‘Only consistent incentives can push manufacturing export sector’

EDE DAFINONE is an economist and accountant. He is also the CEO of Sapele Integrated Industries Limited, a crumb rubber processor and exporter. He speaks with ODINAKA ANUDU on the state of Nigeria’s non-oil export sector, Export Expansion Grant (EEG) and the need to diversify economy. Excerpt:

Non-oil exports declined from $2.97 billion in 2013 to $2.43 billion in 2014. What could be responsible for this 18 percent slump?

Government, having recognised the need to diversify from the petroleum sector, has put in place the Export Expansion Grant (EEG) in order to encourage exporters increase the volume of their exports and to compensate them for the high costs they incur in the country because of lack of infrastructure, high cost of power and insecurity, among others.

The scheme has been on and has been largely successful apart from its start-stop nature. We have grown exports in Nigeria significantly as a result of this policy. But in the last 12 months, there has been a near paralysis of the EEG scheme, occasioned by government not firstly processing applications for EEG and, secondly, not honouring the Negotiable Duty Credit Certificates (NDCCs), which are instruments of payment, by the Nigeria Customs at the ports.

Only recently, the government announced that approximately 4 percent (about N4.5bn) of NDCC will be honoured by the Customs. Four percent does not make a significant proportion of the liabilities I have incurred on hold in the last two to three years, which I was hoping to finance from the grant.

What this has meant is that manufacturers and exporters have a reduced level of confidence in the grant and have reduced their exports to levels they can sustain profitably without any grant being received. So, I would expect that in the year 2014 we should witness a reduction in $2.97 billion you quoted as 2013 figure. There is a decline in non-oil exports critically needed at this time when diversification should be paramount.

How much was given to your firm from the N4.5bn?

In the publication by the Customs, we were quoted as being owed N123 million, from which we were paid N6 million. But my records show we are owed N367 million.

But has the EEG suspension affected you in any way?

For the rubber industry in Nigeria, we have faced a double tragedy. Firstly, rubber prices worldwide, which govern our local and export sales, have fallen by over 70 percent in the last 15 months. That means revenues have fallen and our margins have been squeezed. Normally, for this cyclical downturn, we would have used the facilities available through EEG to sustain moderate levels of production in this period. All rubber companies have reduced their production by between 10 percent and 50 percent.

Do you think the current review of the scheme by the Federal Government will make the process better?

Government review is always welcome. Government has a prerogative to direct or re-direct the scheme to maximise the benefits of the grant.

The scheme has been reviewed three or four times since we started participating in it. So importantly, for any government policy, there must be consistency. Manufacturers and exporters have to know that the grant will be paid regularly. Government must always ensure that exporters, manufacturers and investors do not lose confidence in it.

How do you assess the recent directive of the CBN that exporters must repatriate their dollar earnings within 180 days or risk suspension from all segments of the foreign exchange market?

Government has, through its agencies, ensured that exporters register with its export agencies, CBN and Customs, to ensure that all exports are properly monitored. For every exporter, the requirement by law is that you must repatriate about 95 percent of these proceeds back to Nigeria. I believe all exporters do this. Any exporter who fails to repatriate within 180 days is liable to penalties by the CBN.

That has been the policy in force. What has changed in the last two weeks is that government has come to insist on repatriation. But they say that once the funds are in domiciliary account, exporters may only use these funds for eligible transactions. This is the latest position of government and we are still trying to confirm which transactions will form ‘eligible transactions’. What this will mean eventually is that, because of the need for Nigerians to finance non-eligible transactions, there may be the black market of 20 years ago. They may drive a significant part of the Nigerian economy underground and create a proper disparity between the black market rate and the bank rate.

The government has released a new tariff structure in line with ECOWAS Common External Tariff (CET) agreement. How will you assess this?

From what I have seen, there will be some companies closing down operations because of the new tariff base.

But it is for importers, not exporters.

You know most exporters still import raw materials to produce goods for export. So, many companies will be affected because import will be too expensive.

But how did Nigeria get to this stage where a decline in oil prices tumbled and crippled the whole economy?

From the information I have, I understand the significant reason for the fall in crude oil prices was the increased production of shale gas by the US. But the shale gas production did not happen overnight. We must have had signals that this increased production by the US would bring a greater impact on crude oil prices worldwide. The purchasing of our crude oil by Americans tailed off over a period of a year. I do not think we would have been in this situation if we had deepened the non-oil sector, manufacturing and the real sector in general.