EEG Policy Implementation - Addressing the crisis in the non-oil export sector

Proshare

Sunday, May 17, 2015 4.21 PM / News & Investigations

Operators of Nigeria’s agribusiness and food sector of the economy, which includes value added agri exports, rice farming, milling, importation and distribution, packaged foods distribution, wheat milling, dairy products etc are frustrated with the governments handling, management and accountability of the EEG policy scheme.

In various exchanges sighted by Proshare over the course of a year, it would appear that a crisis ensues between operators, beneficiaries and administrators of the EEG policy targeted at the non-oil export sector.

Feedback from exporters who embraced the government policy indicates that they have been faced with serious problems ever since the Nigeria Customs Service issued out an “Alert” in August 2010 and stopped allowing utilization of NDCCs (Negotiable Duty Credit Certificates).

The exporters, we understand, had contacted and received assurances from the Ministry of Finance (MoF), the Ministry of Trade and Investments (MITI), and the Ministry of Agriculture (MoA) that the bottlenecks and impediments would be addressed/removed.

The Evidence

During the period under review and the evidence in the last fifty (50) months, the following best describes the reality, viz:

1.    Usage of NDCC’s have been severely restricted or stopped completely;

2.    The Exporters had to agree to pay 7% to the Customs in order to be able to use the certificates;

3.    There does not exist a clear basis/guideline on who gets to use NDCC even when NDCC’s have been allowed to be used sporadically in the past;

4.    The process appears to have been ‘subject to discretion’ and far from uniform or transparent;

5.    There did not seem to be any clarity on the type of scheme that would be applicable for 2014/5 calendar year exports’

6.    The EEG policy review exercise which was started in 2010 is apparently yet to be completed; and

7.    The Budget for 2014 includes a provision for N100bil of NDCC’s to be accepted by the Nigerian Customs Service – yet for some reason(s) this was not implemented.

The more pervading trend we see in the scheme is absence of clarity on government’s intentions and assurances that the government would abide by the policy that it has announced which is germane to businesses and investors.

While it is the government’s prerogative to formulate policies, it goes without saying that a policy, once announced, binds the government as much as it does the sector to which it applies – until the policy is changed or cancelled.

The policy once announced by the government should have the sanctity of compliance even as reviews are done and changes are made as and when necessary; with industry consultation.

Exporters, not absolving the complicity of some in the genuine concerns from the Federal ministry of Finance, have thus found themselves in a strange situation that after having committed substantial investments running into millions of Dollars across various export businesses, generating substantial foreign exchange earnings and creating jobs and livelihoods; are now facing a financial crisis because of the delay and refusal of the government to honour its commitments under the extant EEG policy.

A review of the publicly available set of financial data pertaining to export operations in Nigeria for a select group of firms indicating investments made, export revenue and employment generation across the chain/list of  export businesses since the inception of the current EEG policy in 2005 would indicate a lack of review on the part of policy makers that could have changed the discussion.

This data, if reviewed by the government would have led to the conclusion that the EEG policy has been instrumental in:

a)    Substantial investments in processing/manufacturing part of the value chain in exports;

b)    Substantial gains in export revenue;

c)    New export destination for Nigerian non-oil exports;

d)    Increased capacity utilization; and

e)    Increased employment and livelihoods.


Understanding the EEG/Export Business
The vast bulk of non-oil exports originate in Agri and Agro-allied sectors and the growth in non-oil exports acts as a spur in creating employment, generating more livelihoods and improving rural incomes. At a macro level the non-oil exports which were at a miniscule level of USD500-600mil in 2005 have climbed to over USD3bil in 2011 (as per CBN Annual reports). The various hurdles and stoppages in the scheme implementation since Aug 2010 have caused the non-oil export levels to stagnate around USD3bil since 2011. If care is not taken then the momentum can turn negative.

Yo imagine therefore that some government functionaries refer to the EEG as a “grant” and therefore the exporters should consider EEG as a “bonus”, one not based on their investment or pricing decision is a misalignment of grave proportions for the Nigerian economy and we should work towards closing this gap in understanding and execution.

To aid such an understanding of the main purpose of the EEG scheme, it will be well to realise that government formulated this policy to facilitate the realization of its economic objectives, including incentives which are given to offset/overcome the handicaps or disadvantages that local businesses face or/and encourage/push them to invest into desired areas. Government controls and administers tariff protection to support and protect local businesses targeting domestic markets from imports in recognition of the fact that the operating conditions in Nigeria places the local manufacturer at cost disadvantage vis-à-vis manufacturers in other countries. The same logic applies when the Nigerian exporter is striving to complete against the exporters of other countries (who operate with much more favorable operating environment) in the world markets.

The Consequence of Inaction
Not a few exporters have been forced to put on hold their new investments into processing plants and facilities, downsizing some high investment operations and generally holding up activities in the sector with clear impacts on quoted and non-quoted entities.

What can happen
Government has to decide and act on the following:

1.    The FGN should allow the NDCCs in the hands of exporters to be utilized freely as per the extant policy;

2.    The FMITI. FMoF and NEPC should be directed to reconcile the claims status with registered exporters and ensure that all pending claims up to and starting from 2012 are processed and disbursed within a few months, while it reviews the policy; and

3.    The FGN should clarify its stand/position on the EEG policy applicable for calendar year 2014/5 exports as it would seem that there was no follow through action on the circular issued by the Finance Ministry in Dec 2013.

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