NIGERIA EXPORT INCENTIVES : CONCEPTS, CHALLENGES AND THE WAY FORWARD PRESENTED AT THE 3 RD NIGERIA NON-OIL EXPORT CONFERENCE, EXHIBITION AND AWARDS (NNECEA)

NIGERIA EXPORT INCENTIVES : CONCEPTS, CHALLENGES AND THE WAY FORWARD

PRESENTED AT THE 3RD NIGERIA NON-OIL EXPORT CONFERENCE, EXHIBITION AND AWARDS (NNECEA)

BY

TUNDE OYELOLA CHAIRMAN [MAN EXPORT PROMOTION GROUP]

Email: [email protected], [email protected],

Website: www.nigerianexporter.org

Tel: 0805 448 5292, 01-8988 701

MANUFACTURERS

ASSOCIATIONOF NIGERIA

EXPORT PROMOTION GROUP

CONTENT

MANUFACTURERS ASSOCIATION

OF NIGERIA


• BRIEF OVERVIEW OF MAN EXPORT PROMOTION GROUP

• NIGERIAN EXPORT INCENTIVES

• CONCEPTUAL ISSUES

• CHALLENGES

• WAY FORWARD

• CONCLUDIND REMARK

MANUFACTURERS ASSOCIATION OF NIGERIA EXPORT PROMOTION GROUP (MANEG)


OF NIGERIA

Manufacturers Association of Nigeria Export Group (MANEG) is one of the 13 sectoral group of Manufacturers Association of Nigeria (MAN). We are the largest group promoting exports of manufacturing exporters in Nigeria. Our services to members are:

• Non-oil Export Development: Identify markets for Nigeria Manufactured products in global market through the use of ECOBIZ website and report market intelligence to members.

• Non-oil Export advocacy: Advocacy and liaise with Nigeria Government and ECOWAS Commission on how best to develop and grow non-oil export of manufactured products in the sub-region, Africa and the world at large.


MANUFACTURERS ASSOCIATION OFNIGERIA EXPORT PROMOTION GROUP (MANEG)


OF NIGERIA

• Non-oil Export facilitation: Organise in house fora for member on exports and participate actively in all NEPC sponsored International Trade Fairs, Shows and Exhibition.

Other Ancillary export services• Assistance to access Export incentives such as Export Expansion Grant

(EEG), ECOWAS Trade Liberalisation Scheme (ETLS) etc.

• Assistance in processing Product Standard Certification such as Standard Organisation of Nigeria (SON), Mandatory Conformity Assessment Programme (MANCAP), Nigerian Export Promotion Council (NEPC) and National Agency for Food and Drug Administration and Control (NAFDAC) Certificate.


NIGERIA EXPORT INCENTIVES


OF NIGERIA

The Nigerian government over the years has implemented a number of far-reaching trade policies and institutional reforms to promote the non-oil exports and diversify the economy.

These policies were designed to provide incentives and rebates needed to reduce the high cost of production, boost production and, stimulate and diversify non-oil exports.

The Export Incentives and Miscellaneous Provisions Act 1986 and Nigerian Export Processing Zone Act 1991were enacted to achieve these objectives.

The brief details of the incentives are stated below:


MANUFACTURE-IN-BOND SCHEME (MIBS)


OF NIGERIA


The Manufacture-In-Bond Scheme came into force in January, 2001 and was designed to encourage manufacturers to import duty free, raw material inputs and other intermediate products whether prohibited or not for the production of exportable goods, backed by a Bond issued by any recognized Commercial Bank, Merchant Bank, Insurance Company or NEXIM.

The bond will be discharged after evidence of exportation and repatriation of foreign exchange has been produced.The brief guidelines for the execution of MIBS are:

• The Manufacture -In-Bond Scheme (MIBS) shall be applicable to export manufacturers only.

MANUFACTURE-IN-BOND SCHEME (MIBS)


OF NIGERIA


• For a manufacturer to enjoy the scheme the factory premises must be approved for that purpose by the Nigeria Customs Service and it shall periodically monitor the utilization of raw materials imported under this scheme until the Bond is fully executed.

