The Centre for the Promotion of Private Enterprise (CPPE), one of Nigeria’s private sector advocacy groups, has described the recent decision by the Central Bank of Nigeria (CBN) to increase the Customs Exchange rate from N783 to N952/$1 as undesirable for the economy, warning that it will worsen the already prohibitive production and operating costs for businesses in the country.
In addition, the OPS group in a comment by its Founder/Chief Executive Officer, Dr. Muda Yusuf, also noted that the implementation of the monetary policy would also inflict more pains on the citizens, erode profit margins, reduce purchasing power and put the survival of businesses at an elevated risk.
This is even as it pointed out that the frequent changes in rates was also creating serious issues of uncertainty for investors and making the international trade process increasingly unpredictable.
Yusuf recalled that the apex bank had on June 24, 2023, adjusted the exchange rate from N422.30/$1 to N589/$ and on July 6 re-adjusted the rate to N770.88/$1, and again on November 14, it further re-adjusted it to N783.174/$1, and now reviewed it to N951.941/$1.
The seasoned economist noted that already businesses were contending with an incredibly difficult operating environment arising from severe macroeconomic headwinds even as the persistent currency depreciation was making access to intermediate products very difficult for manufacturers, energy cost remains very high, purchasing power weak, investor’s confidence declining and consumer confidence also sliding.
The CPPE boss cautioned: “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.
“The CPPE strongly appeals to the CBN and the Coordinating Minister of the Economy 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% less than the official exchange rate in the light of the prevailing harsh economic conditions”, Yusuf added.
He projected that the recent review would make the cost of importation through official channels even more prohibitive and this may result in unintended outcomes, including greater incentives for smuggling, and more industries that are dependent on the imported raw materials may shut down.
Other potential negative implications of the reviewed Customs Exchange rate listed by the economic expert are that Customs revenue may decline as imports through official channels become difficult, worsening of the already bad inflation situation and the already bad poverty situation and the welfare conditions of the citizens; heightened corruption vulnerabilities in the international trade ecosystem; and increase in the influx of substandard products amid high and increasing cost of products.
Yusuf recalled that paradoxically, the CBN governor, Dr. Olayemi Cardoso at the just held Chartered Institute of Bankers of Nigeria’s (CIBN’s) dinner, stressed the importance of giving economic policies a human face, saying among other things, that “…we need to develop stronger frameworks for measuring the human condition and ensure that policymakers and business leaders pay as much attention to these measures as they do to macroeconomic indicators”
The CPPE chief maintained that in the light of these realities, the OPS group recommended that the apex bank should review its decision to increase the exchange rate for customs duty computation and that the frequency of rate reviews should also be reduced to minimize uncertainty and risk for investors.
