Factories shut down as FG dithers on Export Grant

A number of export-oriented companies in Nigeria have closed down in the last 28 months following the Federal Government’s continued suspension on the Export Expansion Grant (EEG).

Exporters who spoke to BusinessDay said unless the EEG is factored into Nigeria’s supplementary budget, it may be difficult for the economy to move away from its lingering foreign exchange crisis and persistent job losses.

“It is alarming to see several factories and export firms close down in one fell swoop because many of them have obligations tied to the Negotiable Duty Credit Certificates (NDCCs).

Many of them borrowed from banks and other sources to do transactions and when the government could not honour the NDCCs for over two years, they shut down,” Tunde Oyelola, chairman, Manufacturers Association of Nigeria Export Group (MANEG), told BusinessDay.

“The level of uncertainty in the scheme is also bad for exporters.

Export business requires certainty because you are going to a different market with its own peculiarities and challenges. There is the need to include the EEG in the budget or supplementary budget, in case it was not captured in the recently presented budget,” Oyelola said.

Ede Dafinone, CEO of Sapele Integrated Industries, said: “The EEG has been largely successful in the last ten years as exports have grown significantly. But the Negotiable Duty Credit Certificates (NDCCs) have not been honoured at the ports for over a year. So I would expect a decline in non-oil export earnings.”

Obiorah Madu, chairman of the Export Group of the Lagos Chamber of Commerce and Industry, said at a forum that the government should reinstate the EEG so that the country can have more foreign exchange and stronger foreign reserves.

The Export Expansion Grant (EEG) which started in 2005 is a post-shipment incentive designed to assist exporters to increase the volume and value of exports, diversify their export markets and enhance their global competitiveness, despite the high cost of production due to infrastructure deficiencies.

The essence of this scheme is to subsidise export products from Nigeria and make them price competitive in the global market. Transactions are then done through the NDCCs.

The scheme has however been suspended seven times since 2005. Since the last 120 months when the EEG was established, the scheme has been suspended for a cumulative period of 61 months. The last suspension began in August 2013 when the Federal Government claimed the scheme was undergoing a review. But nothing was said about the outcome of the review till then president Goodluck Jonathan left office last May.

The suspension and the present government’s calculated silence on EEG have brought several export companies to their knees. RMM Global, an exporter of processed foods and hibiscus flower, has closed shop with over 700 workers losing their jobs. Unutilised NDCCs have also closed down Multi Trex Integrated Foods Limited, exporters of processed cocoa, located along the Lagos-Ibadan Expressway.

A total of N232 billion worth of NDCCs are still outstanding at the Nigerian Export Promotion Council (NEPC), awaiting approval at the Ministry of Finance, or remain unutilised in the hands of the beneficiaries.

A report entitled ‘EEG Scheme Impact Assessment Survey on the Beneficiaries,’ prepared by the NEPC, shows that EEG drove up the value of non-oil exports from $0.7 billion in 2005 to $ 1.8 billion in 2008, with significant investments in processing facilities, particularly in tanning of hides and skins, cocoa, rubber, cotton, textiles, sesame seed, Gum Arabic and cashew products.

The EEG also pushed non-oil exports from $700 million to $2.9 billion between 2005 and 2013, with export of key commodities to ECOWAS and the European Union, according to data from exporters.

The NEPC survey reveals that out of the 28 agricultural exporting companies which earlier participated in the EEG, four have suspended operations while have folded up. Similarly, out of 17 households and chemical companies visited, one has suspended operations, while four have folded up. Nine companies in the solid minerals sector were visited. While two companies had folded up, three were not in operation.

The survey shows that annual exports from Nigeria experienced a reduction of four percent in 2013 and became worse with a reduction of 33 percent in 2014.

The most striking negative impact is that total employment of the selected beneficiaries, which stood at 39,394 in 2009, drastically reduced by 55 percent to 17,904 in 2014.

The leather sector which is mainly export oriented, experienced a massive decline in 2014 of about 25 percent in export revenue, compared with the corresponding year, according to the report.

“It was observed that rather than engage in non cost competitive exports, especially in the face of policy inconsistency surrounding the usage of the NDCCs, processed foods and beverage companies rather sold locally, thereby reducing their annual exports, and mitigating the impact of the non-utilisation of the NDCCs,” the report also said.

In the rubber industry, employment which summed up to 8,703 in 2009 dropped to 2,848 in 2014. A 99 percent drop in NDCC utilisation in the sector resulted in 62 percent loss of jobs between 2013 and 2014, says the survey.