• Under the scheme, manufacturers of export commodities will be

entitled to import duty-free raw material inputs, CKDS and intermediate inputs whether prohibited or not for the manufacture of export commodities.

• Interested manufacturers should apply to the Federal Ministry of Finance using the prescribed forms.

MANUFACTURE-IN-BOND SCHEME (MIBS) Cont’d

• Approval including the Import Requirement Certificate (IRS) should be obtained within a period of two months and transmitted to the Nigeria customs Service for implementation.

The Nigeria Customs Service will determine acceptable guarantee Bond issued by Commercial or Merchant Banks or NEXIM or Insurance Companies covering not less than 110 per cent customs duty payable on each consignment.


OF NIGERIA


EXPORT EXPANSION GRANT (EEG)


OF NIGERIA

EXPORT EXPANSION GRANT (EEG)It is a post-shipment export incentive scheme that is designed to induce non- oil exporters whose minimum annual export turnover is N5 Million.It was established by the Export (Incentives & Miscellaneous Provisions) Act No. 18 of 1986 and amended in 1992.

The scheme is implemented by the Nigerian Export Promotion Council (NEPC) and the Federal Ministry of Finance handles the policy issues.

Incentive Rate: The scheme operates based on the “Weighted Eligibility Criteria” (WEC) in assessing applications for EEG. The annual export baseline data supplied by applicant (company) is used in EEG assessment. The template below is used in assessing the incentive rate for every EEG applicant.


EXPORT EXPANSION GRANT (EEG) Cont’d

ELIGIBILITY CRITERIA THRESHOLD WEIGHT

Local value added 20% 20%

Local content 35% 20%

Employment (Nigeria)

500 20%

Priority Sector Manufacturing only 10%

Export growth 20% 25%

Capital Investment 10% 5%

Total Weight 100%


OF NIGERIA


EXPORT EXPANSION GRANT (EEG) SCHEME

SCORING KEY MANUFACTURING (Processed to finished products)

NON-MANUFACTURING (Processed to semi-finished)

MERCHANT & PRIMARY PRODUCTS EXPORTERS

Scores Band EEG Rate % EEG Rate % EEG Rate %

70 30 15 10

50 25 10 7.5

25 20 5 5

5% 15 0 0


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EXPORT EXPANSION GRANT (EEG)


OF NIGERIA

Eligibility: The EEG eligibility is based on the following criteria:Exporter must be registered with NEPC

Eligible exporter shall be a manufacturer or merchant of products of Nigerian origin for the export market.

An exporter must have a minimum annual export turnover of five million naira (N5 Million) and evidence of repatriation of proceeds of exports.Exporter Company shall submit its annual baseline data which includes Audited Financial Statement and information on operational capacity to NEPC.

Qualifying export transaction must have the proceeds fully repatriated within 180 days, calculated from the date of export.




OF NIGERIA

Application for EEG: All applications for EEG must be completed in three copies to be circulated to NEPC, CBN and Customs, with the following documents

• NEPC Export Certificate• Clean Certificate of Inspection (CCI) to include quality certification• NXP form duly certified by processing bank• Customs and the Pre Shipment Inspection Agent• SGD, duly endorsed by Customs both at front and back• Final Commercial Invoice• Bill of Lading• Evidence of full repatriation of proceeds (CBN confirmation of

repatriation of proceeds by exporter)• Certificate of Manufacture• Any other documentation as may be required.




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Payment of EEG: After due verification of the required export documents and approval by the EEG National Approval Committee, the exporter is issued Negotiable Duty Credit Certificate (NDCC) which is used for payments of import duty only. NDCC being a negotiable instrument could be discounted to a third party for the payment of their import duty only.

