Marketing: Companies wait to leverage EEG to boost export
As part of its policy advocacy for its members, a team of Manufacturers Association of Nigeria, MAN recently led by its DG, Segun Ajayi-Kadir paid a visit to the British American Tobacco Nigeria (BATN) to familiarize itself with challenges the multinational company has been facing as well as the progress it has made. The company, which manufactures for export, has over 350,000 direct and indirect employment. But like other local manufacturing companies in Nigeria, it is confronted with many challenges. It is hoped that the restoration of the Export Expansion Grant (EEG) scheme would help such companies in the non-oil sector lighten the burden of doing business in the country. Daniel Obi reports.
A strong economic reform of this government is import substitution and encouragement for more export. This is in line with the push for the diversification of the mono-product economy. Though the import substitution initiative has hurt many manufacturers, Buhari government and some stakeholders believe that in the mid to long term, it would assist to propel the economy through employment creation and boosting of foreign exchange earnings.
The government is strongly convinced that backward integration is key to unlocking Nigeria’s economic potentials.
Before now, Nigerian manufacturing sector had heavily relied on importation of raw materials for production, a scenario that has put strain on the external reserves even in the face of dwindling foreign exchange earnings as a result of global recession.
To underscore the seriousness of its intention to encourage Nigerians for export, the government has planned to resume the Export Expansion Grant (EEG) tax credit scheme. To this effect, Federal Government had in the 2017 national budget made provision of N20 billion to kick off the scheme expected to breathe life in to Nigeria’s non-oil sector.
EEG
Nigeria has over the years relied on oil as major foreign exchange earner while non-oil commodities which sustained the economy before oil was found in 50s suffered and suddenly declined in its contribution to the economic growth. There were therefore discussions on the need to diversify the economy away from oil. Part of those moves was the introduction of EEG in 1999 to encourage and boost non-oil exports.
The grant from the EEG to non-oil exporters was designed to mitigate the effect of cost disadvantages faced by Nigerian exporters due to infrastructural deficiencies. The grant was disbursed to qualified exporters in the form of the Negotiable Duty Credit Certificate, NDCC, and utilized by the beneficiaries for the payment of customs and excise duty on their export shipments.
According to a report, the EEG schemed was conceived as a very vital incentive required for the stimulation of export activities that will lead to significant growth of the non-oil export sector.
Suspension of the scheme
After 15 years of its operation, the scheme was in 2014 suspended due to what government regarded as irregularities and abuse. In a recent comment, Minister of Finance, Kemi Adeosun, justified the suspension of the EEG policy by the Jonathan-led government. The Minister said the policy was stopped to check the high incidence of abuses which include claims that some of the beneficiaries of the scheme were unqualified for the grant.
But MAN frowned at the suspension of the scheme as it disagreed that there were unqualified beneficiaries. MAN and other organized Private sector believed that the suspension negates the initiative to diversify the economy from the mono-product orientation and earn the necessary foreign exchange to support the economic growth.
Manufacturers and other interested parties had commended the scheme as a laudable one and want it reintroduced. For instance, in a report, Director General, Lagos Chamber of Commerce and Industry, Muda Yusuf noted that EEG is the only incentive left for the real sector. MAN official was also quoted as saying that the EEG Scheme was introduced to provide incentives and rebates needed to reduce the high cost of production in Nigeria, stimulate and diversify non-oil exports. EEG will reduce the burdens of the high operating costs. It was also noted that a lot of exporters’ money of about N120 billion by way of unsettled NDCC is already tied down in the scheme.
Government revisits EEG
Due to the cry of manufacturers and exporters, government is revisiting the scheme as it started in the 2017 Budget with N20 billion provision for EEG. In his recent visit to British American Tobacco Nigeria (BATN), Segun Ajayi-Kadir, Director General of MAN, commended the Buhari government for revisiting the EEG which he says serves as a stimulant to export.
He recounted that EEG has an unfortunate history. “It is probably the only incentive that is still operating that is geared towards encouraging export. The survival of industries in Nigeria is to produce for export to earn the forex that the economy needs. It is unfortunate that the operation of EEG has been disrupted several times due to some reviews that are never ending. There are situations manufacturers had to discount their exports to the tune they are expecting the EEG. They have sold cheaply and they are not getting recompense for it. It has driven some companies out of business; it has put many in bad light with their technical/ foreign partners. It has also discouraged people from going in to export as we operate in a high cost environment. It is not possible for us to be competitive outside the country but when government offered EEG, a lot of people went into investments and areas where they would export. When government suspended the implementation, it was a harrowing experience but now there appears to be light at the end the tunnel”, Ajayi-Kadir said.
He however expressed reservations about how government wants to disburse the N20 billion when there is reportedly a backlog of about N200 billion outstanding in the EEG, but he said it is a step in the right direction as MAN is waiting for full administration of EEG going forward.
BATN, major contributor to economy
BAT which equally produces for export to about 17 African countries, according Ajayi-Kadir is a big member of manufacturers association and major investor in Nigerian economy. In 2001, BAT Group signed MoU with the Federal Government for the investment of $150m to build a state-of-the-art factory in Ibadan, Oyo State. This is in an attempt to stimulate a whole value chain of local tobacco growers, who grow other food crops in addition to tobacco, bringing in a local packaging company, which caused an additional investment in the country and employment of Nigerians. Today, the company said it offers both direct and indirect employment to over 350,000 people.
On tax, BATN has in about 16 years of its operation since its re-entry in to Nigeria paid about N216 billion as tax to government.
But the company and others in the beverage sector are facing heavy operation challenges. This necessitated MAN’s team visit as part of its regular visits to its members to intimate itself with their challenges and seek areas of intervention as a policy advocacy body.
For instance, Ibadan factory of BATN spends about N2.6 billion on diesel alone per year on N250 per litre. With its humongous contribution to the economy, the company also faces the second challenge of forex to import spare parts. While exporting, it has to compete with others in international market and on this it is already starting from a losing position after being hit by the forex and diesel price. BATN is also contributing to the fight against illicit tobacco importation. It is also said that W/African governments lose about $774 million annual revenue to the activities of illicit trade as the traders evade tax payment. Apart from the revenue loss, the consumption of illicit products has more negative impact on individuals’ health than the regulated products.
Ajayi- Kadir therefore said the MAN is aggregating all the issues and operational challenges from such companies like BAT for intervention. “MAN is basically a policy advocacy group. We interact with stakeholders whose functions affect the business of our members. We also identify areas our members would need support to continue operating to support the local environment. We also help in advisory services where they can take advantage. We have 2500 members. We want to ensure that companies like BATN remain in business considering the economic advantages derived from them”.
Responding, Seyi Ashade – Area Head, Corporate Affairs, BATN West Africa, said the visit is a demonstration of how responsible BATN has been as a corporate citizen. “MAN is known to support manufacturers that are law-abiding and are responsible in their operation. We look for stronger partnership with MAN,” she added.
With the necessary reviews, it would be significant if government pushes the EEG to stimulate export for forex earnings which the economy needs to bounce back.