Nigeria’s attempt to digitise trade through e-invoicing meets a brick wall

By Temitayo Lawal
Posted on Wednesday, 2 March 2022 16:02

Central Bank of Nigeria's logo is seen on the headquarters building in Abuja
Central Bank of Nigeria's logo is seen on the headquarters building in Abuja, Nigeria. REUTERS/Afolabi Sotunde

In an effort to bring more oversight to the country's imports and exports. the Central Bank of Nigeria (CBN) rolled out its flagship e-invoicing policy in January, only for it to be suspended by parliament in February.

In late January, Nigeria’s apex bank announced a new policy to manage imports and exports. The CBN’s guidelines require importers and exporters to send invoices electronically for authentication by authorised dealer banks on the Trade Monitoring System, Nigeria’s single-window portal.

The rules state that the e-invoice will be followed by an e-evaluation, which is basically a process to ascertain the accuracy of prices. If items are more than 2.5% above or below a window of prices, the transaction will be cancelled. As an example, if the CBN estimates that the unit price of a widget from South Korea is say $15,000, a company importing 20 of such item cannot import them at a price of more than $307,500, which is the price of the 20 widgets plus a 2.5% variance.

The CBN assured stakeholders and the public that the system will operate based on a “Global Price Verification Mechanism guided by a benchmark price”, which is a spot market price obtainable where the goods are traded.

Regulator requirements

Furthermore, all buyers or suppliers are also required to register on the dedicated electronic portal and pay an annual fee of $350.

Exemptions from the new policy include:

  • Individual invoices worth less than $10,000 (or its equivalent in another currency), except where the annual cumulative invoicing value of the supplier is equal to or above $500,000 (or its equivalent in another currency);
  • Import and export transactions made by the country’s security agencies;
  • Supplies to diplomatic and consular missions and UN-affiliated international agencies;
  • Donations to non-for-profit organisations by foreign governments or international organisations;
  • Goods directly supplied by a foreign government.

A real problem

O.S. Nnaji, director of the CBN’s trade and exchange department, says: “This new regulation is primarily aimed at achieving accurate value from import and export items in and out of Nigeria.”

A senior supply-chain executive who asked to remain anonymous tells The Africa Report that many importers and exporters exploit policy loopholes to round trip or get extra US dollars from the CBN. “The problem is really endemic and it is incentivised by the CBN. These companies need foreign exchange for their operations and to ensure that they get enough to prevent breakdown of their operations, they try to game the system.”

[…] while importers over-invoice for their products, exporters under-invoice.

He cites operations at a multinational where he once worked saying: “They had a ‘buying house’ in a Middle Eastern country owned by them. To the Nigerian authorities, this ‘buying house’ is the supplier, but in reality, it was only used to buy from the actual suppliers at the real prices and then sell to the Nigerian branch at inflated prices.”

If the company needs to import a thousand widgets costing $200, its ‘buying house’ could buy these items for $200,000 and sell them to the Nigerian branch at an inflated price, say, $500 each. That way, the company moves an extra $300,000 out of the system.

“It is the same thing with exporters,” the source says, “just that it is the other way round: while importers over-invoice for their products, exporters under-invoice.”

Good intentions, bad consequences

The source acknowledges that the government is right about addressing the problem, but he says it should do it in a way that will not affect legitimate businesses.

The Lagos Chamber of Commerce and Industry has commended the objectives of the new policy, but says the CBN did not give sufficient time for a proper transition. The body says the CBN should have instituted a pilot phase to identify and resolve bottlenecks. The CBN launched the e-invoicing system on 1 February, about 10 days after the guidelines were issued.

The Manufacturers Association of Nigeria (MAN) has also stated that while the policy is intended to curb malpractices, it could create bureaucracy and discourage local as well as foreign investors.

MAN director general Segun Ajayi-Kadir says this is “concerning” as the 2.5% ceiling will prevent exporters from getting higher prices for their exports. “What happens if some companies are able to negotiate better prices due to their scale of order and are able to get competitive lower prices?”

High costs of doing business

Centre for the Promotion of Private Enterprise CEO Muda Yusuf is of the opinion that the policy would do more harm than good and so should be scrapped.

He is worried about the high cost of trade that he estimates to be equivalent to about a 306% tariff – and how the CBN policy would worsen the trade process, which is hurt by “overlapping regulation, excessive documentation, weak application of technology, physical examination of cargo, extortion, inadequate cargo handling equipment, stifling bureaucracy, difficult transportation logistics, challenges of access to the ports and weak dispute resolution systems”.

A parallel-market premium of about 40% offers an incredible incentive for round-ripping, brokerage activities and all manner of abuse in the forex market.

The lower chamber of federal parliament has suspended the policy. Lawmakers questioned why the policy was rushed and invited CBN governor Godwin Emefiele for questioning.

CBN’s fiscal foray

A major criticism of the CBN under President Muhammadu Buhari is its regular involvement in the fiscal policy arena.

“Issues of import valuation and classification are statutory functions of the Nigeria Customs Service, with the finance ministry as the supervising organ. The decision of the CBN to undertake valuation and product price benchmarking is a duplication of this statutory responsibility of the Nigeria Customs Service. It will create an additional regulatory compliance burden and costs for the business community,” says Yusuf.

He also argues that the malpractices that the CBN is trying to curb are symptoms of the exchange-rate regime the CBN runs. It fixes the exchange rate and thus incentivises the parallel market.

“A parallel-market premium of about 40% offers an incredible incentive for round-ripping, brokerage activities and all manner of abuse in the forex market. It is thus better to address the causes rather than the symptoms of this abuse. A market-driven exchange rate will reduce and possibly eliminate these malpractices. Such a pricing framework will also reduce the distractions that the CBN would have to grapple with subsequently,” Yusuf says.

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