EEG Administration: The EEG Scheme is domiciled in NEPC and administered in conjunction with the Implementation Committee. The list of applicants to whom NDCC have been issued are forwarded to the Federal Ministries of Finance and Trade and Investment monthly. Beneficiaries of EEG are prohibited from enjoying other government industrial incentives e.g. MIBS


Export Development Fund Scheme (EDF)


OF NIGERIA

Export Development Fund Scheme (EDF): Export Development Fund (EDF) scheme was set up by the Federal Government of Nigeria to provide financial assistance to exporting companies to cover part of their initial expenses with respect to the following export promotion activities:• Participation in training courses, symposia, seminars and workshops in all

aspects of export promotion.

• Advertising and publicity campaigns in foreign markets.

• Export market research and studies.

• Product design and consultancy.

• Participation in trade missions, buyer-oriented activities, overseas trade fairs, exhibitions and sales promotion.


Export Development Fund Scheme (EDF) Cont;d


OF NIGERIA

• Cost of collecting trade information, and

• Backing up the development of export oriented industries.

EDF Scheme Administration: For exporting Company to benefit from the scheme, the following conditions must be satisfied:

• The Company must be registered as an exporter with the NEPC.

• It must be an exporter of any product of Nigerian Origin or services, e.g., Engineering, Consultancy, Shipping, Communications, etc.

• Its status must be satisfactory.

• It must have its marketing control in Nigeria


Export Development Fund Scheme (EDF) Cont;d


OF NIGERIA

• All applications for EDF assistance must be made in the prescribed application forms and must be accompanied with a detailed work plan of the project and a project document.

• The Committee on EDF shall communicate to the exporter the amount of assistance that has been approved for the Company out of which 50 per cent shall be paid on presentation of a Bond covering that amount by the Company.

• Exporters are expected to submit a detailed report of their undertaken activities which should contain among other things evidence of expenditure related to the export activities for which the initial funds have been provided.

• The Committee shall then consider the payment of the balance (or otherwise) to the Company and arrange for the discharge of the Bond.


Export Processing Zones


OF NIGERIA

The Nigerian Export Processing Zone Act 1991 provides for the establishment of geographical enclaves within Nigeria in which normal customs regimes do not apply.

The objective is to attract foreign investments and stimulate industrial production for export. Participants in the scheme will, among other things, enjoy duty free export production, elimination of all forms of bureaucracy, employment of foreign managers, 100 per cent ownership of business and the following additional incentives:-

• Legislative provisions pertaining to taxes, levies, duties and foreign exchange obligations shall not apply within the zone;


Export Processing Zones Cont’d


OF NIGERIA


• Repatriation of foreign capital investment allowed in the zones at any time, with capital appreciation on the investments;

• Rent free land at construction stage, thereafter rent shall be as determined by the Authority.

To apply for the scheme, the company will apply to the Nigerian Export Processing Zones Authority (NEPZA). The application process and the incentives for export process zones are also applicable to the establishment of export processing factories in any part of the country.

The export processing factories was approved by the government to encourage manufacturing for exports.

CHALLENGES


OF NIGERIA


The export Incentives which would helped Nigerian exporters cushion the effort of high cost of doing business in the country are too narrow and poorly implemented, for instance, the Export Expansion Grant (EEG), which is the only effective and functional export incentives in Nigeria has been suspended several times leaving the scheme with backlog of unutilized claims.

The challenges could be broadly categorized into:

1. Narrow Incentives Scope.

2. Poor Implementation.

3. Loss of Revenue and Competiveness in the Global Market.

4. Absence of Specialized Export Incentives.

CHALLENGES


OF NIGERIA


• NARROW INCENTIVES SCOPE: Export Incentives in Nigeria are known to lack the robustness required to stimulate export. The Non-oil Export Incentives are too narrow and restrictive.

For instance, it has been advocated that EEG being the only functional

Export Incentives be expanded to cover other taxes (company income tax and value added tax) paid by exporters along side the import and excise duty, but no policy action has been taken to effect this to enable exporters enjoy fully the purpose of the Incentives.

Today we all know the hassle in utilizing NDCC for import and excise duty.

CHALLENGES


OF NIGERIA

• POOR IMPLEMENTATION: This is the most reputable challenge facing our export incentives. The situation is either a particular export incentives is suspended at a time or totally abandoned.

