Post by Trade facilitator on Sept 12, 2013 11:24:49 GMT 1
The essence of improving local production for global competitiveness is ultimately about the bottom line. As such, most economies develop 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. To this end, the Export Expansion Grant (EEG), a post-shipment export incentive scheme designed to encourage non-oil exporters whose minimum yearly export turnover is N5 million, and also to expand their volume and value of non-oil exports, diversify export markets and make them more competitive in international markets, was established by the Export (Incentives & Miscellaneous Provisions) Act of 1986. As laudable as the scheme appears, there seems to be bottlenecks with its implementation, especially for export of value-added products. With calls for economic diversification and the need to add value to export commodities, government’s commitment to industrial rebirth is however put to question with the EEG scenario. FEMI ADEKOYA writes.
NIGERIA is undoubtedly a nation blessed with abundant human and natural resources. Today, the country has more resources than most emerging nations of the World such as Korea, Malaysia, Singapore and Brazil. Despite the avalanche of resources at its disposal, poverty in the midst of abundance is a popular paradox characterizing the Nigerian economy.
In today’s economy, it is believed that growth will come from private enterprise, from businesses, from industry investing, designing, manufacturing, exporting and expanding frontiers. To make this growth achievable, government has a role—to clear the barriers to expansion, 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 we 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 current strategy 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 provide incentives to encourage investors in the value chain process.
According to the Nigerian Export Promotion Council (NEPC), the EEG was designed as an incentive required for the stimulation of export-oriented activities that will lead to significant growth of the non-oil export sector.
Although, the EEG has aided to some extent, the growth in non-oil exports; employment generation; diversification into new markets, and encouraging exports to move through official channels as growth drivers. It has, however, become a source of concern to stakeholders who strongly believe it is not being properly managed.
To the stakeholders, some of the scheme’s drawbacks include, a disbursement exercise that involves cumbersome process spread over 12-18 months; Policy instability and discontinuity that nearly crippled the non-oil export sector, as well as major policy disruptions between the period of 2005 and 2011.
The Federal Government, seeking to halt an outpouring of allegations of corruption surrounding the EEG, had put the review of the scheme as priority at its March Federal Executive Council (FEC) meeting.
The chairperson of the NEPC, Mrs Grace Clark, had explained to journalists during the visit of its officials to Olam Nigeria, in Lagos earlier in the year 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.
She added that the current EEG scheme has been operational for five years and not in tune with present realities in the country.
She had said: “The NEPC is aware of some of the challenges being encountered by manufacturers. With the EEG, the non-oil export sector has grown at double digits growth rate compared to single digit growth rate of Nigeria’s Gross Domestic Product (GDP) in the last few years. To cater for some of the inadequacies, the inter-ministerial committee is presently reviewing the scheme to enhance value addition of agricultural products in the country.”
Clark however noted that applications for processing of agricultural products are currently under review and would be addressed in due course.
Five months after the move to review the scheme, stakeholders continue to await the announcement and implementation of the revised scheme.
For instance, stakeholders within the cocoa industry, under the aegis of Cocoa Processors Association of Nigeria (COPAN) have decried government’s deliberate action to frustrate activities of the 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.
He explained saying: “For instance, in our industry, we don’t need any other raw material; it’s cocoa, 99 per cent. The rest of the items in the finished product – milk and sugar – are less than one per cent in value. So, the government needs to stop giving incentives to us on one hand and taking it back on the other hand by giving incentives to those who have external factories because the incentive being giving on raw beans export is incentive to external factories.
“Those external factories are being protected by their own countries through the imposition of taxes on the cocoa we have added value to. So, you say you are giving us 25 per cent EEG on the invoice value but you give 10 per cent to the other factory outside the country that you shouldn’t be protecting and then his own country again protects him by charging us another seven per cent in taxes. So, it is 25 minus 17 to start with.
“Now, what is left will not be able to take care of what the 25 per cent was originally meant to take care of. It is meant to take care of the energy cost that they (foreign factories) don’t suffer; the borrowing cost that they don’t suffer; and the roads and other amenities like water that they don’t suffer that are given in their economy. So, you have 25 or, even, say 30 minus 17. That is 13 per cent. Can that take care of production expenses? Or why did you arrive at 25/30 per cent in the first place? So, don’t give it on one hand and take it back on the other. Rather, impose taxes on anybody who wants to starve the local industry of the raw material that is most needed.
Former Chairman of the association, Akin Olusuyi, stated that despite the production capacity of the sector, there is an under-utilisation of made-in-Nigeria processed cocoa.
“Nigeria needs to identify where its interest lies. For each tonne of raw cocoa bean being exported, two jobs are being exported. Exporting agricultural products depresses the nation’s commerce. Government cannot keep paying grants to exporters of raw products when the nation’s processing capacity can be enhanced. Local producers of value-added goods cannot survive this undue competition. The Customs Service no longer accept the Negotiable Duty Credit Certificates (NDCC) given to us. There are so many power interplays in the acceptance of the instrument.
