Stakeholders suggest revival of export expansion grant to stimulate non oil earnings in 2016
The dwindling fortunes of oil resulting from its plummeting price in the global market has informed Nigeria’s efforts at reworking its economy, with special focus on non-oil sector, where manufacturers hold the ace. In Nigeria, the export of raw materials is high with little value added.

The dwindling fortunes of oil resulting from its plummeting price in the global market has informed Nigeria’s efforts at reworking its economy, with special focus on non-oil sector, where manufacturers hold the ace. In Nigeria, the export of raw materials is high with little value added.

Under the new economic dispensation, the manufacturing sector has a lot of opportunities for growth and to become relevant in the global value chain.

This, however, depends largely on enabling environment and encouragement to enable them fill the gaps being created by the continued slide in the price of crude oil.

Globally, the production sector enjoys special incentives, either in the form of easy access to fund at low interest rate, tax holiday or other fiscal measures. These incentives are aimed at promoting competitiveness in the global market.

Nigeria had attempted to toe that line in 2005, with the introduction of Export Expansion Grant (EEG), a post-shipment incentive designed to assist exporters increase the value and volume of their exports, diversify their export markets and enhance their global competitiveness, despite the high cost of production, due to infrastructural deficiencies.

The essence of the scheme is to subsidise export from Nigeria. The subsidy came in the form of transaction certificate, the Negotiable Duty Credit Certificate (NDCC), which had monetary value for the clearance of imported raw materials by manufacturers of non-oil items for export.

The certificates issued by the Nigeria Export Promotion Council, through direct supervision of the Ministries of Finance, Trade and Industries became a legal tender recognised by the Nigeria Customs Service (NCS) for the clearance of imported raw material by manufacturers

But to the bewilderment of non-oil exporters, two years ago, the NCS stopped the acceptance of the certificates, as legal tender for clearance of imported raw materials at the nation’s gateways. This followed announcement by the government that the scheme had been suspended, due to abuses by some of the beneficiaries.

A number of export-oriented companies have closed down in the last two years following the Federal Government’s continued suspension of the EEG scheme.
Exporters, who spoke on the matter during the week, said unless the scheme is revived and factored into the new economic order in Nigeria, it might be difficult for the economy to move away from its foreign exchange crisis and persistent job losses.
They said many factories have already closed down because many of them had obligation tied to the NDCCs, while others had used the Certificates as collateral for loans from banks and other sources.

The Chairman, Export Group of Manufacturers Association of Nigeria (MAN), Mr. Tunde Oyelola, described the suspension of the EEG programme as an ill-wind that blew across the country’s manufacturing sector.

He said earnings from non-oil export would have cushioned the effect of free fall of oil-price in Nigeria, if government had not suspended the incentive that would have by now made Nigeria a leading non-oil exporter in Africa or at least within the Economic Community of West African States (ECOWAS).

“The Federal Government introduced the Export Expansion Grant (EEG) scheme to encourage non-oil exports as an alternative source of revenue and to reduce our dependency on petroleum and related products. The scheme came into effect under the Export (incentives and Miscellaneous Provisions) Act Cap 118 of 1986 (as amended by the Act No. 65 of 1992). The objective of the scheme is to provide exporters of fully manufactured, semi-manufactured and agricultural products post shipment incentives in order to increase non-oil export, diversify their export markets and ensure global competitiveness.

“Since January, 2014 the non-acceptance of the Negotiable Duty Credit Certificate (NDCC) by the Nigeria Customs Service and several stoppages of the scheme has seriously affected non-oil exporters in the sector and has also resulted into a backlog of unpaid Export Expansion Grant (EEG) and Unutilised Negotiable Duty Credit Certificate (NDCC). ”The suspension of EEG is a very big problem. Globally, incentives are given to non-oil exports for the manufacturing sector to thrive. The economy will also boom when the manufacturing and export are well grounded. In Nigeria, the only incentive for non-oil export is the suspended EEG and we had seven interruptions between 2008, when it was introduced to the time it was discontinued, to create a huge backlog”

He said the EEG is not a cash incentive given to exporters and manufacturers, but a kind of relief that waives Customs duty payment on raw materials imported by manufacturers of export commodities.

“The government is not giving manufacturers money with the EEG, but a certificate. So, if you want to import raw materials, you will use it to pay customs duty. Some exporters have been waiting for the incentive since 2007. Many companies in the country, especially those in Kano, have closed shop because they invested to expand their companies, thinking the incentive would continue. They can no longer produce, as the certificates are no longer recognised by the banks for collateral. The EEG is an investment; you put money into a business to get more money. The incentive was never a waste.”

According to Oyelola, the current fall in oil price is a “blessing in disguise.” He said the EEG incentive was a little compared with theft that is going on in the oil and gas sector.

