Post by Trade facilitator on Mar 13, 2014 21:50:08 GMT 1
In this report, Crusoe Osagie analyses the Export Expansion Grant (EEG) and stakeholders' anxiety over its possible termination
With basically one major export product, Nigeria's long term economic viability hangs on a balance, particularly when the country's singular export commodity, crude oil, is sold in the international market without any form of value addition.
This scary realisation has led various administrations to introduce different incentives to diversify the nation's economic base. One of such incentives is the Export Expansion Grant (EEG).
The EEG is primarily to incentivise non-oil exporters, whose annual export turnover hits a minimum of N5 million. The scheme targets helping exporters expand their volume and value of non-oil exports, diversify export markets and make them more competitive in international markets. It was established by the Export Incentives and Miscellaneous Provisions Act of 1986.
The package is administered by an inter-ministerial committee, which include the Federal Ministry of Finance, Central Bank of Nigeria (CBN), Nigerian Custom Service (NCS), Nigerian Export Promotion Council (NEPC) and the Manufacturers Association of Nigeria (MAN).
Faced with the unique challenges, which the real sector has to deal with such as epileptic power supply, terrible access roads and non-existent municipal water supply among others, the export promotion incentive is vital for the stimulation of export oriented activities that will lead to significant growth of the non-oil export sector.
The NEPC believes that the federal government is committed, in its efforts to bring about tremendous growth in non-oil exports and is resolved to enhance efficiency, transparency and accountability in the administration of the key incentive for non-oil export development. It notes that the scheme is a policy tool to further this objective.
But with the federal government now on the verge of ditching this policy, industrialists in the country are understandably jittery. Considering that a good number of these non-oil exporting companies predicated the success of their investments on the availability of the incentive, it is easy to understand the apprehension of real sector operators who are now crying to high heavens over the bleak fate of the policy.
An EEG Review or a Termination
The federal government last year disclosed that it was on the verge of another comprehensive review of the EEG, in order to plug the holes in the initiative and eliminate its inefficiencies.
NEPC had explained that the review of the scheme became expedient following the challenges encountered by stakeholders in the non-oil export sector and to cater for the present realities in the nation’s manufacturing sector.
The agency added that the scheme had been operational in its present form for five years and was no longer in tune with realities in the country.
Although government admits that through the scheme, the non-oil export sector has grown at double digits rate, compared to single digit growth rate of Nigeria’s Gross Domestic Product (GDP) in the last few years, it insists that to deal with some of its inadequacies, the inter-ministerial committee is reviewing the scheme to enhance its value addition to agricultural products in the country.
The Country Head of commodities trading company, Olam, Mukul Mathur, urged government to encourage companies involved in the processing and value-addition of products, by sustaining the EEG, to enhance companies' global competitiveness, which according to him, is the only way to drive the growth of the GDP from non-oil exports.
Citing some of the challenges encountered by manufacturers, Mathur he said: “from cost disadvantages, which include high cost of power and need to set up infrastructure privately; high finance cost and lack of long term funds; high transportation cost; high labour cost due to lack of skilled workers and low productivity; high cost of doing business and loss of preferential market access to the European Union, as well as the delay in accessing the now threatened EEG, the bottomline of many businesses is being virtually wiped out.”
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 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 confirm individual firms' exports proceeds before confirmation to the NEPC. This enabled fraudulent exporters to make spurious claims and enjoy undeserved benefits from the grant.”
The report further said the NEPC accepted photocopied forms for the processing of export claims, and that about N1billion worth of NDCC, a quasi cash negotiable instrument used to pay claimants, were not in the records of the NEPC.
According to the report, "22 exporters of a total of 211 reviewed had by last year received 75 per cent of all grants of the over N30 billion spent on the scheme. Five of the exporters received over N1billion each, while two of the five exporters had the same management and received about N6 billion, 20 per cent of all grants.
"One of the exporters that received over N2 billion had made a profit of N472 million over a four year period and exporters that received N1.1 billion had made only N54 million profits in aggregate for over four years.
Industrialists fret
Industrialists who produce primarily for export are now bracing up for tougher times ahead, as the federal government is believed to be set to scrap the EEG.
Having spotted serious inefficiency in the management of the EEG in the ongoing review of the scheme, the federal government is now more likely to end the incentive for good, unless it is able to device a method that will enable the grant return economic value that is commensurate to the huge amounts being conceded to exporters under the scheme.
