-Revelations about the Export Expansion Grant Scheme

– Scheme interrupted 10 times between 2005-2014
– Stakeholders call for Replacement of EEG Certificate with Bonds


The Export Expansion Grant (EEG) is an incentive in the form of financial aid that the government gives to individuals or industries that are into non-oil businesses, in a bid to promote the export of non-oil products. The scheme is implemented by the Nigerian Export Promotion Council (NEPC), with support from the Federal Ministry of Finance (FMF), the Central Bank of Nigeria (CBN) and the Nigerian Customs Service (NCS). The burning question however is: Can it be said that the export of non-oil products is genuinely being promoted by the Federal Government?

The epileptic nature of the Export Expansion Grant (EEG) scheme due to incessant interruptions in its administration has continued to generate vociferous apprehension within the non-oil sector. Key players in the Nigerian agribusiness sector are counting their losses in billions as a result of the abrupt halt in the scheme, as their Negotiable Duty Credit Certificates (NDCC) are now largely not worth more than the paper conveying them.

At present, manufacturers, agro exporters and others in the export business are groaning about the unilateral truncation of the scheme by the federal government – a step that has taken its toll on the economy, as some non-oil exporting companies have stopped producing while others have reduced their work force largely on account of the fact that their operations have become much less cost-effective. In fact, the halt is affecting the volume of non-oil exports.

Going by its mandate, the Nigerian Export Promotion Council (NEPC) – the agency in charge of the EEG scheme – is to make non-oil exports a significant contributor to Nigeria’s Gross Domestic Product (GDP), by facilitating export to promote sustainable economic development; the question is however whether the NEPC is on course towards achieving this mandate?



Series of Inconclusive Investigations
Analysts posit that the NEPC’s mandate is achievable, only if the EEG scheme is genuinely implemented. The truth however is that the incessant interruption of the scheme is a recurrent problem which portrays the government as a major impediment to Nigeria’s expansion of its agro-exports.

Since 2005, the EEG scheme has been suspended multiple times. As at the last count, the scheme has been suspended not less than 10 times.
For instance, in 2005, there was an investigation by the then Presidential Committee on Trade Malpractices, which lasted for six months. In 2007, there was another suspension on account of an Inter-Ministerial Committee on Waivers and Concessions, which lasted for nine months. 2008 saw another investigation by a Presidential Committee on Trade Malpractices, which lasted for six months.

Interestingly, by 2009, there was an investigation by the EEG Implementation Committee on the 2005 and 2006 Revalidation Reports by the Presidential Working Committee (PWC); this enquiry lasted for six months. 2010, witnessed a restriction on the usage of NDCC. In 2011, there was a probe on alleged misuse of the EEG by industrialists. This was executed by the House of Representatives’ Joint Committee on Commerce and Customs & Excise.

In 2012, investigations continued, this time by the Presidential Committee on Trade Malpractices and Forensic Audit, of the ongoing restriction on usage of the NDCC – August, 2013 till date; and the ongoing suspension of the EEG scheme – January 2014 till date.

The worry for many industry stakeholders is the fact that none of the probes rehearsed above have thrown up any documented reprimand or indictment. Ede Dafinone, Chief Executive Officer of Sapele Integrated Industries Limited echoed this concern in an exclusive interview with AgroNigeria. “You can imagine that despite all the probes, no single person has been indicted, let alone punished, so as to serve as a deterrent to others” Dafinone queried, “It then becomes necessary to question the very essence of the whole exercise”.



Solution, Worse Than The Problem
The position of the federal government has always been that the scheme was being abused, but industry watchers insisted that this does not justify a truncation of the scheme. “The proper response is to deal appropriately with the culprits, rather than truncate what is clearly a laudable policy measure, thereby causing unease in the agribusiness sub-sector” notes Emmanuel Ikani, a university don and professor of agricultural extension at the Ahmadu Bello University, Zaria.

Commenting on the suspension earlier, the then Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, said the suspension would only last for a while, as it was merely to ensure the sustainability and effectiveness of the scheme. As at press time however, the scheme remains suspended.

The protracted suspension of the scheme however does very little for the government’s credentials as a ‘partner in progress’ with the private sector. Time and again, government functionaries seize the opportunities provided by every public function to harp on the fact that the role of the public sector is to provide an enabling environment for businesses to thrive. It therefore becomes pertinent to question the rationale for the protracted suspension of the EEG scheme. In other words, should Nigeria’s agro-export economy suffer so many setbacks because of just a few people who abused the privileges made available by the government? Is it really wise to throw away the baby with the bathwater?

The Export Expansion Grant is a measure introduced to help local manufacturers who add value through processing of raw materials for export. Given the harsh business environment in Nigeria as occasioned by poor infrastructure and expensive finance among other realities, the Nigerian government thought it appropriate, and rightly so, to provide a springboard for the country’s exporters who, on account of their high cost of production, had become uncompetitive in the international market.