He explained that last year; exports from Nigeria represented only 12.85 per cent of total exports in the ECOWAS sub-region, even though 70 per cent of manufacturers in the region are in Nigeria.
“So, if we double our effort and increase our export to 40 per cent, you can imagine the foreign exchange that Nigeria will earn. We have to change our policy and do more of economic diplomacy, so that all our foreign aids are converted to goods and services instead of cash. By so doing, we can invest in Nigeria made goods and services for export. The revenue accruing to the country from non-oil exports is dwindling.” he said.

In 2003, government earned $500m from non-oil export, but same went up to $2.9b in 2013, when government was active with EEG. It was reduced to $2.7b in 2014 with further reduction in 2015, although the figure is not officially released.

Oyelola said NDCC served as collateral to beneficiaries for loans, adding that over 100 manufacturers now carry around N109b worth of the certificates, which are no longer accepted either by the Nigeria Customs Service for duty free import or deposited in banks as collateral.

To him, the claim by the government that some exporters abused the programme is not cogent enough, as not all manufacturers were guilty of that offence.

On the advantage of the suspended EEG scheme, he said, “it allowed people to have official export because most people are smuggling some of the manufactured goods out of the country. These goods are not documented. Having documentations enables Nigeria to have complete records of all transactions. For instance, Nigeria is the producer of best quality Shea butter in the world. But producers in Niger State now prefer to smuggle the commodity to Ghana, where they are eventually exported to Europe and other parts of the world. They do this to make more money, and Ghana is taking manufacturing credit. That is what the EEG suspension has done to Nigeria,” he lamented.

He, therefore, appealed to the government to consider the lift of the EEG suspension to allow manufacturers make use of N109 unutilised certificates, besides another N38.55b worth of certificates that are awaiting approval.

Dr. Madu Obiorah, Chairman, Export Group of the Lagos Chamber of Commerce and Industry (LCCI) said the EEG was the only surviving incentive left for exporters, adding that its suspension has affected genuine businesses.

“At the inception of Structural Adjustment Programme (SAP), 12 incentives were created, including the export development fund, which is to assist people coming into export to off-set initial expenses, thereby increasing volume of export of made in Nigeria goods, as well as encouraging growth. But the only incentive that survived was the EEG, which has been suspended, making business difficult. In other parts of the world, such as Australia, there are baskets of incentives, but the only one we have here has been suspended.”

He described the suspension of the EEG as “throwing away the baby with the bathwater,” because the suspension is crippling business for genuine exporters.

On the reason for its suspension, he said, “Government’s complaint is that it was being abused. There is nothing that has not been abused in this country, even oil subsidy was abused, but that shouldn’t affect genuine businesses. It is about tightening the noose to ensure strict adherence. Companies that have signed contracts are stranded, even banks. The incentive is not cash based; exporters get certificates, which were sold midway when the bill was suspended, so people are struggling with it. Even the Customs were not treating holders of the certificate well because they were not part of their revenue.

“Exporters need incentives. We are sure that when this happens, forex will be repatriated back from exports. We must look at our incentive schemes and tighten them to reduce abuse. Besides, only few people abuse it. Incentives will drive people to export. No commercial attaché desk of expatriates is functional. We should be generating market from those places and earning forex. There are lots of activities in agriculture, but we are not earning enough foreign exchange from there as we used to.”

The Chairman, Tanners Council of Nigeria, the body of leather producers, Lawan Sule Garo, said the EEG suspension has made operators in the sub-sector to retrench about 60 percent of their workers.

The Kano based leather manufacturer said 20 leather companies in Kano are still in operation despite the policy summersault, although at very low capacity.

“In Kano alone, we have 20 leather producing companies that can no longer produce at full capacity. Many other companies outside Kano have closed down because of the suspension of the incentive.

The essence of the EEG is to enable us expand our export base. To do that, a lot of us borrowed from banks to buy equipment, including machineries, chemicals and other things to enhance our production capacity and also to accelerate exports.

Many other things in our operations were tied to the EEG, the suspension of which is really affecting us. Many of our members have with them several millions worth of certificates that are not being accepted by the customs, so we have sacked about 5,000 workers in our own group alone since the suspension.”

According to Garo, while leather manufacturers were still trying to cope with the policy summersault, and to compete favourably at the world’s leather market, the Central Bank of Nigeria (CBN) came up with another anti-manufacturers policy prohibiting the use of export proceeds.

“The fiscal policy of the CBN which says export proceeds cannot be used by exporters is another problem. Government should give us free hand to use our export proceeds. They should also lift the suspension of EEG because it is loosing so much revenue from official exports of goods,” he pleaded.