Nigeria’s Export Expansion Grant (EEG) and FGN Promissory Notes As Market Settlement Instruments


Wednesday, May 08, 2019   /   11:5oAM  /  By Olufemi  Awoyemi, Teslim Shitta-Bey, TheAnalyst for Proshare Research



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Memo To The Market


Exporters in the country have amped up their well premised and deep concerns over what they see as the Federal Government’s (FGN’s) delayed implementation of the Export Expansion Grant (EEG) Scheme. The scheme, designed to encourage exporters to sell goods abroad with a tacit grant that allows them receive tax charge offs and other benefits is, according to evidence, in limbo. The scheme appears to have fallen flat as a result of the awkward payment arrangement designed by the FGN over the years which is now the responsibility of the Debt Management Office (DMO) to discharge by way of paying grants in the form of a reverse auction promissory note with long tenors.


A cursory review of discussions and robust engagements thus far reveals a consensus on the why and how but a divergence on the executable form and structure.


In a letter to the Vice President sighted on the matter, the Organized Private Sector Exporters Association (OPEXA), noted that they were “constrained to draw [the VP’s] attention to the the continued hardship and ill-treatment being inflcited upon the businesses and investors in the strategically important export sector especially as relates to the Promissory Notes (PN) program of the Federal Government of Nigeria”.


The challenge, as represented, had been that the government desire to ensure the much agreed upon transperancy and integrity of the exporter’s PN scheme, has eqaully stalled progress on the debt repayment project either due to structural inadequacies or consensus on the issue of what is equitable, fair and just.


More importantly, by adopting a reverse auction method of pricing PNs, the government has sacrified exporter funding viability for fiscal convenience and budgetary expedience; the challenge of addressing a lean government wallet has become more important than incentivizing exporters who will generate future revenues that will subsequently be taxed. In effect, The egg and the chicken seem to be in conflict over seniority.



Much Ado About A Program - Understanding the EEG


The EEG scheme was introduced by the FGN in 1999 to encourage non-oil exporters increase export volumes and move away from a mono-cultural economy but was suspended in 2013 before it was reintroduced in 2017. The FGN in 2017 felt that the reason for the scheme which was established by an act of parliament (the Export (Incentives and Miscellaneous Provisions) Act) in 1992 was still relevant.


The Incentives


Beneficiaries of the EEG are entitled to an export credit certificate (ECC). The ECC is similar to the previous negotiable duty credit certificate (NDCC) which was given to beneficiaries and used as a negotiable tax credit. However, quite different from the NDCC which was transferable between traders without restrictions on its title and tenure, the ECC is just valid for two years after it has been issued and is transferrable only once within the period.


The ECC has had alternative uses including the following:

  • The settlement of FGN taxes e.g. companies income tax, value added tax etc.;
  • The purchase of FGN bonds;
  • The settlement of credit facilities by the Bank of Industry, Nigeria Export-Import (NEXIM) Bank and Central Bank of Nigeria (CBN) intervention facilities; and
  • The settlement of liabilities owed to the Asset Management Company of Nigeria (AMCON).


Supporting Exporters v Ease of Doing Business – The Paradox


In line with the VP’s well-intentioned commitment to the ease of doing business in Nigeria, OPEXA’s letter of 10th, April 2019 requested that the VP’s office look into a number of issues surrounding the DMO’s administration of the EEG payment. The letter addressed to the head of the administration’s economic team, recalled that when the EEG was reintroduced in 2017 there was no prior discussion with the Debt Management Office over what it currently calls a reverse auction process for Promissory Note (PN).


OPEXA’s executives note succinctly that the FGN had previously approved a Promissory Note (PN) programme in 2017 which was finally passed by an Act of the national assembly (NASS) in 2018 for the payment of N195bn in claims due for payment in January 2019.


While the local exporters waited patiently for the NASS approval to be implemented by the DMO; they were not contacted in the intervening period until the 4th of April, 2019 when the public Debt Authority (DMO) called exporters to explain how the PN payment would work.


It was at this parley that it came to the attention of exporters that PNs will be issued on the basis of what the DMO referred to as a reverse auction.


This means that rather than an auction in which the value of an asset or debt is bided up, this auction approach actually sees the asset or debt bided down. In other words, the DMO represented to exporters that they would bid against themselves to give the government the largest discounts on their respective PNs and this would serve as the basis for payment over the next ten (10) years; an outcome that exporters frowned at.


Unhelpful to the exporters’ understanding of this approach was the knowledge that “some other beneficiaries in an equally critical sector covered by the PN program had been issued their Promissory Notes, without subjecting them to any further verification after the NASS approval and without any deduction/reduction being made by DMO on the PN approved for them by the FGN and the NASS.”


The exporters went on to note in their case against the reverse auction that, “imposing further reduction in value of Promissory Notes on non-oil exporters on the Promissory Notes receivable by them is not only unfair and unjust  but this kind of discriminatory approach is clearly contrary to the generally accepted standards of proper Due-Process’’.


