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Improving non-oil export with EEG scheme review

By Femi Adekoya
19 May 2015   |   2:54 am
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…

OKONJO-IWEALA-OKFor 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 outgoing administration failing to recommence the suspended scheme as promised, there are recurring questions on government’s commitment to industrial rebirth with the EEG scenario, especially at a time when economic diversification is essential. FEMI ADEKOYA writes.

In today’s 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 role—to clear the barriers to expansion, by critically examining every policy to ensure it doesn’t act as a brake on recovery.

Though, sustainable, long-term growth – in manufacturing or elsewhere – 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 government’s 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 commodities’ 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 Nigeria’s 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 Nigeria’s 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 Nigeria’s 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 Nigeria’s first step towards actualising a significant global market share was to produce more cocoa.

“We 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,” he said.

“We 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,” he said.

For instance, stakeholders within the cocoa industry, under the aegis of Cocoa Processors Association of Nigeria (COPAN) have decried government’s inability to encourage processors through the poor implementation of protectionist policies, 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.

For stakeholders in the agro-allied sector, there are complaints concerning government’s apathy towards reviving the EEG scheme.

Indeed, members of the sector who are exporters, have relied on the policy renewal announced by the Federal Government , in the form of EEG and NDCC to plan their investments and make their pricing decisions.

National Chairman of Federation of Agricultural Commodity Association of Nigeria, FACAN, Victor Iyama said: “We fail to understand how on one hand the Federal Government is regularly paying subsidy on fuel together with interest and exchange rate adjustments while on the other hand it is refusing to allow utilization of NDCCs which have been signed by the Finance Ministry and disbursed to the exporters as a “legal tender”. It appears that because our members have been patient and they are being subjected to continued neglect.

“The EEG Policy Review which has been in the works since the commencement of this administration is yet to be completed. We believe that non-oil exports is a critical issue at this juncture for this country. We urge you to kindly ensure that appropriate details are shared with the transition committee so that the incoming administration would be assisted to complete this process at the soonest.

“Our prayer is for the Federal Government o treat EEG claims with same seriousness as other subsidy payments like fuel, fertilizer etc , as non-oil exporters should not be subjected to an inferior treatment; approve and release the EEG claim files pending for Finance Ministry approval for over a year; announce a set schedule for redemption of NDCCs, perhaps 5% of total outstanding NDCCs each month so that exporters can plan and organize their cash flow and business operations; advise the NEPC to continue with processing of EEG claims submitted to them which are pending for processing”.

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 company’s 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.

“Though the profit is still marginal because of the exchange rate and other factors, like government’s 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.”

“But 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,” she said.

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 key—export enterprise finance guarantees, working capital, bond support and foreign exchange credit support – to help more industries expand their trading horizons.