N1 trillion revenue: Customs’ worst performance in seven years

Customs CG Hameed Ali

By Lakinbofa Goodluck

The Nigerian Customs have been a major revenue earner for the federal government ever since the parastatal was created. This is why every government sets annual targets in hundreds of billions for the parastatal. It is arguably the highest earner for the government after oil and gas. The government’s income forecast in the annual budget is often significantly predicated on the revenue performance of the Customs, hence its strategic importance to the survival of the Nigerian economy. It is instructive to establish that the performance of the Customs also serves as an indicator for business activities in the ports and the prevalent economic situation in the nation by extension. In other words the higher the revenue by Customs the easier it is to assume booming economic situation in the country, and vice versa.

The media has been inundated with news of the landmark achievement by the Nigerian Customs in 2017 revenue generation. And in all fairness the recent milestone is commendable because the revenue surpasses the target set for the year. The NCS Public Relations Officer, Joseph Attah, announced at a news conference in Abuja on Thursday 21st December, 2017 that “NCS has recorded the highest revenue collection ever of N1, 012, 259, 006,779.74 with five more working days to the end of 2017. “This spectacular performance in revenue collection shows N241,685,276,289.74 over the N770,573,730,490 target for the year and well above the N898,673,857,431.07 collected in 2016 and despite the economic recession experienced earlier in the year, with low volume of imports and restriction placed on 41 items from accessing Forex.”

As expected the announcement has been saluted with celebration with supporters of the APC government couching it as another fruit of “change”. In actual fact the NCS PRO submitted that “the Comptroller-General of Customs (CGC), retired Col. Hameed Ali, undertook some strategic measures in terms of restructuring and repositioning the service for efficient service delivery which resulted in this historic revenue figure from the service this year.” This adulation infers that the latest achievement is a dividend of exemplary leadership. Yes, the N1trillion figure is a new achievement in the country and the Comptroller-General and his team must be commended for their effort. Whilst attaining that milestone may deserve some commendation, it should not qualify for celebration and the praise-singing. In essence generating N1trillion in 2017 is nothing to celebrate because in real terms the Nigeria Customs has actually generated far less than what was generated in the previous years. It is also important for us to take caution in celebrating because it creates the false impression that Nigerian ports are booming with activities and all is well with our economy. To prove this point requires an examination of the variables involved in Customs revenue collection.

Customs primarily generate revenue through the collection of duty on import and export, which also includes Value Added Tax (VAT). Customs charges are denominated in dollars and not naira. However, the duty can be paid in dollars or its naira equivalent. Whether Customs charges are paid in dollars or naira, ultimately the revenue generated and remitted by Customs will be calculated in Naira since it is the official currency of Nigeria. Having established that reality, the next fact to consider is the constancy and volatility of the two currencies involved. Whilst the dollar is constant against the naira, reverse is the case with naira to dollar. Between 2015 and 2017, naira has depreciated against the dollar more than 50 percent. This reality presupposes that if an importer is charged $20 duty on import in 2017 he will need about N6000 or more at an exchange rate of N305 to $1 CBN rate. The same $20 would have cost the importer about N3000 in 2015 at N150-$1. But the illusionary effect of this is that while patrons are still paying the same amount in dollar terms, Customs would actually earn more in naira because of the devaluation of the naira; a situation that would naturally create a false impression of more revenue for Customs. However, in real terms the more revenue is less in value because of many other economic factors especially inflation. Therefore Customs’ revenues are essentially in dollar terms. But the instability of exchange rate reflects on the revenue when converted to naira.

A historical analysis of Customs revenue is also required to further provide an appropriate understanding and juxtaposition with the intent to truly ascertain if we have made progress, remain stagnant or retrogressed in performance. In 2011, 2012, 2013, and 2015, Customs generated N741.8 billion, N850.8 billion, N833.4billion and N904 billion respectively. In those years the official naira to dollar exchange rates for the most part was 157, 158, 160, and 172 respectively. Since Customs charges are presented in dollars an appropriate evaluation of the revenue in this case will be in dollar terms. When the Customs revenue for the previous years are converted to dollars at the prevailing exchange rate in those years, the figures would be $4.7billion (2011), $5.3billion (2012), $5.2billion (2013), and $5.2billion (2015). Prior to the recent revenue by the Nigerian Customs, the highest ever generated was in 2014 when the revenue peaked at N977billion naira at an official exchange rate of N172 to $1. In dollar terms the Nigeria Customs generated $5.6 billion in 2014 being the highest ever.

The foregoing historical breakdown provides the necessary basis for assessing the latest figures from the parastatal. As stated earlier, the latest figures from Customs will be the highest ever generated in naira terms and that is an undisputable fact that must be applauded. However, as significant as the figure may appear it does not quite represent the historical capacity of the Nigerian Customs. Rather, the figures present a gloomy condition in the capacity of Customs to support the economy. At the current CBN exchange rate of N305-$1, the $1 trillion revenue when converted will be $3.2 billion, which represents the lowest generation from the parastatal since 2011. Since Customs rates are largely denominated in dollars, which is constant, then it means no progress has been made; rather the only movement that has been in the reverse.

The other point to take into consideration is the increasing inflation rate that has seen the purchasing value of the naira drop by nearly 100%. It is no surprise that the prices of goods have increased astronomically and in some cases doubled from what they were two years ago. If other economic indicators had remained constant with only the naira devalued and the economy driven by local production and consumption, the N1trillion revenue would have been positive on our economy.

The implication of this is that all is not well with the current state of the industry. Rather than celebrate $3.2 billion as the highest income generated we should been asking ourselves why the revenue of Customs has dropped by nearly 40% between 2014 and now. The answers to this abysmal performance are not far-fetched. The first is the exchange rate regime that made it difficult for many businessmen to access foreign currencies to execute their business plans. Closely related to this is the ban on importation of the 41 items by the CBN, which the Customs PRO also alluded to in his press briefing. Perhaps the most significant factor is the ban on road importation and the increase on duty on imported vehicles. For car dealers the outrageous increase on import duty is a disincentive for their business, which has ultimately translated into hike in the price of imported vehicles.

Owing to the recession and the attendant negative economic situation in the country, many cannot afford the imported vehicles; car dealers now have vehicles with no one to buy. To change this tide demands immediate review of the current policies of government. It is delusional to assume that Customs have performed creditably when the facts point to a cheerless situation. Let us face the reality and take the urgent steps required to change the face of business in the ports. As a matter of urgency the government must review the 70% increase on import duty because it has neither added value to ports business in any form nor has it aided local production. It is a primary reason for the abysmal performance in the Customs revenue for the year. As we approach the New Year our nation requires policies that will support business growth and create employment. Every negative policy of the government has huge potential of advancing the dangerous unemployment situation in the country. The government must be deliberate and resolute in turning the economy around starting with the Customs. Ultimately, a bad situation cannot be corrected if it is not appreciated. The first step to changing the current abysmal performance is to stop the narrative that Customs has generated the highest revenue in the history of the country. No, it has generated the least since the start of the current decade. 

Copyright 2017 Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.