Coordinating Minister of the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala, said while over N200 billion worth of Negotiable Duty Credit Certificate (NDCC) had been honoured by the federal government in the past around N82 billion was still outstanding.
Cocoa Processors Association of Nigeria (COPAN) has however warned that this decision, if taken by the government, would lead to the total demise of cocoa processing in Nigeria. Chairman of the processors association, Mr. Oladimeji Owofemi, noted that virtually all investment in the non-oil sector will be seriously threatened by the scrapping of the EEG and the goal of a diversified Nigerian economy would be unattainable.
"What is left of the Nigerian cocoa processing industry is well over a N100 billion investment. The figure was much higher than that until the harsh operating environment and the European Union's penalty for Nigeria's refusal to endorse the Economic Partnership Agreement (EPA) took a toll on the sector.
"If the EEG is terminated I can guarantee that the remaining 10 cocoa processing companies in the country, worth about N100 billion will be wiped out," the COPAN boss said.
Vice President of the Nigerian Association of Chambers of Commerce and Industry Mines and Agriculture (NACCIMA) Mr. Dele Oye in his response to the pending termination of the EEG said it was necessary for the federal government to assess the functionality of the policy but stressed that the review of the grant should not end up its termination rather it should make it sharper and more effective.
Okonjo-Iweala last week announced that it became necessary for the federal government to put the Export Expansion Grant (EEG) on hold in order to enable it review the entire process and ascertain its sustainability and effectiveness.
“We are restructuring the entire EEG process. It had become very unsustainable so we had to reform it. While we find that it has increased export in the country, the employments it has generated and the value addition it engendered could have been better,” she said.
Okonjo-Iweala maintained that until the EEG policy is completely reviewed and sent to the Federal Executive Council (FEC) for approval, it would be kept on hold.
“The scheme has not been scrapped by any means, but we will not move on with it until we see that its impact on revenue flow is sustainable,” she stressed.
She however pointed out that if the federal government is no longer able to carry on with the EEG, it will ensure that reasonable notice is given to manufacturers before it is effectively terminated.
The finance minister expressed satisfaction over the successful implementation of the sectoral waiver policy, which ensures that levy and duty waivers are not granted to companies on individual basis, rather to manufacturing sectors across board.
Executive Director of NEPC, Mr Segun Awolowo has warned that scrapping the EEG may kill a number of the surviving manufacturing industries in Nigeria, which have over the years, provided jobs and created wealth along their respective products value chain.
He pointed out that while there were contending issues regarding the schemes operation, exporters may have to brace-up for the challenges that are certain to come along, as the incentive cannot possibly have an open-ended implementation time frame.
Awolowo maintained that for the Scheme to be sustained, government would assess the successes and achievements recorded by beneficiaries over time, in terms of contribution to growth, progressive expansion of operations as well as job creation.
Managing Director of British American Tobacco Nigeria (BATN), Keith Gretton warned that there was need to exercise caution on decisions that have to do with the incentive scheme, as it had over the years, contributed significantly to the growth of various manufacturing companies.
He noted that though BATN was established in 2003 to cater for the local market and with the support of the EEG, it now exports to more than 14 countries, adding that with the expected investments in 2014 and 2015, it would provide more employments for Nigerians both directly and indirectly, through the small grower farmers’ scheme, along all its products value chains.
Food for thought
Although the plight of manufacturers and non-oil exporters is valid by every means, objective reasoning must be allowed to prevail in the EEG issue. In any economic system, resources must be allocated according to the measure of productivity. So that sectors of the economy, which are more productive, receive more resources than those that are less productive. Although in the case of a national economy, as opposed to a pure profit making enterprise, the imperative to promote development and social-economic egalitarianism, encourages the soft handling of some strict economic principles but it certainly must not be taken beyond the yield limit.
In the ongoing review of the policy therefore, the federal government must keep an eye on the socio-economic advancements that have resulted from the deployment of the grant since it was introduced.
How many going concerns have sprang up due to the EEG? How many jobs have been created and sustained? How much foreign exchange has the country earned on account of the export trading engendered by the incentive? These and several other pertinent questions have to be answered in the affirmative for the continued sustenance of the grant.
If the EEG has been reduced to another avenue through which government makes a share of the 'national cake' available to stakeholders in the polity, like the fuel subsidy, some segments of the amnesty programme and other national poverty alleviation exercises have become, then it must be terminated without delay, as resources should only flow in the direction of value creation.
