In the past week or so, the media have been abuzz with news about the hiking of the exchange rate (the Naira against the dollar) at which Nigeria Customs duties/charges on imported goods would be paid. In fact, a report had it that “for the second time in 24 hours, the Federal Government has reviewed the Nigeria Customs Service exchange rate for importation of goods.” The cargo clearance exchange rate which was N953 per dollar on Wednesday, January 31, was hiked to N1356 per dollar on Friday, February 2; by Saturday morning, it had been reviewed further to N1413 per dollar.
The direct implication of these hikes in exchange rates for Customs duties collection has been the creation of panic among freight forwarders or forwarding (and clearing) agents and other port users. There is palpable uncertainty and apprehension that the duties hike has not come to an end, given the endless crashing of the Naira against the dollar (and other hard currencies) in the foreign exchange (forex) market. As it were, the more the Naira drops in value in the forex market, the more likely it is that the Customs duties (exchange) rate would be raised further — as has been the case in recent times.
In tune with this trend, the cargo clearing exchange rate had been raised from N757 per dollar to N783 per dollar in November 2023. In December 2023, it was further hiked to N952 per dollar — before the recent almost daily increases. And with the latest raises, the cost of importation is bound to rise significantly — translating to astronomical increases in the prices of goods and services (in the open market). The rate hikes also have the potential to ‘curtail’ importation of even ‘essential’ goods and commodities. It will obviously give fillip to smuggling as well as the tendency for many Nigerian port users to ‘divert’ their businesses to neighboring West African countries. Some importers would even ‘abandon’ their goods at the ports owing to the unexpected huge duty amounts arising from (the exchange) rate hikes as well as the attendant accumulated demurrage.
No doubt, Customs generally play a pivotal role in the economic life of any country (including Nigeria). There is hardly any sector of the economy that is not directly or indirectly affected by the activities of Customs — and so, its duties and rate adjustments have implications for all economic agents. Specifically, some of the functions of the Nigeria Customs Service (NCS) include: collection of revenue (import/excise duties and other taxes and levies) and accounting for the same; anti-smuggling activities; security functions and generating statistics for planning and budgetary purposes.
The NCS’ other functions include monitoring forex utilization; engaging in research, planning and enforcement of fiscal policies of the government; manifest processing; licensing and registration of Customs Agents. Customs also handles the registration of collecting banks as well as working in collaboration with other government agencies in all approved ports and border stations around Nigeria, etc.
Over the years, however, the focus of the NCS seems to have been disproportionately directed at revenue collection/generation for the government — to the detriment of its other crucial functions. In point of fact, the NCS has since remained a prime revenue-generating agency of the government — to the extent that its other functions are no longer obvious. Year-in-year-out, revenue targets for the NCS in the federal government’s budgets remain humongous and keep rising.
It is no coincidence therefore that during the first week in February, 2024, while the Customs duties rates were being raised, the Senate informed the NCS that the N5.079 trillion 2024 revenue target of the agency would be reviewed upwards from the second half of the year “to save the country from further borrowings.” During the previous week, the comptroller-general of the NCS, Adewale Adeniyi, had told the House of Reps Committee on Customs and Excise that the service generated a total of N3.21 trillion in 2023 — although it targeted N3.67 trillion for the year.
While the emphasis on revenue generation by the NCS is on the front burner, little or no attention is being paid to the likely upshots and fallouts of the revenue drive, and the operational inefficiency of the agency. The rise in the cost of importation owing to high cargo clearance charges implies marked increases in the prices of all imported items. This automatically acts as one of the drivers of the already hyper-inflationary trend in the country — with the Consumer Price Index (CPI) — which measures inflation rate hitting a three-decades-high of 28.92 per cent at end-December 2023.
In recent times, the Nigerian business climate has been such that a number of blue chip companies — especially some multinationals, have been leaving the country in droves. Rather than carrying on their decades-old production activity in Nigeria, most of them have elected to distribute/sell their products in the country through ‘third parties.’ Now, the hiking of Customs duties in Nigeria would end up ensuring that the products of these (exited firms) are either no longer available or priced out of the reach of most Nigerians — since they are being imported.
Today, hungry and angry Nigerians — impoverished by persisting hyper-inflation — can no longer afford most imported household goods and staple foods: a situation being worsened by the hikes in cargo clearing duties. Public umbrage and ire is already boiling over in several parts of the country, as practically every consumable is going beyond the reach of ordinary consumers. Like wildfire, social upheavals (in forms of protests or riots) are erupting and spreading in not a few parts of Nigeria — people being ‘pushed to the wall’ by soaring cost of living and deepening misery.
In all of these, the federal government is only angling to position the NCS as its ‘cash cow’ for generating revenue to help curtail the huge projected borrowings in the 2024 budget. Unfortunately, this strategy seems unmindful of the import and possible impact of hiking the cost of imports — for a country that is known to be largely import-driven over the years. While the 2024 Appropriation Act is couched on an assumed exchange rate of N750 per dollar, the latest NCS’ forex rate for cargo duties is over N1400 per dollar.
Advertently or otherwise, the Central Bank of Nigeria (CBN) which is said to be issuing the duties rates to the NCS, is indicating that the (official) exchange rate of the Naira is yet indeterminate. It shows that the (official) forex rate is likely to keep rolling down the hill — possibly to the N2000 per dollar, as already predicted by many analysts. Indeed, it will border on hypocrisy and voodoo economics for the apex bank to want to ‘keep’ the official exchange rate at below N1000 per dollar and yet ‘impose’ almost N1500 per dollar on the NCS, to ‘generate’ more revenue at the expense of the standard of living of the Nigerian populace.
Indeed, the omen and ramifications of the hiked cargo clearing forex rate would be too deleterious on the economy — both in the short and long term. The resultant spate of smuggling; diversion of businesses to neighboring countries as well as heightened inflation via high cost of imported items would stall rather than stimulate economic growth. In the end, the ‘artificial’ tinkering with import clearance duties neither advances international trade nor the standard of living of Nigerians.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
