A Call for Renewed Non-oil Export Support

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Thursday, August 11, 2016 9:21am /FBNQuest Research

The Manufacturers Association of Nigeria (MAN) has called for the restoration of the export expansion grant (EEG). At the same time, it has recalled that the scheme was launched to reduce the dependence of the economy on oil for foreign-exchange earnings.

This objective would appear consistent with core FGN policy. The association argues that the grant helped to push up non-oil exports from US$700m in 2005 to US$2.9bn in 2013. We are unclear about the source of these figures but can say they are not drawn from the CBN’s balance-of-payments (BoP) series.

MAN also argues that the grant contributed to an extension of the value chain in domestic manufacturing. This process is also official policy.

On a BoP basis (see chart), we can see healthy growth in non-oil exports through to 2014. In time, the common external tariff within the Economic Community of West African States could provide a further boost.

It is likely, however, that import substitution has a greater and more rapid impact on the BoP than export diversification. In the first instance, this means food products such as rice. A second stage within two years covers petroleum products, and subsequent additions could include steel and vehicles.
 


When the EEG was withdrawn in 2014, officials pointed to extensive abuse of the system. This would not be the first case of leakages from export incentives. In Kenya in the 1990s it emerged that a local company (Goldenburg) had successfully claimed very large rebates from the central bank for exports that were at best overstated. 

It should be possible to operate a system of export incentives that fulfils its purpose without becoming a vehicle for large-scale fraud. Numerous governments have achieved as much.

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