Imperatives of revisiting the EEG scheme

FOR many economies, improving local production for global competitiveness is ultimately about the bottom line. In Nigeriaís case, improving this bottom line through foreign earnings accruable to the Federal Government in a period of unstable global oil prices is increasingly becoming a subject of priority. For serious economies, local incentives that will assist exporters of value-added products in managing their operational costs and ensuring maximal business profits as well as returns for government are developed and effectively managed. For value-chain drivers in the country, accessing the Export Expansion Grant (EEG) within the last two years after it was suspended for review remains elusive. With government failing to recommence the suspended scheme last month as promised, there are questions on governmentís commitment to industrial rebirth with the EEG scenario, especially at a time when economic diversification is essential. FEMI ADEKOYA writes.

NIGERIA has never been in short supply of initiatives and strategies that are capable of transforming the fortunes of its economy. Painfully, the will to conscientiously implement these inherently laudable schemes has, ever so often, been the bane and has prevented the endowed African giant from achieving her development potential.    

   For the non-oil sector, stakeholders have often described governmentís commitment to the sector as one often addressed without priority until recently when calls for a diversified economy became intensified.

   In todayís economy, it is believed that growth will come from private enterprises, from businesses, from industrial investing, designing, manufacturing, exporting and expanding frontiers. 

  To make this growth achievable, government has a roleóto clear the barriers to expansion, critically examining every policy to ensure it doesnít act as a brake on recovery.

   Though, sustainable, long-term growth – in manufacturing or elsewhere ñ is one that will not be achieved overnight, the need to encourage innovation and investment across a much wider range of industrial sectors has been brought to the fore in recent times.

   For instance, the practice of exporting raw agricultural produce has been described as one undermining industrial growth and a contradiction to governmentís commitment on revival of activities in the real sector.

   Although, common trade economics shows that it makes more business sense to invest in extraction than manufacturing, the resultant effect is a nation deeply entrenching the competitive advantage of other economies. This has further led to a situation where there is a competitive advantage in extraction of primary goods but not in the making of secondary goods. 

   To this end, manufacturers and stakeholders in the value-addition process have called on the federal government to revisit incentivised manufacturing to encourage investors in the value chain process.

   Recently, the Nigerian Export Promotion Council (NEPC), unveiled plans to recommence the suspended Export Expansion Grant (EEG), under a new regime from January 2015.

  The revival of the scheme, according to the Chief Executive officer of NEPC, Segun Awolowo, was scripted to promote value-addition industry especially in the agricultural sector.

   The suspension of the EEG scheme by government for almost two years has generated several criticisms from agro-processors and players in the value-addition sector, describing it as a disincentive and elixir to raw commoditiesí exportation.

  The Export Expansion Grant (EEG) until now remains the only functional incentive of all instruments introduced by government to encourage exporters of non-oil products immensely essential.

   The scheme was introduced as a form of buffer for those who export non-oil products from Nigeria so that they could be encouraged to expand their production base, add more value and foray into new markets. With the Grant, exporters are entitled to certain percentage of their turnover so that they could continue in business.

    The incentive was also introduced bearing in mind that Nigeriaís infrastructure and business climates are not particularly healthy for business.

  Indeed, manufacturers in Nigeria are more of local governments in their own rights because they have to get their own water, their own light, construct their own road and then face numerous government agencies after they might have finished production.

   Awolowo had noted that the EEG, which will take off in January 2015, has been designed to encourage exporters of raw materials to become local processors.

    With various commodities markets opening up for export, the ability of Nigerian exporters to exploit these markets hinges on their ability to compete effectively and profitably.

  For instance, with global demand for chocolate confectioneries experiencing a surge, propelled by the emerging markets of India and China, stakeholders in Nigeriaís cocoa sector have sought new synergies and strategies to get a significant share in the estimated $80 billion market.

  Similarly, textile and apparel manufacturers are also being encouraged to take advantage of business opportunities from the global market, which according to statistics, is expected to hit $850 billion this year.

   Chief of Party, NEXTT, Alf Monaghan, noted that it was time for the government and the private sector to pay more attention to the global market trends given Nigeriaís potential to be a global hub of cocoa products.

   Monaghan pointed out that Nigeria, currently the fourth largest cocoa producer in the world after Ivory Coast, Ghana and Indonesia is losing market due to factors including small farm size, demographics, productivity and age of farms.

   Awolowo had stressed that Nigeriaís first step towards actualising a significant global market share was to produce more cocoa.

   ìWe need to increase our production of cocoa and from there, make improvements in the value chain by increasing value addition. More factories should be established to produce made in Nigeria chocolate, while we drastically cut down on the export of raw cocoa,î he said.

       ìWe support the Nigerian Industrial Revolution Plan (NIRP) and with the proposed Cocoa Corporation Board which we are all in support of, that will make it easier for stakeholders to come together and share information on cocoa. While the Board will be funded by the government, the private sector will be allowed to drive its activities,î he said.

    For instance, stakeholders within the cocoa industry, under the aegis of Cocoa Processors Association of Nigeria (COPAN) have decried governmentís inability to encorage processors through the poor implementation of protectionist polices, especially the Export Expansion Grant (EEG).

   According to them, exporters of raw cocoa beans are receiving undue government patronage at the expense of the economy, while creating undue competition against companies in the value-addition process.

  Chairman of the association, Dimeji Owofemi noted that value addition to raw cocoa has been decreasing due to dearth of protectionist policy for such effort while export of raw beans continues unabated.

   According to him, it will be enough if the government stops giving incentives to those exporting the raw material because the raw material is a core element.

   Hitherto, the Managing Director of Sam & Sara Garment Factory, Folake Oyemade, explained that the ineffective implementation of the EEG scheme has undermined the companyís export potential.

   According to her, Sam and Sara is one of the few companies in Africa that took advantage of the African Growth and Opportunity Act (AGOA).

   She noted that tonnes of uniforms are being exported from Nigeria to America under its brand name, Impreza.

   ìThough the profit is still marginal because of the exchange rate and other factors, like governmentís inadequate protectionist policy through the Export Expansion Grant (EEG) scheme, we are optimistic that the trade condition will improve, more so if the Nigerian government recognizes the benefits of building local industry using the instrument of friendly taxation.î

   ìBut for the Bank of Industry (BOI) that offers a reasonable interest on loan and encourages local entrepreneurs, the interest rate in commercial banks in Nigeria is outrageous,î she said.

In 2005, the EEG was suspended and reviewed by leading accounting firm Price Waterhouse Coopers (PWC) during which period various beneficiary companies who had built the profitability of their ventures around the government incentive wailed as their business collapsed when they could no longer enjoy the credits that the EEG earlier guaranteed.

  The interim report of the 2005 Price WaterHouseCoopers review of the EEG, on the running operation review of the incentive, set up by the federal government to verify claims made by exporters, had allegedly indicted the Central Bank of Nigeria (CBN), Nigerian Export Promotion Council (NEPC) and the Customs for conniving with exporters to defraud the federal government.

   According to the interim report at the time, “the Nigeria Customs did not really confirm the volume or price of the export for which claims were made. In the case of the CBN, the report said it did not directly vouch individual exports proceeds before confirmation to the NEPC. This enabled fraudulent exporters to make spurious claims from the Export Expansion Grant.î

  It is believed that if emerging economies like Nigeria continue to grow at the pace that they have in recent times, hundreds of millions of new middle-class consumers will be created, providing an expanding market for high value goods and services. Hence, incentivised schemes are keyóexport enterprise finance guarantees, working capital, bond support and foreign exchange credit support – to help more industries expand their trading horizons.