Source: www.thisdaylive.com/articles/awaiting-the-outcome-of-the-export-grant-review/173429/
With basically one major export product, Nigeria's long term economic viability hangs on a balance, particularly when the country's singular export commodity, crude oil, is sold in the international market without any form of value addition.
This scary realisation has led various administrations to introduce different incentives to diversify the nation's economic base. One of such incentives is the Export Expansion Grant (EEG).
The EEG is primarily to incentivise non-oil exporters, whose annual export turnover hits a minimum of N5 million. The scheme targets helping exporters expand their volume and value of non-oil exports, diversify export markets and make them more competitive in international markets. It was established by the Export Incentives and Miscellaneous Provisions Act of 1986.
The package is administered by an inter-ministerial committee, which include the Federal Ministry of Finance, Central Bank of Nigeria (CBN), Nigerian Custom Service (NCS), Nigerian Export Promotion Council (NEPC) and the Manufacturers Association of Nigeria (MAN).
Faced with the unique challenges, which the real sector has to deal with such as epileptic power supply, terrible access roads and non-existent municipal water supply among others, the export promotion incentive is vital for the stimulation of export oriented activities that will lead to significant growth of the non-oil export sector.
The NEPC believes that the federal government is committed, in its efforts to bring about tremendous growth in non-oil exports and is resolved to enhance efficiency, transparency and accountability in the administration of the key incentive for non-oil export development. It notes that the scheme is a policy tool to further this objective.
But with the federal government now on the verge of ditching this policy, industrialists in the country are understandably jittery. Considering that a good number of these non-oil exporting companies predicated the success of their investments on the availability of the incentive, it is easy to understand the apprehension of real sector operators who are now crying to high heavens over the bleak fate of the policy.
An EEG Review or a Termination
The federal government last year disclosed that it was on the verge of another comprehensive review of the EEG, in order to plug the holes in the initiative and eliminate its inefficiencies.
NEPC had explained that the review of the scheme became expedient following the challenges encountered by stakeholders in the non-oil export sector and to cater for the present realities in the nation’s manufacturing sector.
The agency added that the scheme had been operational in its present form for five years and was no longer in tune with realities in the country.
Although government admits that through the scheme, the non-oil export sector has grown at double digits rate, compared to single digit growth rate of Nigeria’s Gross Domestic Product (GDP) in the last few years, it insists that to deal with some of its inadequacies, the inter-ministerial committee is reviewing the scheme to enhance its value addition to agricultural products in the country.
The Country Head of commodities trading company, Olam, Mukul Mathur, urged government to encourage companies involved in the processing and value-addition of products, by sustaining the EEG, to enhance companies' global competitiveness, which according to him, is the only way to drive the growth of the GDP from non-oil exports.
Citing some of the challenges encountered by manufacturers, Mathur he said: “from cost disadvantages, which include high cost of power and need to set up infrastructure privately; high finance cost and lack of long term funds; high transportation cost; high labour cost due to lack of skilled workers and low productivity; high cost of doing business and loss of preferential market access to the European Union, as well as the delay in accessing the now threatened EEG, the bottomline of many businesses is being virtually wiped out.”
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 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 confirm individual firms' exports proceeds before confirmation to the NEPC. This enabled fraudulent exporters to make spurious claims and enjoy undeserved benefits from the grant.”
The report further said the NEPC accepted photocopied forms for the processing of export claims, and that about N1billion worth of NDCC, a quasi cash negotiable instrument used to pay claimants, were not in the records of the NEPC.
According to the report, "22 exporters of a total of 211 reviewed had by last year received 75 per cent of all grants of the over N30 billion spent on the scheme. Five of the exporters received over N1billion each, while two of the five exporters had the same management and received about N6 billion, 20 per cent of all grants.
"One of the exporters that received over N2 billion had made a profit of N472 million over a four year period and exporters that received N1.1 billion had made only N54 million profits in aggregate for over four years.
Industrialists fret
Industrialists who produce primarily for export are now bracing up for tougher times ahead, as the federal government is believed to be set to scrap the EEG.
Having spotted serious inefficiency in the management of the EEG in the ongoing review of the scheme, the federal government is now more likely to end the incentive for good, unless it is able to device a method that will enable the grant return economic value that is commensurate to the huge amounts being conceded to exporters under the scheme.
Coordinating Minister of the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala, said while over N200 billion worth of Negotiable Duty Credit Certificate (NDCC) had been honoured by the federal government in the past around N82 billion was still outstanding.