“So, the grant is meant to assist local exporters compete internationally” explained Abdulkareem Kaita, Executive Director, Dansa Agro-Allied Ltd., “but along the line, there were some abuses, and as a result of that, the government put a stop to it and said they have to investigate”. The argument for the suspension is still the old one; certain beneficiaries have connived with government officials to raise fake declarations and they got paid.

“Up till now, the government has not restarted the scheme and some companies which had applied for the grants, based on what they had exported, have of course not been paid due to this issue. Government is saying they are still doing the verification, and when they sort it out and discover you don’t have any problem, then they will pay you. That is what is generating the entire outcry. It is over a year now that the scheme had been stopped,” Kaita said.

But, Chairman, Manufacturers Association of Nigeria Export Group (MANEG), Engineer Tunde Oyelola, said he does not believe that there is any sharp practice anywhere. Although he agreed that policy makers have their reasons “but what I’m saying is that when you make a policy that is very important like this, you don’t just wake up and change it without empirical reasons. “I am an engineer, you don’t decide on something of this magnitude on rumours, you cannot. It is a whole system or economy that you are deciding on, so if there are any sharp practices, isolate them based on facts, deal with them and move on. Don’t cripple the system” Oyelola insisted.
The situation is worsened by the government’s refusal to dialogue with the organised private sector on the issue. Speaking with AgroNigeria in an exclusive interview, Oyelola said MANEG had made several moves to reach out to policy makers on the importance of the EEG scheme. He however lamented that they are not appreciating the importance of the EEG in stimulating non-oil exports. “Until they accept that the EEG is important in developing Nigerian non-oil exports, the country may not go far. It’s an investment incentive and a very good one at that”, he said.
Buttressing his point, Oyelola observed further: “If you check export data between 2005 and 2013, in 2007 the non-oil export figure was about $700m, and by 2013, it went up to $2.9bn. What it means is that such efforts have stimulated non-oil exports, so we have to make sure that we let them know this is very important.” Drawing from the practice of governments in other climes, Oyelola insists that all over the world, incentives are deployed. “If you check the Australian Government, they have incentives for their exports; the Brazilians, Indians, South Africans, Chinese all have their own. So we cannot just abandon non-oil export and assume that it will grow magically”, he cautioned, while adding that the private sector will not waiver in its resolve to continue advocating for the reinstatement of the policy. “We will not stop exploring avenues towards convincing the policy-makers that the EEG is very important for the manufacturing and non-oil export sector,” he said.

Corroborating Oyelola’s point, Dafinone said the MANEG had made several presentations to Ministers of Finance, as well as Trade and Investment with the hope that the impasse would be ended. “The Manufacturers Association of Nigeria had written letters to former President Goodluck Jonathan with the hope that he would look into it over the years, before his tenure expired and we have also written to President Muhammadu Buhari so as to bring the matter to his attention. The government is settling down and we hope that this new administration would have a deeper look at the problem because it’s quite a large one,” he said.

It will be recalled that in February 2014, the federal government, through the then Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, announced to manufacturers at an interactive session that the scheme would be suspended until further notice.



Effects of the Stoppage of the EEG on Nigeria’s Economy
On the effects of the EEG stoppage, Dafinone said “Investors within and outside Nigeria looking to invest in export-related commodities and products would not factor in export grants into their calculations, and because they do not, investment decisions that should have been made to favour Nigeria would not be made in our favour, and business people would take their investments to countries where the playing field in terms of infrastructure, power, security and roads is more securely level”. It is easy to see how this works against the local economy.

According to Oyelola, support for local companies engaged in export of manufactured goods to foreign lands results in an increase in employment generation and boosts the international profile of a country. “All over the world, we don’t have the same basis for production, so the EEG will support our disadvantage. In Nigeria, you have a lot of disadvantages when you are into manufacturing: the power issue is there, the cost of interest rate is there, the issue of multiple taxes from states and local governments abound, roads have a lot of problems, and the transportation system is still largely underdeveloped”.
Given the above reality, the argument for a support system to enable locally produced goods fare better in export destinations is all the more compelling, if not unimpeachable. “Otherwise nobody will buy your products. Generally, nobody will go and export if you won’t sell. If you take a look at the non-oil sector, since the stoppage of the EEG scheme, it has been falling so drastically. And I am sure if you go and look at the year 2015, it must have dropped from the last known figure of $2.9bn, and it will still go down further if not urgently restored,” Oyelola admonished.



Credibility Problem
Dafinone maintains that the EEG scheme is enmeshed in a serious credibility problem. He is yet to be honoured Credit Certificates worth about N400m. “The point I am going to stress again is this; take for instance that government has given exporters a certificate with a face value of N1m. It is essentially a bearer certificate, but if I get to the bank and the bank says they cannot receive it, then you have not given me anything. A cheque is just a piece of paper without value.