“Aside getting a warehouse, an exporter does not need any form of investment in the country but processing companies employ and add value to the nation’s economy. Government needs to encourage local firms. The EEG as it is been implemented cannot fulfill the mandate for which it was designed. It amounts to double jeopardy when you give export of raw products grants.
To the Managing Director of Sam & Sara Garment Factory, Folake Oyemade, 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.
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.”
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.
Source: www.ngrguardiannews.com/industry-watch/132397-towards-effective-eeg-implementation-to-boost-manufacturing-
NIGERIA is undoubtedly a nation blessed with abundant human and natural resources. Today, the country has more resources than most emerging nations of the World such as Korea, Malaysia, Singapore and Brazil. Despite the avalanche of resources at its disposal, poverty in the midst of abundance is a popular paradox characterizing the Nigerian economy.
In today’s economy, it is believed that growth will come from private enterprise, from businesses, from industry investing, designing, manufacturing, exporting and expanding frontiers. To make this growth achievable, government has a role—to clear the barriers to expansion, 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 we 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 current strategy 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 provide incentives to encourage investors in the value chain process.
According to the Nigerian Export Promotion Council (NEPC), the EEG was designed as an incentive required for the stimulation of export-oriented activities that will lead to significant growth of the non-oil export sector.
Although, the EEG has aided to some extent, the growth in non-oil exports; employment generation; diversification into new markets, and encouraging exports to move through official channels as growth drivers. It has, however, become a source of concern to stakeholders who strongly believe it is not being properly managed.
To the stakeholders, some of the scheme’s drawbacks include, a disbursement exercise that involves cumbersome process spread over 12-18 months; Policy instability and discontinuity that nearly crippled the non-oil export sector, as well as major policy disruptions between the period of 2005 and 2011.
The Federal Government, seeking to halt an outpouring of allegations of corruption surrounding the EEG, had put the review of the scheme as priority at its March Federal Executive Council (FEC) meeting.
The chairperson of the NEPC, Mrs Grace Clark, had explained to journalists during the visit of its officials to Olam Nigeria, in Lagos earlier in the year 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.
She added that the current EEG scheme has been operational for five years and not in tune with present realities in the country.
She had said: “The NEPC is aware of some of the challenges being encountered by manufacturers. With the EEG, the non-oil export sector has grown at double digits growth rate compared to single digit growth rate of Nigeria’s Gross Domestic Product (GDP) in the last few years. To cater for some of the inadequacies, the inter-ministerial committee is presently reviewing the scheme to enhance value addition of agricultural products in the country.”
Clark however noted that applications for processing of agricultural products are currently under review and would be addressed in due course.
Five months after the move to review the scheme, stakeholders continue to await the announcement and implementation of the revised scheme.
For instance, stakeholders within the cocoa industry, under the aegis of Cocoa Processors Association of Nigeria (COPAN) have decried government’s deliberate action to frustrate activities of the 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.
He explained saying: “For instance, in our industry, we don’t need any other raw material; it’s cocoa, 99 per cent. The rest of the items in the finished product – milk and sugar – are less than one per cent in value. So, the government needs to stop giving incentives to us on one hand and taking it back on the other hand by giving incentives to those who have external factories because the incentive being giving on raw beans export is incentive to external factories.
“Those external factories are being protected by their own countries through the imposition of taxes on the cocoa we have added value to. So, you say you are giving us 25 per cent EEG on the invoice value but you give 10 per cent to the other factory outside the country that you shouldn’t be protecting and then his own country again protects him by charging us another seven per cent in taxes. So, it is 25 minus 17 to start with.
“Now, what is left will not be able to take care of what the 25 per cent was originally meant to take care of. It is meant to take care of the energy cost that they (foreign factories) don’t suffer; the borrowing cost that they don’t suffer; and the roads and other amenities like water that they don’t suffer that are given in their economy. So, you have 25 or, even, say 30 minus 17. That is 13 per cent. Can that take care of production expenses? Or why did you arrive at 25/30 per cent in the first place? So, don’t give it on one hand and take it back on the other. Rather, impose taxes on anybody who wants to starve the local industry of the raw material that is most needed.
Former Chairman of the association, Akin Olusuyi, stated that despite the production capacity of the sector, there is an under-utilisation of made-in-Nigeria processed cocoa.
“Nigeria needs to identify where its interest lies. For each tonne of raw cocoa bean being exported, two jobs are being exported. Exporting agricultural products depresses the nation’s commerce. Government cannot keep paying grants to exporters of raw products when the nation’s processing capacity can be enhanced. Local producers of value-added goods cannot survive this undue competition. The Customs Service no longer accept the Negotiable Duty Credit Certificates (NDCC) given to us. There are so many power interplays in the acceptance of the instrument.
“Aside getting a warehouse, an exporter does not need any form of investment in the country but processing companies employ and add value to the nation’s economy. Government needs to encourage local firms. The EEG as it is been implemented cannot fulfill the mandate for which it was designed. It amounts to double jeopardy when you give export of raw products grants.
To the Managing Director of Sam & Sara Garment Factory, Folake Oyemade, 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.
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.”
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.
Source: www.ngrguardiannews.com/industry-watch/132397-towards-effective-eeg-implementation-to-boost-manufacturing-