OPEXA requested that the VP concede to its request by:

  • Withdrawing the reverse auction process of PN issuance;
  • Reducing the tenor of PNs to the shortest period possible but certainly less than the 10 year tenor of the present Notes. In addition all categories of PN holders should be treated equally; and
  • PN holders should be issued Notes with maximum tenor of three (3) years. This is against the background that most of the instrument holders have already suffered a delay of between 3 and 12 years in deferred payments. This they argued would galvanise the scheme and encourage larger production activity, employment and foreign exchange inflows.


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The DMO Rebuttal


In response to the VPs enquiry over OPEXA’s discomfort in respect the reverse auction and the huge discounts likely to occur on the PNs issued exporters, the DMO made a number of observations in defense of its approach to managing the exporter’s promissory instruments:


The Resolution of the National Assembly approving the issuance of Promissory Notes for the settlement of Exporters Claims in sum N195.09 billion for 270 Exporters was conveyed to the DMO by the Honorable Minister of Finance on February 8, 2019. As shown in the steps taken by the DMO in the processing of the issuance of Promissory Notes to Exporters.

a)     Based on the Terms approved by FEC for the issuance of Promissory Notes, one of which was that there should be a Document Review by an International Accounting Firm to be appointed for this purpose, the DMO could not have issued the Promissory Notes without first appointing the International Accounting Firm. The DMO completed the selection process for the appointment of the International Accounting Firm and other Transaction Parties (Financial Advisers and Legal Advisers) for the Programme and submitted a Memo to Council for approval in December 2018. Council’s approval was obtained on April 3, 2019.

b)     While still awaiting the approval of Council for the appointment of Transaction Parties, the DMO, on February 1, 2019, wrote to the NEPC requesting for documents evidencing the claims of the Exporters under the Promissory Note Programme in preparation for the review of documents by the International Accounting Firm.

c)      As a follow up to the letter to NEPC in paragraph 4(b), the DMO in a letter dated March 1, 2019, invited the NEPC for a meeting to discuss the modalities for the issuance of the Promissory Notes to Exporters. The meeting which was attended by the Executive Director/CEO of the NEPC held on March 6, 2019 with an agreement to hold a joint meeting with the beneficiary Exporters to explain the modalities to them.

d)     The NEPC/DMO joint meeting with the Exporters held on April 4, 2019 at the NEPC Conference Hall with the Executive Director/ CEO, NEPC in attendance

At the meeting, the DMO made a Presentation on the Promissory Note Programme as approved by FEC. In the Presentation, the following Terms approved by FEC were highlighted for clarity and preparation by the Exporters:

                    i.          That there will be a Document Review to be conducted by an International Accounting Firm;

                 ii.           That the Promissory Notes are to be issued through a Reverse Auction based on Discounts to be offered by the creditors including the Exporters; and,

               iii.           That Notes are to be issued for tenors up to 10 (ten) years.


On the subject of verification claims, the DMO insisted that verification claims should continue to ensure that fraud and false claims are checked and nipped early. It made no reference to the multiple exercises carried out thus far or how such will be discharged in a more efficient manner.


The DMO took time to also respond to the issue of the reverse auction for PNs. The agency noted that; the Council Memo issued on the matter, advised the process to proceed with the following actions/guidelines:

a)     The Promissory Notes will be issued through a Reverse Auction where creditors will Bid and the Discounts offered by them will be the determining factor in the allocation of the Promissory Notes.

b)     A total Discount of N718.77 billion at an estimated discount rate of 27.06% on the total claims of N2.655 trillion of the obligations to be settled from the issuance of the Promissory Notes was estimated. The Discounts were to save funds for the Government and complement the Document Review


On the vexatious matter of possible discrimination amongst PN holders the DMO observed that:


Promissory Notes have been issued to Oil Marketing Companies and State Governments without Document Review and application of Discounts (Reverse Auction). FEC’s approval exempted the claims of State Governments from the Document Review as these had already been verified by a Presidential Panel and further reviewed by the Bureau of Public Procurement. The claims of OMCs were not subjected to Document Review due to the social and economic implications of Fuel Scarcity that would have been caused by a strike planned by the OMCs. Also Mr. President’s approvals were obtained for the waiver of Document Review and Discounting for the OMCs and also for Discounting for State Governments


With regards to the lengthy tenor of the PNs, the DMO insisted that:


The provision of the Council Memo was that in order to manage the impact of the Promissory Notes on the Public Debt Portfolio, the Notes would be issued over a three year period with maturities spread over 10 years. This provision which is consistent with prudent management of the Public Debt, will achieve 2 objectives:

        i.            The increase in the Public Debt Stock will be gradual; and,

     ii.           Maturities will spread out to ensure that the Government can meet its obligations as and when due without default.


