Nigeria’s non-oil export has continued to suffer a huge setback due to various challenges. Top on the list include, logistics challenges in moving products to the ports and the lingering issue of unsettled Export Expansion Grant (EEG) claims. With the unsettled incentives converted to promissory notes, there are concerns among operators about the payment arrangement by the Federal Government, through the Debt Management Office (DMO). FEMI ADEKOYA writes.
Among other incentives, the Export Expansion Grant (EEG) Scheme was designed to encourage exporters to sell goods abroad with a tacit grant that allows them to receive tax charge offs and other benefits.
In 2013, the Export Expansion Grant (EEG) was re-designed from Negotiable Duty Credit Certificates (NDCCs) but not long thereafter, was suspended for another review following allegations of abuse. The scheme was suspended and reactivated eight times between 2005 and 2013.
Despite the review, non-oil exporters have yet to be compensated, thus leading to a lull in the activities of the sector as well as in its contributions to the economy.
Between 2013 and 2018 since the incentives needed to drive non-oil export were suspended for a review, non-oil export output has remained inconsistent with the diversification agenda being promoted by the Nigerian government.
The revival of the incentive scheme, according to the Chief Executive officer of Nigerian Export Promotion Council (NEPC), Segun Awolowo, was scripted to promote the value-addition industry, especially in the agricultural sector.
The suspension of the EEG scheme by the government for almost six years generated several criticisms from agro-processors and players in the value-addition sector, who described it as a disincentive and elixir to raw commodities’ exportation.
There were expectations last year that some of the backlogs would be cleared, but the delayed implementation of the 2018 budget, under which provisions were made for some debt payments, prolonged the issuance of promissory notes to the beneficiaries.
With the approval however, controversy seems to continue to trail the scheme as a result of the payment arrangement designed by the Federal Government 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.
Exporters kick against DMO’s auction arrangement.
In a letter to the Vice President, made available to The Guardian, the Organized Private Sector Exporters Association (OPEXA), noted that they were “constrained to draw (the VP’s) attention to the continued hardship and ill-treatment being inflicted upon the businesses and investors in the strategically important export sector especially as relates to the Promissory Notes (PN) programme of the Federal Government of Nigeria”.
“The challenge, as represented, had been that the government desire to ensure the much agreed upon transparency and integrity of the exporter’s PN scheme, has equally 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 sacrificed 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”, OPEXA explained.
OPEXA’s executives note that the federal government had previously approved a Promissory Note (PN) programme in 2017 which was finally passed by an Act of the National Assembly in 2018 for the payment of N195bn in claims due for payment in January 2019.
The exporters noted that they were not contacted in the intervening period until the 4th of April, 2019 when the public Debt Authority (DMO) called them to explain how the PN payment would work.
According to OPEXA, they were informed 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 10 years; an outcome that exporters kicked against.
The exporters noted that “imposing a further reduction in the 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’’.
DMO explains Federal Government’s repayment arrangement
In its response, the DMO explained that it made a presentation on the Promissory Note Programme as approved by Federal Executive Council (FEC), following which some terms approved by FEC were highlighted for clarity and preparation by the Exporters.
According to the DMO, the terms included the need for a document review to be conducted by an International Accounting Firm; 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, 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, although it made no reference to the multiple exercises carried out thus far or how such will be discharged in a more efficient manner.
On 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 certain actions/guidelines.
The actions include that 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; and 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.
Need for consensus
For the exporters, withdrawing the reverse auction process of PN issuance and reducing the tenor of PNs to the shortest period possible but certainly less than the 10-year tenor of the present Notes would galvanise the scheme and encourage larger production activity, employment, and foreign exchange inflows.
Considering that most of the instrument holders have already suffered a delay of between three and 12 years in deferred payments, industry observers urged the Federal Government to 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, according to them, would give exporters access to critically needed liquidity and enable them to continue with near term export plans.
Similarly, for lasting consensus, interests of all stakeholders need to be aligned to ensure a win-win situation for all and the economy at large.