The free fall of naira to dollar has really affected importation and exportation budget and contributed to the sharp increase in commodities in the Nigerian market.
The naira devaluation crisis can be traced back to the massive crash in oil price in 2015 and shocking discovery that there’s no cash in the nation’s reserve.
What are the consequences of the Naira Devaluation?
- Abandoned Cargoes: The instability in the exchange rate has caused importers to stay away from importation and their imported cargoes have been abandoned at the port.
- Banks Stop Lending Money To Importers: Commercial banks have equally stopped lending money to potential businessmen. This is because most of the importers borrowed money from the banks. Before collecting their Bill of Lading they must make the payment, but what is happening now is that, with the exchange rate, they are finding it difficult to get the balance and pay back in order to collect the papers and clear their goods. And the banks stops lending money to them, it results in congestion at the shipping ports.
- High Exchange Rate: As at the time of writing this blog post, the naira vs dollar has shot up to N400 naira! The US dollar is mostly used by Nigerian importers to purchase commodities, make payments for freight to airline and shipping companies. Therefore, the budget that was meant to buy one hundred gadgets can hardly buy twenty items. This has caused the amount of capital that is required for import/export to increase.
To what extent can early planned budgeting help Nigerian importers and exporters to reduce the effect of this crisis?
Here are three ways:
- SCALE OF PREFERENCE: Select items based on preference and return on investment (ROI), not on availability of things to buy. As an importer/exporter, you should have it at the back of your mind that every item on the parcel must count in terms of financial remuneration in order to recoup every extra naira spent on freight and related expenditure.
- WEIGHT OF PARCEL: Unnecessary shopping should be minimized to the most reasonable extent and shopping for commercial purpose should be of utmost importance. So that all required articles are gathered at once in order to consolidate parcels and prevent the extra charge incurred during importation/exportation of little consignments. This is so because importation/exportation freight rates for larger quantities tend to reduce costs as compared to smaller parcels.
- ASSURANCE OF MARKET: Before importing or exporting, the business person must make sure that whatever commodity he or she wants to buy to resell is marketable at least. If he does not have a ready market, it might be very wasteful to buy large quantity. Even if he has already established market, he should buy only what he thinks he can resell within a reasonable time instead of gathering expensive goods only to hear that currency differences has been stabilized. It will be a great loss and the cargo company will not bear part of your brunt nor will your supplier. If your selling price goes up too high, your customers might source other alternatives.
What steps are you using to minimize your import and export budget? Share your ideas in the comments below.