The recent shift to a floating foreign exchange rate regime in Nigeria has brought about significant changes in the import landscape, impacting businesses, especially importers. With the Nigeria Customs Service (NCS) adjusting exchange rates for calculating import duties, and the introduction of the Central Bank of Nigeria’s Price Verification System (PVS), importers now face a dynamic and unpredictable environment.
This blog explores the implications of these changes and provides practical tips for importers to navigate the challenges effectively.
Understanding The Recent Changes:
Following the implementation of the floating exchange rate regime which took effect 5th July, 2023, the Nigeria Customs Service (NCS) adjusted the exchange rates for calculating import duty payable. Notably, the exchange rate per dollar surged from N422.30 to N589, N589 to N770, the rate further increased from N770/$ to N952/$, marking an overall 125.4% increment from its initial value (from N422.30/$ to N952/$). The Central Bank of Nigeria (CBN) also introduced the Price Verification System (PVS) on August 31, 2023, impacting all Form M applications.
These rapid and unpredictable changes have far-reaching implications on businesses, particularly importers, and pose significant challenges that need to be addressed. Some key impacts include:
Increased Import Costs: The devaluation of the Naira has resulted in a 125.4% increase in import duty payable( from N422/$ to N952/$); Importers now face higher costs due to the change in the exchange rate, impacting the overall cost of shipments. For instance, a shipment of $1000 worth of item has a CIF of N422,000 when the exchange rate was N422/$, will now have CIF of N952,000; the import duty will also be affected.
Reduced Profit Margins: Higher import costs translate to reduced profit margins for importers. Maintaining previous pricing strategies becomes challenging without passing on increased costs to customers, potentially affecting competitiveness and profitability.
Exchange Rate Volatility: Constant fluctuations introduce uncertainty and risk for importers. Predicting and planning for future import costs become challenging, making financial planning and budgeting more complex.
Inflation: The rise in import costs due to Naira devaluation can contribute to inflation effects on the economy. Passing on increased expenses to consumers may lead to higher prices for goods and services, impacting purchasing power.
To navigate this challenges professionally, we have put together 5 key tips to help importers amidst a changing economy, this includes:
Monitor Exchange Rates: Stay vigilant and regularly monitor exchange rate fluctuations. Awareness of currency movements enables informed decision-making and better preparation for potential cost increases.
Review Pricing Strategies: Reevaluate pricing strategies and make necessary adjustments. Finding a balance between maintaining competitiveness and addressing increased costs is crucial for sustained business success.
Customer Communication:Communicate openly with customers about price adjustments resulting from currency fluctuations. Transparent communication fosters trust and loyalty, mitigating potential customer dissatisfaction.
Innovate:Embrace enhanced thinking to devise ways of improving business processes for better efficiency and improved product margins. Innovation is key to thriving in a changing economic landscape.
Explore Improved Terms with Vendors: Consider negotiating better service delivery and terms with vendors to enhance overall business efficiency.
Frequently asked question
How much does it cost to clear a vehicle in Nigeria?
The cost of clearing a vehicle in Nigeria varies based on several factors, including the vehicle’s year of manufacture, and the applicable duty rates. Additionally, other charges, such as customs duties, port charges, and clearing agent fees, contribute to the overall cost. We recommend you contact our customer service representative via +1(302) 300 1019 or WhatsApp 08057069454 for an estimated cost based on the vehicle you intend to import.