For instance the Export Development Fund Scheme (EDFS) was originally designed by FGN to provide financial incentives to exporters to promote their export activities in the global market, but as at today not much is heard about this scheme.

Many exporters are spending huge investment that would been used to expand their plant to do export market development, publicity campaigns and other export promotion activities in the foreign market.


CHALLENGES


OF NIGERIA

We really have to look into this if we want non-oil export to grow beyond the level it is now.

• LOSS OF REVENUE AND COMPETITIVENESS IN THE GLOBAL MARKET: On a practical ground, many exporters factor in the incentives before quoting their export prices to their foreign buyers in other to be competitive.

In the event where this incentive is delayed or unpaid, it will automatically translate into huge loss to the company. As we sit here, many companies are counting their export losses and we must nip the situation at the bud now before it goes out of hand.


CHALLENGES


OF NIGERIA

ABSENCE OF SPECIALIZED EXPORT INCENTIVES: Here i want to draw our attention to what the Asian Tigers did to stimulate export of some specific industries.

India for instance have special export grant for their health care sector. Today India is one of the major exporters of health services and pharmaceutical products.

China also did same for their Electrical and Electronic Industry and they are doing export in the industry.

Government should consider special export incentives to develop some key industries like the textile industry in Nigeria.


WAYFORWARD


OF NIGERIA

The major concern of exporters today is how do we get out of this situation and make the incentive working and functional. In this presentation, we have taken pains to come up with some vital suggestion which we have noted over these years that if well implemented will help to make the incentive schemes function effectively and efficiently, and restore the confidence of exporters in the scheme again.

These suggested way forward are not in-exhaustive, thus we expect more suggestion during the discussion session.

• Adopting a Broad Approach to Export Incentives: Just as noted that export incentives in Nigeria are too narrow and restrictive Government should adopt a broad approach to ensure genuine exporters get what is due to them.


WAYFORWARD


OF NIGERIA


• The idea of expanding the use of NDCC for payment of other taxes (VAT and CIT) should be adopted and duly implemented by the Government to reduce the accumulation of unutilized NDCC for import and excise duties.

This indeed will also reduce the pressure on the Nigeria Customs Service on meeting their Budgeting revenue targets.

• Effective and Efficient Administration and Implementation of all the export Incentives enacted by the law: By effective administration and implementation of the incentives we imply that all the incentive are made functional to meet their respective objectives. If other incentives are made functional the exporters will have basket of incentives to apply for and thus reduce over dependence on the EEG which is the only functional incentive.

WAYFORWARD


OF NIGERIA

This would be made possible with adequate consultation with all the stakeholder in the external sector.

In terms of efficiency in the administration and implementation, government should close up the leakages (Fraud and Corruption) by monitoring the scheme periodically and imposing strict sanction on earring exporters and government officials.

Also a trust fund should be established to enable government pool funds together to finance the incentives.


WAYFORWARD cont’d


OF NIGERIA

Establishment of New Basket of Specialized Incentive Scheme: We want to propose establishment of new incentives scheme to take care of some specialized industries and sectors. Current, there is no export incentive designed specifically to develop the small and medium enterprises to penetrate the export market.

We recommend that Government and other related agencies should look into that also.

The recommendation are purposely left open in order to arouse key issues for debate and garner inputs from distinguished participants.


CONCLUSION


OF NIGERIA

We indeed appreciate the efforts of the convener and organisers of this event. The event has truly succeeded in bringing exporters, government and stakeholders together to discuss topical issues relating to Nigeria external sector and present resounding recommendations for effective trade policies in the country.

We look forward to a robust and all encompassing discussing from every one.


THANK YOU

FOR YOUR KIND ATTENTION.


OF NIGERIA


Documents

NIGERIA EXPORT INCENTIVES : CONCEPTS, CHALLENGES AND THE WAY FORWARD PRESENTED AT THE 3 RD NIGERIA NON-OIL EXPORT CONFERENCE, EXHIBITION AND AWARDS (NNECEA)