For this purpose Promissory Notes have been issued as follows:


Table 1: Promissory Notes Issued To Oil Marketers and State Governments


Creditor Category

Date of Issue

Amount (N)



Oil Marketing Companies

Dec. 14, 2018

177.448 bn



State Governments (I)

Dec. 28, 2018

153.82 bn



State Governments (II)

Feb. 2019

31.44 bn



State Governments (III)

April 1, 2019

277.89 bn


Source: Nigeria’s Debt Management Office (DMO)

Total Maturities:

  • 2019-N177.45bn; 
  • 2020- N153.82bn; 
  • 2021-N178.98bn (N31.44 bn already issued and an additional N147.54bn already approved to be issued to MDAs and Oil Marketers); 
  • 2022- N277.89bn.



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From Our Note Pad – Some Salient Remarks


While the federal government must be commended for wanting to settle debt obligations to Nigerian exporters in an orderly and transparent manner, it must come to terms with the principle of good faith that requires, at a minimum, that the method adopted is as important as the intention:

  • Adopting a reverse auction method of pricing-in the intrinsic value of the Promissory Notes to be issued to exporters creates a situation of double jeopardy. This comes into play as exporters under the adopted method are required to compete to reduce the cost of the Notes to the public treasury, thereby, subject themselves to the consequence of a diminution in value of the Notes relative to their face values and a fall in the purchasing power of the Notes as a result of the impact of inflation over the 10 year maturity of the instruments. This is clearly unfair, and a major disincentive to exporters. 
  • The reverse auction does not build into the pricing method the problem of tenor of the loans outstanding. Some of the debts have been owed for between 3 and 12 years, this outstanding debt tenor is not built into the repayment programme by way of a PN. Thereby creating perhaps a triple jeopardy factor for exporters.
  • Total exporters claims under the Promissory Notes scheme runs to about N350bn. If placed within the context of a total PN program of N3.2 trillion this constitutes between 10% and 11% of likely PNs outstanding. Imposing the reduction in value of PN to exporters by way of a reverse auction or by the extended 10 year tenor of Promissory Notes will not likely achieve very meaningful savings for the FGN, but it could frustrate the intention of the government to encourage exports.


Table 2:  Selected National Debt/GDP ratios in Africa


Debt to GDP %







South Africa


Ivory Coast






  • It is now over a month since the last stakeholder meeting of 4th April 2019 and exporters are yet to know the clear timelines for the issuance of the Promissory Notes. Admittedly the DMO needs to follow the guidelines of the Executive Council order on the issue but the longer this takes, the more it worsens the time value implications for beneficiaries. This could inhibit exporters from fresh investments that would propel non-oil sector growth and marginally address the problem of rising domestic unemployment currently estimated at 23.1%. Timely resolution of issues concerning the issuance of EEG PNs would achieve:

1.       Larger foreign exchange earnings;

2.      Higher GDP growth through faster than past trend line export growth; and

3.      Greater exporter confidence and trust in the PN programme.

  • Clearly, as present crude oil exports accounts for over 90% of Nigeria’s foreign exchange earnings. Crude oil extraction and export has relatively low employment intensity. Non-oil exports, on the other hand, is largely derived from Agriculture and Agro-allied industries and has a multiplier effect on the creation of new jobs. This needs to be encouraged and reinforced to address the debilitating local joblessness rate. The largest component of non-oil exports from Nigeria are cocoa and cocoa products, processed leather, sesame seeds, cashew nuts, rubber, fisheries etc and all of these constitute meaningful economic livelihoods for millions of farmers and workers across the country. The sectoral data also shows that non-oil exports have outpaced the overall Nigerian GDP growth of 1.93% in 2018. If the EEG is consistently implemented with a PN regime with no recourse to a reverse auction, this could lead to even faster export and GDP growth. The faster growth will reduce the ratio of fiscal deficit to GDP and also annual debt service to revenue ratios. 


  • To bring about faster economic growth, especially in the export sector, it seems necessary that the government immediately pay at least 60% of the value of the Promissory Notes (PNs) already cleared by PICA led by its inter-ministerial team while awaiting the completion of the document review exercise by the consultants appointed by the DMO. This would give exporters access to critically needed liquidity and enable them continue with near term export plans.


  • This would also assist certain states generate revenue from exporters, assisting such states in reducing their debt to state GDP ratios as exporters paid by way of PNs generate revenue and increase PAYE taxes and other charges and levies. Thereby supporting economic activities in these states.

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Notable Fiscal schemes are as good as their structure and their implementation, the FGNs EEG is a brilliant approach to supporting export growth while at the same time reducing the national fiscal debt burden, but in order to ensure that the scheme works in the interest of all stakeholders it must be reworked to ensure that all participants take something off the table. 


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5.      Incentives as Stimulus for Economic Growth: A Case for EEG

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