In the
recent past the Federal Government, set up various incentive schemes for exporters
to encourage and promote export from Nigeria. We had incentives like the export
expansion grant, Duty drawback, Export adjustment Scheme fund and Export
Development Fund . These schemes
sometimes run into trouble waters during implementation either due to improper
planning or outright corruption.
The
brainchild of these incentives is the Nigeria Export Promotion Council. Indeed,
this year marks the 41st anniversary of export promotion as a formal objective
of successive Federal Governments in Nigeria.
NEPC has
sought to make the non-oil export a significant contributor to Nigeria's GDP by
facilitating exports to promote sustainable economic development. Given that
its overall strategy is to diversify the productive base of the economy away
from oil and to foster market -oriented, private sector-driven economy, this
strategy now aligns with the overall economic agenda of today's Federal
Government to intensely grow revenue from non-oil sources within the economy.
Militant
activities in oil producing Niger delta region of Nigeria, the dwindling oil
prices and the rebased Gross Domestic
Product (GDP) figures point to no other economic strategy but export
development. The oil sector contributes only about 15.9% to the entire GDP,
leaving the remaining 74.1% to be shared among the sectors (the non-oil
sector); i.e. agriculture, services, manufacturing, telecoms, etc. Reverse was
the case until the fourth quarter of 2015.
To
complement its export promotion drive, the Federal Government, has, over the
years, set up various incentive schemes for companies whose business is export
focused. The incentives range from tax exemption to duty drawbacks as well as
other forms of grants. Some of the incentives were those set up in 1986, under
the Export Incentives and Miscellaneous Provisions Act. These included:
- Export Development Fund
- Export Expansion Grant
- Export Adjustment Scheme Fund
Out of
the above schemes, the only one in operation till 2013 is the Export Expansion
Grant (EEG). It was re-designed in 2005 and now administered by the Nigerian
Customs Service (NCS). EEG is a grant issued to non-oil exporters to reduce
production, distribution and logistics (Production) costs which will enable
them compete effectively in the international market since production expenses
will naturally impact product price. It was expected that goods from other
countries with cheaper production costs would ordinarily sell cheaper than
those exported from Nigeria.
The grant
ranges from 10 per cent to 30 per cent of the Freight On Board value of the
products being exported with a confirmation that the export proceeds have been
repatriated. The amount received by the exporter also depends on the
categorization of the exporter among others.
Prior to
the 1999 fiscal year, the EEG was paid to beneficiaries in cash. However, from
1999, the grant came in form of Negotiable Duty Credit Certificates (NDCCs) issued
by the Nigeria Customs Service. The NDCC is a negotiable instrument that can be
used to settle or reduce import and Excise Duties.
Accordingly,
it offers the following benefits to the exporter:
- Enhances the ability of such exporters to reduce overhead costs given the potential to reduce or eliminate incidence of import duties on products used by such exporters in their production
- Use of the NDCC as security to obtain loan from banks.
- Given the negotiability of NDCC, an EEG can be transferred from the original beneficiary to third parties (up to a maximum of three transfers).Thus, where the exporter has no import duties payable, it could still benefit from the NDCC.
This was
how the EEG operated and/or administered between 2005 and 2013. In 2013, the
EEG was re-designed but not long thereafter, was suspended for another review
exercise following allegations of abuse. It is on record that the scheme was
suspended and reactivated 8 times between 2005 and 2013. The last suspension
was the August 2013 suspension. The NCS no longer honours the NDCC.
This has
triggered the following adverse consequences:
- Challenges of loan repayment in respect of funds borrowed by exporters from financial institutions for export on the strength of the NDCC
- Incidence of bad loans in the hands of the bank since the NDCC collaterals are no longer honoured
- Potential non-competitiveness of products exported from Nigeria in the international market. It is expected that failure to access the EEG cushion would impact product pricing as payment of customs and excise duties would need to be reflected in the pricing structure
- Outright failure of the export business and attendant impact on the personnel employed in those operations
The
reality is that Nigeria cannot remain a consumers economy. It must produce. It
cannot abandon mid-stride its export promotion agenda. Policy flip-flops,
inconsistency or sudden reversals do not promote confidence in the economy or
its managers. It results in un-intended socio-economic, commercial and financial
agonies for those impacted by such reversals.
Whilst it
is appreciated that the operation of EEG has an impact on the cash-flow of the
Federal Government, it becomes imperative that an incentive scheme, which is
consistent with the drive to improve fiscal receipts from non-oil sources
without eroding the level of those receipts through cash payouts, should be
developed.
The
development of sustainable policy direction for these grants has to be constantly
reviewed to checkmate corrupt practices
as the federal Government re introduce this grant and provision made for it in
the 2017 budget. I want to see a more active Nigeria Export Promotion Council
in the administration of the grant and not just a verifying agency or a rubber
stamp. I want the DSS and EFCC to be co-opted into the committee administering
the EEG. The Nigeria Custom Services and the Central Bank of Nigeria cannot
continue to be the determining factor as they have been bedevilled with various
allegation of misconduct in the recent past.