Cocoa Processors Association of Nigeria (COPAN) has however warned that this decision, if taken by the government, would lead to the total demise of cocoa processing in Nigeria. Chairman of the processors association, Mr. Oladimeji Owofemi, noted that virtually all investment in the non-oil sector will be seriously threatened by the scrapping of the EEG and the goal of a diversified Nigerian economy would be unattainable.
"What is left of the Nigerian cocoa processing industry is well over a N100 billion investment. The figure was much higher than that until the harsh operating environment and the European Union's penalty for Nigeria's refusal to endorse the Economic Partnership Agreement (EPA) took a toll on the sector.
"If the EEG is terminated I can guarantee that the remaining 10 cocoa processing companies in the country, worth about N100 billion will be wiped out," the COPAN boss said.
Vice President of the Nigerian Association of Chambers of Commerce and Industry Mines and Agriculture (NACCIMA) Mr. Dele Oye in his response to the pending termination of the EEG said it was necessary for the federal government to assess the functionality of the policy but stressed that the review of the grant should not end up its termination rather it should make it sharper and more effective.
Okonjo-Iweala last week announced that it became necessary for the federal government to put the Export Expansion Grant (EEG) on hold in order to enable it review the entire process and ascertain its sustainability and effectiveness.
“We are restructuring the entire EEG process. It had become very unsustainable so we had to reform it. While we find that it has increased export in the country, the employments it has generated and the value addition it engendered could have been better,” she said.
Okonjo-Iweala maintained that until the EEG policy is completely reviewed and sent to the Federal Executive Council (FEC) for approval, it would be kept on hold.
“The scheme has not been scrapped by any means, but we will not move on with it until we see that its impact on revenue flow is sustainable,” she stressed.
She however pointed out that if the federal government is no longer able to carry on with the EEG, it will ensure that reasonable notice is given to manufacturers before it is effectively terminated.
The finance minister expressed satisfaction over the successful implementation of the sectoral waiver policy, which ensures that levy and duty waivers are not granted to companies on individual basis, rather to manufacturing sectors across board.
Executive Director of NEPC, Mr Segun Awolowo has warned that scrapping the EEG may kill a number of the surviving manufacturing industries in Nigeria, which have over the years, provided jobs and created wealth along their respective products value chain.
He pointed out that while there were contending issues regarding the schemes operation, exporters may have to brace-up for the challenges that are certain to come along, as the incentive cannot possibly have an open-ended implementation time frame.
Awolowo maintained that for the Scheme to be sustained, government would assess the successes and achievements recorded by beneficiaries over time, in terms of contribution to growth, progressive expansion of operations as well as job creation.
Managing Director of British American Tobacco Nigeria (BATN), Keith Gretton warned that there was need to exercise caution on decisions that have to do with the incentive scheme, as it had over the years, contributed significantly to the growth of various manufacturing companies.
He noted that though BATN was established in 2003 to cater for the local market and with the support of the EEG, it now exports to more than 14 countries, adding that with the expected investments in 2014 and 2015, it would provide more employments for Nigerians both directly and indirectly, through the small grower farmers’ scheme, along all its products value chains.
Food for thought
Although the plight of manufacturers and non-oil exporters is valid by every means, objective reasoning must be allowed to prevail in the EEG issue. In any economic system, resources must be allocated according to the measure of productivity. So that sectors of the economy, which are more productive, receive more resources than those that are less productive. Although in the case of a national economy, as opposed to a pure profit making enterprise, the imperative to promote development and social-economic egalitarianism, encourages the soft handling of some strict economic principles but it certainly must not be taken beyond the yield limit.
In the ongoing review of the policy therefore, the federal government must keep an eye on the socio-economic advancements that have resulted from the deployment of the grant since it was introduced.
How many going concerns have sprang up due to the EEG? How many jobs have been created and sustained? How much foreign exchange has the country earned on account of the export trading engendered by the incentive? These and several other pertinent questions have to be answered in the affirmative for the continued sustenance of the grant.
If the EEG has been reduced to another avenue through which government makes a share of the 'national cake' available to stakeholders in the polity, like the fuel subsidy, some segments of the amnesty programme and other national poverty alleviation exercises have become, then it must be terminated without delay, as resources should only flow in the direction of value creation.
Source: www.thisdaylive.com/articles/awaiting-the-outcome-of-the-export-grant-review/173429/
