BusinessDevaluation, Corruption, Inefficiency Behind High Cost of Ports Operations

Devaluation, Corruption, Inefficiency Behind High Cost of Ports Operations

May 19, (THEWILL)- The high cost of goods and services as well as the increase in operating expenses experienced by businesses in Nigeria are, directly or indirectly, linked to the high cost of doing business in the country’s ports.

Findings by THEWILL showed that the cost of clearing imported goods has skyrocketed due to the upward review of Customs duties introduced as a result of the devaluation of the naira in June 2023. Corruption and high level of inefficiency injected into the process contribute immensely to the challenge.

With the continued depreciation of the naira against the dollar, customs duties paid on imported goods have risen by about 93 percent since the federal government’s foreign exchange reform came into effect eleven months ago.

The cost of clearing imported items is higher, thereby putting pressure on already struggling businesses and making it more difficult for them to stay above troubled waters.

The increase in customs duty was caused by weaker naira, which has seen manufacturers and importers of finished products continue to spend more to bring goods and raw materials into the country. Besides, the exchange rate applied by Customs fluctuates and varies every day..

The Nigeria Customs Service has adopted the Central Bank of Nigeria’s official foreign exchange rate for clearing of imported goods at the port, yet importers and clearing agents cannot predict the rate to be applied on any day.

THEWILL saw the currency rates announced by Customs for Friday, May 16 which featured N1,530.367/USD, N1,936.373/GBP and N1,662.285/EUR

While the AFEM rate on FMDQ platform showed N1,497.33/USD on May 16, the Customs rate was N1,530.36/$1 which is N33.03 higher.and, also, higher than N1,520 at the parallel market.

This has resulted in high import tariffs occasioned by the high exchange rate for calculating customs import duty at the port which has risen by 86.8 percent since FX reforms and 51.3 percent since January 2024.

What this means is that importers and manufacturers are now using more money to clear their goods at the port.

For instance, a 40-foot container of pharmaceuticals that was previously cleared for N7 million by this time last year when the exchange rate for customs duty was N422.30$ is now cleared for N25 million while a 20-foot container of pharmaceuticals is now cleared with N12 million from N5 million.

This explains why medicines, which have zero duty and 20 percent levy, are very expensive today.

In response to the costly importation, importers have reduced their volume of imports and are now increasing prices to cover their costs.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, said the decision to apply the FX rate on form M for calculating import duty is a laudable response because it would reduce the current uncertainty around imports.

He, however, said the apex bank’s intervention did not address the bigger and more troubling issue of the currently prohibitive cost of clearing goods at the ports.

“The high exchange rate for import duty assessment is fueling the already high inflation, increasing production and operating costs for manufacturers and other businesses, worsening the cost-of-living crisis, and putting thousands of maritime sector jobs at risk,” he said.

Yusuf suggested the pegging of FX for paying Customs duty at N1,000 to the dollar to mitigate the current hardship.

Various inefficient practices also contribute to the worsening state of doing business in the ports. THEWILL learnt that a fault that occurred in the server used in the clearing process ecently, led to accumulation of demurrage at the Lagos ports thereby further swelling the cost of clearing goods.

According to inside sources, due to the server failure by the Senegalese IT firm, Webb Foutaine, over 1,600 containers  were trapped on a daily basis at Apapa Port, Tin Can Island Port and the rest  while economy loses N192 million daily.

Additionally, clearing agents and importers lament that they pay for the inefficiency of the IT firm in terms of rent and demurrage, noting that the problem has deeply hurt Customs operations across various commands.

This awkward development has forced the National Association of Government Approved Freight Forwarders (NAGAFF) to cry out and escalate its concerns over the recurrent server failures plaguing the Nigeria Customs Service.

In addition to these challenges, importers and clearing agents have multiple checkpoints to cross before arriving at the destination of the imported cargo.

“The checkpoints are toll gates. Most of them are illegal but manned by security agents. This is part of the corruption that has compounded Nigeria’s notorious poor business environment, with the escalating costs passed to the final consumer”, a regular importer, James Ukah, said.

About the Author

Sam Diala

Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

 
Sam Diala, THEWILLhttps://thewillnews.com
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

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