“A corollary to the foregoing is that EEG certificates given by the government are suffering from credibility problems. So, even if the government starts to issue these certificates now and they honour them at the port, you find that exporters who receive them, because they are not sure as to the value therein, would engage in a mad rush to dispose of them overnight, to make sure that they get value, in case the government says they are not accepting them again by the next week. So, there are credibility issues the government needs to address,” he maintained.

Still on the credibility issue, the Managing Director, Okomu Oil Palm Plc, Dr. Graham Hefer said Okomu has about N2 billion worth of EEG certificates sitting unused. He maintained that the EEG certificates are very sensitive issues for not just his company, but most companies that are involved in export of produce. “The problem we have is that they have been basically dishonoured. What worries us is that as far as we are concerned, the EEG certificate is like a bearer bond, because it says whoever holds this bond should be paid, and by defaulting, the government, effectively, in my humble opinion, is creating a situation where they are reneging on a promise, and it may have dire consequences because we are a small company, and yet we have got nearly N2 billion worth of EEG certificates sitting unused”.

In an environment where there is a professed emphasis on attracting foreign investment, such posturing is suicidal, as Hefer is quick to point out. “When you are asking investors to come and then you give them a book from NIPC, and you tell them this is what you get when you export, and yet the payment does not happen, it shows that you are merely grandstanding”.



Bonds as Replacements for EEG Certificates
As it has been established that exporters are having issues with the EEG Certificates, they are now pushing that government should issue bonds to replace the certificates. In the words of Dafinone, “if the exporters are given bonds that have five or ten years tenure, then at least they can put that on their financial statements as instruments that have value”.

The issuance of bonds to replace the EEG certificates bears considerable promise for the larger economy. In understanding this, Dafinone’s explanation is apt. “So if I am given a bond that has five or 10 year tenure, I can access the secondary market with the bond. I can trade my bond across the stock exchange where I can get cash for my certificate”. The government too has some direct benefits as the arrangement “would enable the government to potentially defer the use of the certificates where, maybe there are 10, 50, 100 billion naira worth of certificates out in the market”.

Stretching the narrative further, he points out that this would be far better than the scenario prevailing before the truncation of the scheme where the certificate was used to settle import duties. In the latter situation, there was immediate pressure on government’s revenue from the Nigeria Customs, where there was little receipt from duties. “So, you can see that government bonds may be a way around the pressure that the certificates would cause government revenue,” maintain Dafinone weighting into his chair.



A Call for Dialogue
Dr. Hefer notes there is a dire need for an open discussion between the government and industry players to iron out once and for all the issues surrounding the EEG. “So it has created a major problem. It’s something I don’t think the government should be putting its head in the sand over, because somewhere along the line, it’s going to come back and explode. So we hope that the new government takes cognizance of this and comes up with an open discussion of how we can get past the present hurdle and get the EEG scheme moving again.”

While public, private sector dialogue over the scheme’s suspension is being brokered, information available to AgroNigeria shows that the Nigerian Customs Service has largely compounded matters as officials of the Service repeatedly refuse to honour EEG Certificates despite clear instructions to that effect from the federal government, through the Ministry of Finance. Hefer confirmed the field reports, stating that the government had attempted to assist industrialists through an attempt to convert the EEG certificates as negotiable instruments for payment of import duty. “At a time, when the complaints about compounded EEG certificates had become rife, they allowed us to use it in lieu of duties payable for import at the ports”. Hefer however recalls that the Customs officials got upset about the development and initially insisted on taking 7% discount off the certificates. Not content, they later went further to discontinue the measure altogether, for a while. “The last thing we heard was that they published a list of companies with certain predetermined amounts that could be leveraged in lieu of Customs duty and they gave us about N6m”. For a company with over N2billion in accumulated EEG certificates, the publication and the figure it sought to approve for Okomu was at best, laughable.

In the final analysis, the stakeholders hardest hit are the small and medium scale enterprises which largely rely on the Grant for their profitability. Hefer is quick to point out that Okomu would not have to procure a loan facility from the Central Bank of Nigeria.



Looking Beyond the Year-End
Without a doubt, governance in Nigeria is at a point where there is the need to begin to undertake the affairs of state in a manner reflecting seriousness and responsibility. To know that the very same government which has been a loud proponent of the need to diversify the Nigerian economy will be avidly engaged in the truncation of a major incentive aimed at stimulating non-oil export in the country leaves much to be desired. Immediate action needs to be taken to reinstate the EEG programme. Indeed, working in concert with the private sector, policy makers should be more concerned about exploring other ways of incentivizing industrial players towards increased investment. The situation is thoroughly inconsistent with the progressive stance adopted by the current administration on issues and it is only hoped that a reprieve is at the door for genuine Nigerian exporters.