uncertain. The government’s economic policies cannot be trusted, so the current situation does not positively impact businesses” he said.
Manufacturers have also decried the situation, saying no business can survive with the constant changes as it is not just worsening inflationary pressures, it is making production almost impossible. A former MAN Chairperson, Apapa Branch, Frank Ike Onyebu, decried the situation, saying that “manufacturers are between the devil and the deep sea”.
“We are facing problems on all sides, but this exchange rate problem has become a bone in our throat. The unstable rates are increasing the cost of credit and interest rates and, in turn, forcing up production costs while reducing purchasing power. You can see it is a 360-degree problem. We are stuck with unsold goods because people cannot afford to buy them as inflation has eaten up their income. The exchange rate changes almost daily, sometimes twice a day. This does not help with planning, cash inflow or cost analysis.
“When opening ‘Form M’, we do a cost analysis and try to hedge against inflation but by the time the items arrive, no matter the type of hedging you do, the rates have made nonsense of your calculations. How do we produce competitively in this kind of situation?” he queried.
He added that in the last year, manufacturers pleaded that the rates be kept stable for at least six months with no changes to enable them to plan. As usual, the government turned a deaf ear.
The National Vice President of the Nigerian Association of Small-Scale Industrialists (NASSI), Segun Kuti-George, regretted that the situation had got out of hand completely. He pointed out that the cost of raw materials alone has seen an over 500 per cent increase this year, excluding other production costs.
According to him, manufacturers no longer stock raw materials but buy when they are available and when they can afford them, which affects productivity. He said more changes to the exchange rate simply mean further increases in the cost of goods, which feeds into rising inflation. “There is no business that relies completely on locally sourced materials. The sad reality now is even 10 to 20 per cent input you import can increase your production cost by 90 per cent now because of the outrageous import duty rate,” he noted.
“Resin, which is widely used in our sector, moved from N200,000 to N1 million per drum in the space of months, how do you want to cost your finished product with this kind of increase? The saddest part is that it has not increased in dollar terms. Owing to the foreign exchange fluctuation and associated challenges, we have seen a 400 per cent increase in months. The situation cannot continue like this, or more businesses will be forced to shut down,” he said.
On his part, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the apex bank and presidency must work with the real sector and importers to look for a solution as FX volatility is putting businesses on the brink.
“It is a double jeopardy for manufacturers at this point. They are facing pressures from one very side. We must adopt the recommendations from the Presidential Committee on Fiscal Policy and Tax Reforms, which recommended N800/$1 for import duties,” he said.
Yusuf highlighted the challenges businesses face due to FX volatility and stressed the need for stability to allow enterprises to plan adequately. The recommendation is yet to see the light of day.
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