Spike in Exchange Rates: Recipe for Port Congestion

Last week and like a bolt from the blues, the Central Bank of Nigeria (CBN), slammed an adjusted increase in exchange rate for Customs duty on importers and their agents.

The adjustment spiked up the rate, on which Customs duty on goods will be calculated, from N326 to N361, thus raising the duty by additional N35 per dollar.

And pronto, the Customs has imputed the new adjusted regime of tariff into the system.

Importers and their agents only got to know about this change at the point of making declaration for their goods.

Expectedly, the sudden increase in the customs tariff has created confusion and distortion in the clearing process as many importers and their agents, who relied on the old rate, could not make declaration for payment of Customs duties.

To say the least, the decision to increase the benchmark for Customs duties, is ill-timed and reflects the insensitivity of government to the sufferings of the masses.

No reason, how cogent and economically sound it may be, can justify the spike in the customs duties which the adjustment represents, at this time when the country is under the lockdown of the dreaded COVID-19 pandemic.

We are disturbed by the apparent loss of emotion by government when it decided to add to the sufferings of the masses who are still gasping for breath from the vice grip of the pandemic.

What this decision means is that importers and their agents will have to pay higher to exit their goods from the ports.

For instance, a 1×40 ft. container with a bench mark of N1,200,000 of 5% items would now have a difference of N382, 078, inclusive of shipping & terminal bills.

For vehicles, trucks of 1999-2002 years of manufacture with $3734 now at N361 will have additional cost of N63, 231.

Similarly, since the owners of these goods are in business to make profits, they will pass the costs to the final consumers who are already overburdened by series of contractions in the economy.

We are aware of the financial pressure which the crash in oil prices has brought on the Federal government.

We are equally aware that government would be looking at various ways to shore up its badly depleted revenue base.

Since the revenue from oil which is the mainstay of the economy has plummeted under the heavy yoke of Covid-19 pandemic, the next sector to turn to for increased revenue is the maritime sector which ranks second to oil in revenue generation.

However, we believe the decision was hastily made and the timing could be counterproductive.

Since our economy is import dependent, the decision to spike Customs tariff will, to our mind, throw the economy into a spiralling inflation.

It will also lead to a spike in unemployment as the unemployment rate will leap.

Our assertion is hinged on a sound economic assumption that with the wreck the Covid-19 pandemic has wrought on the purchasing powers of the impoverished large majority of the citizens, demand for all these goods cleared at high Customs duties and other charges, will shrink.

Invariably, the importer will not be able to sell his goods whose prices have gone out of reach of the masses due to high Customs duties, thus leading to sluggish sales and congested warehouses.

Manufactures may come under more pressure than what they are experiencing now as the costs of raw materials will be high which may lead to high mortality rate of the few struggling ones.

This may lead to offloading more staff into the already saturated unemployment market while those who cannot withstand the heat will close shop.

However for those importers who are cash strapped, they would stop further importation while they abandon the goods already at the ports, thus compounding the looming port congestion after Covid-19 lockdown.

The consequence of this is multiple.

The government will not get the desired revenue it craves for while hordes of port workers such as freight forwarders and haulage operators who feed from logistics chains will be out of job.

We shudder at the ripple effects of government decision on the economy.

The freight forwarders, who must have by then been pushed to the wall, may resort to disruption of cargo clearance process at the ports in a bid to ventilate their frustration, an action which adverse effects will reverberate in the economy.

In as much as it is within the constitutional powers of government to generate revenue for efficient and robust governance, we believe this must be done without inflicting additional pains on the already oppressed masses.

The crash in global oil prices was not peculiar to Nigeria.

Likewise, Nigeria is not the only country whose revenue received a deadly bash from the oil prices slump.

So the Federal Government should not punish the masses for its long years of failure to reduce its dependence on oil through diversification of the economy.

We believe that government could still generate more revenue not only from other sectors of the economy but in the maritime industry without much collateral damage.

We urge the government to tinker with the import guidelines in order to identify luxury goods that could be placed on high Customs duties instead of the blanket decision that affects both essential and luxury commodities which will have more impact on the common man on the street.

We urge the Federal Government not to sacrifice the collective comfort and well-being of the impoverished masses on the altar of desperate hunt for revenue.