New EEG funding options needed to push non-oil exports

Nigeria’s crude oil was first discovered in a tranquil town called Oloibiri, in the present day Bayelsa State, after years of exploration. This momentous discovery redefined Nigeria’s economic future as she not only joined the ranks of biggest oil producers but also became an economic powerhouse in Africa.

Following the regime of oil boom in 1960s and early 1970s, agriculture, which had been the mainstay of the economy and provided jobs for over 70 percent of the population, was forced to play the second fiddle. Contributions to total exports fell from about 70 percent between 1965 and 1970 to 40 percent in the 1970s. This worsened in the 1990s when it crashed to a mere 2 percent.

Consequently, what first appeared as boom turned into doom and gloom as crude oil vulnerabilities became more apparent in 1980s following an oil glut that brought about excessive surplus amid falling demand. The Nigerian Export Promotion Council (NEPC) had been established in 1976 but little was done to promote the manufacturing sector whose contribution to the economy fell by 25 percent between 1982 and 1986.

By 1986, it had become obvious that unless serious efforts were made to encourage non-oil exports, the country could be in for a storm. The Structural Adjustment Programme (SAP) introduced in 1986, in realisation of this, came with 18 different measures to promote non-oil exports.

The Central Bank of Nigeria (CBN) data revealed that the measures were favourable to manufacturing as growth rate rose from 11.2 percent between 1981 and 1985 to 19.4 percent between 1986 and 1994.

After the military interregna came the democratic government of Olusegun Obasanjo which further realised the need to promote non-oil exports by establishing the Export Expansion Grant (EEG) in 2005.

The scheme was aimed at providing incentives, ranging from 5 to 30 percent of export value, to exporters. The EEG is paid in the form of the Negotiable Duty Credit Certificates (NDCC), which are redeemable against payment of customs and excise duty. Exporters are allowed to sell it to other exporters. But it is available to every non-oil exporter, and is based on objective scoring criteria.

Findings have shown significant growth in non-oil exports since the adoption of the EEG. Data shows that non-oil exports have grown from less than $600 million in 2005 to over $3 billion in 2013. There is also remarkable increase in value chain expansion in terms of processing/manufacturing capacities, leading to new investments and job creation.

Furthermore, there is huge leap in production levels of commodities like sesame seed, cocoa and rubber, on the back of increased demand from exporters whose competitiveness was boosted by this scheme.

However, insider sources revealed that the Nigeria Customs Service (NCS) had imposed arbitrary limits and restrictions on use of NDCCs- in disregard of the rules establishing the EEG.

The NCS feels that it is being singled out to carry the financial burden alone in a scheme that would benefit the entire economy, said the source, while giving reasons for the restrictions.

Another challenge was that exporters had to pay 7 percent surcharge to the customs before they would be allowed to use NDCC. The challenges reached a climax on August 22, 2013, when the NCS stopped the use of NDCCs.

The unilateral action, which created an extremely difficult liquiditysituation for exporters, was aggravated when the affected exporters who raised concerns over this were told the order to reject the certificates came from above. Findings revealed that, until today, no written instruction has been issued to effect the rejection.

This is in contradistinction to a circular issued on February 20, 2013, by Dikko Inde Abdullahi, comptroller-general, NCS, to deputy-comptrollers-general, assistant comptrollers-general and customs area comptrollers, which said a compliance desk had been set up to supervise compliance.

Amid these enormous setbacks, however, players in the organised private sector (OPS) have come up with alternative ways of funding this scheme in their belief that the country’s economic future depends on it. One way of doing this is to create a budgetary allocation for it.

This funding arrangement can be estimated based on the projected growth rate of non-oil export sector, while grants disbursal can be done either by the finance ministry or the ministry of industry, trade and investment, after verification of claims. It may also be undertaken by the NEPC which has the full data of the scheme from inception in 2005 to date.

Apart from annual budgetary allocations, creation of Non-oil Export Development Levy has also become timely, according to stakeholders. A tariff in the form of levy can be introduced. This may be a 2 percent levy on Cost, Insurance and Freight (CIF) value of all imports. This will impose a very small burden on imports and create a resource pool to administer the scheme.

A 2 percent levy may not materially impact imports but it will surely create a funding source of meaningful size to support the growth of strategically important non-oil exports. The levy funds can be administered through either of the two ministries mentioned above or through NEPC.

In furtherance of this scheme, stakeholders also called for creation of 1 percent levy on export of crude oil with a view to using the proceeds to fund the EEG scheme.

In fact, it is the conviction of the OPS that the diffidence in implementation of EEG policy since August 2010 has affected the momentum of export growth from 2011 to 2012.

It is, therefore, time to pursue bold, far-reaching and enduring solutions to funding EEG as growing the non-oil exports is a strategic imperative and will remain so at least for the next decade.

The EEG policy has resulted in remarkable growth in non-oil exports and needs to be sustained. There is every reason to support and fund the scheme as it is a key tool in the economic transformation of Nigeria’s economy. Sustainability of the scheme, therefore, needs to be secured by adopting these enduring funding arrangements.

By: ODINAKA ANUDU