Suspension of the Export Expansion Grant
By Olufemi Boyede
Export of goods and services is a major component of international trade. It involves the transfer of goods and services across a country's borders having the generation of foreign exchange as the main objective.
The corollary of export is import, which involves the acquisition of goods and services by one country from the other. In international trade parlance. the relative balance of trade position of one country against the other is a function of how favorable or unfavorable her export portfolio is, in comparison with other countries. Against the foregoing, it is absolutely necessary for countries to export their goods and services.
The essence of the imperative of export as the main pillar of national economic policies is best captured by the priority that developed countries place on their export folios. This same understanding underscores the attention that developing and economies in transition. most especially the South-East Asian countries have over the years devoted to the development of their export sectors.
The Export situation in Nigeria has. for a long time, remained unidirectional and monolithic. with oil accounting for over 90% of total export earnings. This trend. which started with the oil boom of the 1970s, has continued with dire negative multiplier effects on the economy of Nigeria. It is even more alarming that most export transactions in the country are still carried out unofficially, with smuggling accounting for over 60% of Nigeria's deliveries to the world market. This unusual scenario has made it difficult if not impossible, to have reliable official statistics for our export position in the world trade accounts. The efforts of many companies that have attempted to officially export their products have been stifled by massive infrastructural deficiencies in the system.
Such constraints as unreliable power supply. bad roads, high interest rate, and bureaucratic bottlenecks in accessing government assistance, and incessant policy summersaults by the government have hampered and are still hampering any meaningful attempt towards the development of a virile non-oil export for the country. Worse still, smugglers have for a very long time now, operated at a vast financial advantage over those few Companies that have stuck to playing the game by the rules. An indication of this ironical scenario is that Export proceeds have attracted a lower Naira/Dollar exchange rate than smugglers proceeds trade as 'free funds". On account of the various bottlenecks and multifarious "enforcement agencies" at our ports of export, transaction turn-around cycle. which plays a very crucial role in export profitability is much longer for official exports. Yet all our effort towards sustainable social -economic development would remain mere mirage, unless we cultivate the right attitude towards the development of our real sector and promotion of the non-oil export sector of the economy!
It is common knowledge that the balance of trade between Nigeria and her trading partners both at the regional and global levels has consistently put the country at deficit positions because of the low export activity in the country and the unfortunate proclivity towards import and penchant for foreign exotic tastes.
It was in the light of this gloomy position of the prohle of our international trade and a conscious attempt to redirect our mindset towards adopting an export culture that the Federal Govemment introduced the a series of export-oriented incentives including the Export Expansion Grant scheme under the New Manufacture-ln-Bond-Scheme (MIBS), to boost the competitiveness of Nigerian exportable products and services. in the world trade. The Export Expansion Grant is an incentive given to bona NEPC-registered Nigerian exporters who have exported goods and repatriated proceeds of such exports up to five hundred thousand naira (N500, 000.00), only and above. As a development and catalyst instrument. the Grant is aimed at helping beneficiaries to be more competitive in the international market-place while expanding and improving export capacity at home.
The incentive, which started at 2% of the repatriated amount at the inception in 1986, has gradually increased to 40% effective January 2003. It is apposite to observe that the increase to 40% generated, perhaps for the first time! the desired reaction as many Companies, even with manufacturing operations in other parts of the continent. relocated their export manufacturing operations to Nigeria and enhanced the functions and positions of their Nigerian subsidiaries. Production capacities were expanded. and as the companies became more export-focused, more hands were employed to meet the demands of the new activities. Export performance rose significantiy by about 800% from a dismal 0.52% in 2000 to above 4% between 2003 and 2004, and, but for the suspension of this scheme which has resulted in immediate crippling of the activities of most manufacturer-/producer exporters, the figure was poised to hit the two-digit levels within the shortest time.
However, like any other scheme in the country, the administration of this incentive has been a subject of curious abuse as many Smart Alecs who did not even export any product had made spirited attempt to claim the incentive. Other alleged abuses include over-invoicing and claiming the entitlement of manufactured products, where raw commodity was exported.
In spite of these anomalies and abuses, however, it is trite to state that whatever remains of the export portfolio of non-traditional products in Nigeria at the moment are a direct result of the availability of this incentive to Nigerian exporters. It is equally interesting to note that of the eighteen incentives listed in the Nigeria Export Promotion Council's establishment decree No. 41 of 1976 (later amended by the Nigerian Export Promotion Council incentives and other matters Decree No. 64 of 1986) only the Export Expansion Grant is administered today, with a direct impact on the operations of the benefciaries. As stated earlier, the scheme has boosted export production and increased capacity utilization for most local and multinational companies in Nigeria, with many of the companies in the latter category making Nigeria as the regional headquarters of their industrial plants in Africa. This has no doubt resulted in the creation of more employment opportunities for many Nigerians, generated foreign exchange revenues, and increased revenues to the coffers of the exporters (wealth creation) and boosted government's foreign exchange earning ratings. During a recent impact assessment exercise conducted by an indigenous consulting firm in the country, at the instance of the Nigeria Export Promotion Council, most of the beneficiary-companies visited attributed their continued existence to the leverage that the 40% export expansion grant provides for their operations. In the same vein, more than 99% of the Companies had warned that any truncation of the EEG policy would spell doom for the Nigerian non-oil export sector.
More importantly, it is important to remember that the recently acquired long awaited visa certification for Nigeria to export into and take advantage of the vast opportunities in the AGOA market of the United States of America can only make any sense if new industrial investment can be attracted into the country. EEG would be one of the most tempting carrots to dangle in wooing potential investors and joint-venture partners. Besides, at the inception of this second term of the Obasanjo administration. Mr. President himself had personally issued an assurance (to the textile sector) that the EEG scheme would remain until the end of his administration in 2007. He thereby charged the textile sector to attain a 6billion-Dollar export mark by 2006. It is certain that without EEG, rather than rise up to Mr. President's challenge, a lot more of the few remaining textile outfits are going to be assisted to the auctioneer's bell.
There is no doubt that malpractices would have been noticed in the administration of a scheme as beneficial and attractive (even mouth-watering as this). In fact Government must be commended for its resolve to address these observed anomalies. Very few (if any) policies and schemes of Government have ever operated without being subjected to one form of abuse or the other.
On the other hand. perhaps more deserving of accolades in the unfolding scenario, is the new Management team of the Nigeria Export promotion Council which had, at the onset of her tenure, commissioned an independent investigation into these suspect areas which she had observed. This simple step should demonstrate a sincere intention on the part of that management to rid the scheme of all scam and ciean it up for deserving beneficiaries with an aim to making a mark in Nigeria's export development effort.
On account of the obvious positive impacts that the Export Expansion Grant scheme has exerted on Nigeria's export industry. it is my considered opinion that the blanket suspension is not the best solution under the circumstance. What Government needs to do, and Government does have the muscle and resources to do this, is to deplore all anti-crime machinery of State to fish out the perpetrators of the observed malpractices and speedily prosecute and punish them. As of today, export activities are paralyzed all over the country as people have now gone back to the drawing tables faced with confusions on export contracts already entered into with EEG as competitiveness factor. I think that rather than throw the baby away with the bath water, the problems should be frontally addressed to ensure that the scheme functions more efficiently as any attempt to either cancel or reduce the rate of the incentive would render the few companies that are still exporting in the country uncompetitive and unprofitable in the international markets. The negative effects of this scenario on the fragile and precarious economy of the nation will then be better imagined than real.
Boyede wrote in from Lagos
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