Foreign exchange for importers is an important part of international trade because many goods purchased by Nigerian businesses are priced in foreign currencies. An importer may need US dollars, Chinese yuan, euros or pounds to pay an overseas supplier, while most sales and operating expenses are in naira.
The exchange rate used for a transaction can therefore affect the purchase price, landed cost, customs calculations and eventual profit margin.
Why Foreign Exchange Matters to Importers
An importer can agree to buy goods at a fixed foreign-currency price but still experience a change in the naira cost.
For example, a business importing goods worth $10,000 will need more naira if the naira weakens against the dollar before the payment is made.
This means importers should consider foreign exchange when preparing a procurement budget instead of calculating profitability from the supplier’s price alone.
How Importers Obtain Foreign Currency
Businesses requiring foreign currency for legitimate import transactions may work through authorised financial institutions and applicable foreign-exchange procedures.
Nigeria’s foreign-exchange framework has undergone significant reforms, including the move toward a more market-driven foreign-exchange market. The Central Bank of Nigeria’s current materials refer to the Nigerian Foreign Exchange Market and its foreign-exchange framework. (Central Bank of Nigeria)
Importers should confirm the current requirements with their authorised dealer bank before arranging a transaction, particularly because foreign-exchange rules and procedures can change.
Form M and Foreign Exchange
Foreign exchange and import documentation are closely connected.
The Nigeria Customs Service states that Form M registration is mandatory for importing goods into Nigeria, whether or not foreign exchange is involved. The process is handled through an Authorised Dealer Bank. (Nigeria Customs Service)
Importers should therefore ensure that information relating to the supplier, goods, quantities, values, freight and other transaction details is accurate and consistent across the relevant documents.
Calculating the FX Cost of an Import
Before paying a supplier, an importer should calculate the expected total cost of the transaction.
This can include:
- Foreign-currency purchase price
- Applicable exchange rate
- International freight
- Insurance
- Customs duties and taxes
- Port and terminal charges
- Clearing expenses
- Inland transportation
- Warehousing and delivery
For example, a $20,000 order should not be assessed only by converting $20,000 into naira. The importer needs to consider the other costs required to bring the goods from the supplier to the final destination.
Customs Exchange Rates
The exchange rate used for paying an overseas supplier and the customs reference rate used for assessing an import are not necessarily the same thing.
The Nigeria Customs Service maintains a reference exchange-rate system for customs transactions and publishes rates for currencies including the US dollar, Chinese yuan, euro and pound sterling. (Nigeria Customs Service)
Importers should therefore use the applicable customs rules when estimating duties rather than assuming that their supplier-payment exchange rate will automatically determine customs charges.
Managing Foreign Exchange Risk
Exchange-rate movements can change an importer’s expected profit between the time an order is negotiated and the time payment is completed.
Businesses can manage this exposure by:
- Getting a current FX quote before budgeting.
- Allowing room for exchange-rate movements.
- Confirming payment deadlines with suppliers.
- Calculating landed cost before placing large orders.
- Reviewing selling prices against replacement costs.
- Avoiding unnecessary delays between procurement and payment.
- Keeping clear records of the exchange rate used for each shipment.
For larger transactions, businesses can also discuss appropriate foreign-exchange risk-management options with qualified financial institutions.
Foreign Exchange for China Imports
Many Nigerian businesses source products from China, where suppliers may quote prices in US dollars or Chinese yuan.
An importer should confirm the currency of the quotation before negotiating the final purchase price. A supplier offering a lower price in one currency is not automatically cheaper once the exchange rate and complete landed cost are considered.
For regular China-Nigeria imports, monitoring both supplier prices and currency movements can help businesses plan replenishment more accurately.
Foreign Exchange and Import Profit Margins
FX changes can have a direct effect on margins.
Suppose an importer budgets a shipment using one exchange rate and pays the supplier at a significantly different rate. If the selling price was fixed before the change, the additional naira cost may come directly out of the expected profit.
This is why import businesses should regularly review product pricing, especially when inventory has to be replaced using foreign currency.
How Travo.ng Can Help With Import Logistics
Travo.ng can support the logistics side of international imports, including freight coordination, cargo movement, transportation and delivery planning.
Once an importer has arranged the purchase and foreign-exchange side of the transaction, the next consideration is getting the goods from the supplier to Nigeria and eventually to the final warehouse, shop or customer.
Connecting procurement, foreign-exchange planning and logistics can give businesses a clearer view of their expected landed cost before committing to an order.
Plan Foreign Exchange Before Ordering
Foreign exchange should be considered before an import order is confirmed, not after the goods have already shipped.
Importers should know the currency of the transaction, understand the applicable banking and customs requirements, estimate the landed cost and allow for possible changes in the exchange rate.
A disciplined FX and import planning process can help Nigerian businesses make better purchasing decisions and avoid discovering that a seemingly profitable shipment has become too expensive after the currency cost is included.
