Wednesday, December 13, 2017/ 08:57AM /FBNQuest
The FGN has allocated N70bn for the export expansion grant (EEG) in the 2018 budget, according to local media reports. An allocation of N20bn this year has not been utilized because, the same source suggests, the paperwork required was excessive.
The higher allocation, if it is readily available, will be an attractive incentive and highly sought after by a wide range of exporters from steel products and vehicles to cashew nuts and beer. Quarterly non-oil exports on a customs basis are running at about N150bn.
There have been some bold claims made about the impact of the grant in its previous format. We would like to attribute the strong growth of non-oil exports in the 2000s to the grant. However, other factors may have had a part to play such as commodity prices.
The grant was scrapped in 2013 due to widespread abuse. It emerges that sizeable historic claims within the EEG were not paid, and form part of the unpaid bills of the previous administration unearthed in December 2016. These debts are to be securitized, and amount to as much as N3.3trn in the highest estimates in circulation.
Non-oil export growth would come off a low base. In the 12 months to June 2017, oil and gas provided all but US$3.2bn of merchandise exports of US$38.7bn on a balance-of-payments (BoP) basis.
On a customs basis, data from the National Bureau of Statistics for Q3 2017 show that crude oil and other oil products accounted for 96.5% of exports. We find no strong evidence of seasonality. The share in Q2 2017 was 95.6%, and in Q3 2016 97.1%.
NAFEX is the fx window for portfolio investors, non-oil exporters and other economic agents. However, there are no figures to break down the healthy turnover.
We would argue that the FGN should devote more resources, human and financial, to promoting import substitution than to non-oil exports. It is difficult to say which path is more supportive of job creation. The case is more clear-cut in terms of fx savings and easing BoP pressures.
Whenever Nigeria becomes self-sufficient in petroleum products and rice, for example, the savings will be substantial. The FGN may not be building the refineries and rice mills but it is providing infrastructure and an enabling environment. Once the country is supplying the domestic requirement for a product, it could then look to penetrate export markets, particularly in the sub-region.