Nigeria Raises Import Duty Exchange Rate Amid Naira Volatility

The Nigeria Customs Service (NCS) has increased the foreign exchange rate for import duties to N1,441.58 per US dollar, marking a 4.94% rise from the previous rate of N1,373.64 adopted on May 1. This adjustment, observed on the federal government's single window trade portal on May 3, comes amidst ongoing fluctuations in the naira's value against the US dollar.

Why this matters: The frequent changes in the customs duty exchange rate have significant implications for businesses, investors, and the overall economy, as they affect cargo clearing costs, inflationary pressures, and investment risk. This volatility can also undermine investor confidence and hinder economic growth aspirations.

The Central Bank of Nigeria (CBN) recommends foreign exchange rates for import duties based on trading activities in the official foreign exchange market. The new rate surpasses the official closing rate of ₦1,400.40 per dollar traded on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window on May 3. According to CBN guidelines released on February 23, the customs and other related parties must adopt the closing rate in the official window for import duty assessment until the termination date and clearance are finalized.

The recent increase in the exchange rate for customs duty collection has drawn concerns from the business community. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), warned that the frequent changes in the customs duty exchange rate have become a significant burden on businesses, leading to high volatility in cargo clearing costs, worsening inflationary pressures, and aggravating investment risk, especially in the real sector of the economy.

The customs duty exchange rate has undergone numerous changes in recent months, with 28 adjustments in the first quarter of 2024 and nearly 10 changes in April alone. The rate jumped to N1,373.65 per dollar as of May 1, from less than N1,200 per dollar just a few days earlier. Dr. Yusuf emphasized that this situation has introduced an unprecedented level of uncertainty and unpredictability to international trade dynamics, making it extremely difficult for investors to plan, elevating investment risk, challenging risk management, and weakening investors' confidence. "This is not consistent with our growth aspirations at this time," he remarked.

The CPPE has appealed to the CBN to adopt a framework that minimizes volatility in the customs duty exchange rate. They have proposed a quarterly customs duty exchange rate, commencing at N1,000 per dollar, and consultation with fiscal authorities to ensure trade policy implications are considered.

Key Takeaways

• Nigeria's Customs Service increases FX rate for import duties to N1,441.58/USD.
• Frequent FX rate changes affect cargo clearing costs, inflation, and investment risk.
• CBN recommends FX rates based on official foreign exchange market trading.
• Business community concerned about volatility's impact on operations and investment plans.
• CPPE proposes quarterly FX rate and consultation with fiscal authorities to minimize volatility.