Economic Zones as Catalyst for Industrialisation and Growth27 June, 2023
There is no time better than now for the new administration led by President Bola Tinubu to take a critical look at the economic zones, regarded as the drivers of industrialisation and engine of economic growth and address the challenges inhibiting their optimal performance, Kunle Aderinokun writes
With the advent of a new administration led by President Bola Tinubu, issues of economic development and growth have been brought to the front burners. Critically looking at the issues has become more expedient than ever, given the woeful economic performance of the immediate past administration of former President Muhammadu Buhari.
Chief amongst the bouquet of activities to aid the acceleration of Nigeria’s economic development and growth is industrialisation and economic zones have been identified as the major drivers.
An economic zone is an area, which has a defined geographical boundary, comprising multiple sectors and it is one that is established to attract investments, develop socio-economic, and protect national defence and security. The economic zone was designed to generate additional economic activities and employment opportunities as well as promote the export of goods and services produced within the area. Essentially, economic zones, which promote industrialisation, are foreign trade-oriented areas, which integrate science, industry and innovation with trade. Foreign firms benefit from preferential policies, such as significantly low taxation or no taxation, reduced regulations and special managerial systems.
The history of economic zones dates back to the 1970s when China made a paradigm shift in its economic policy to the extent that the country reformed and opened up its economy. The economic zones initiative was designed to make China competitive against industrialised nations of the West and the rising regional power like Japan, Singapore, Korea, Taiwan and Hong Kong. As part of the policy, seven major Special Economic Zones were later created, located in the cities of Shenzhen, Xiamen, Hainan, Zhuhai, and Shantou, as well as city districts including the Pudong New Area of Shanghai, and the Binhai New Area in Tianjin.
A special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country. The special economic zone is a broad term which covers a wide range of zones, such as free-trade zones, export-processing zones, industrial parks, economic and technology-development zones, high-tech zones, science and technology parks, free ports, enterprise zones, and others.
In Nigeria, as a key policy instrument in the realisation of the industrialisation agenda, the federal government, in 2016, established the special economic zones scheme. The idea was to improve the investment climate by providing a competitive incentive regime, streamlining administrative procedures and offering world-class infrastructure aimed at attracting capital investment for industrial development.
To date, there are six special economic zones established by the federal government. The special economic zones, which operate as free trade zones, export processing zones and free ports, amongst others, have 52 free trade zones licensed by the Nigeria Export Processing Zones Authority (NEPZA). As prosperous as the scheme may have been designed to be, the federal government has not been able to optimise its potential. Some of the free trade zones are inactive while the active ones operate sub-optimally as they are bedevilled with challenges. The challenges include multiple taxations, official bureaucracy, meddlesomeness of government agencies, deficient infrastructure, and inadequate government support, amongst others. It is so unfortunate that these challenges are age-old and perennial.
Nevertheless, of all the free zones in the country, those in Lagos state stand out. It’s wonderful and impressive that the state has completely leveraged the Federal Government Free Trade Zone Scheme to further fast-track its industrial growth while ensuring that 18 out of the 52 Free Trade Zones in the country are located on its soil. These zones are listed as Lagos Free Zone (LFZ); Snake Island Integrated Free Zone (SIIFZ); Lekki Free Trade Zone (LFTZ); LADOL; Newsrest ASL Services & Logistics; Dangote Industries; and Alaro City Development Free Zone Badagary Creek Integrated Plant.
Others are: Nigeria Aviation Handling Company (NAHCO); Eko Atlantic; Ogororo Industrial Park; Tomaro Industrial Park; NASCO Town FZ; Quit Aviation Services; Maritime Services FTZ; Cocoa Beach & Wellness Valued-Chain Resort; Flour Mills FZ and Oils Integrated Logistics Services. According to NEPZA, these free zones with an estimated investment value worth $25 billion are harbouring some of the most renowned international brands. Among the listed free zones, Lagos Free Zone, Eko Atlantic Free Zone and Dangote Refinery are making the strongest impact on the economy.
In the Lagos Free Zone, promoted by Singapore-based Tolaram, are some world-class enterprises like Colgate; Lekki Port; BASF; Insignia; Power Oil; Arla; HEC; Westminster; Boskalis; CNC; SBS; Kellogg’s among others.
Of note is the Lekki Deep Sea Port, which remains a world-class maritime infrastructure worth $1.5 billion with the capacity to mainstream the entire West African logistic potential into the global market.
Reference will also be made to the feat of planting the largest Colgate PalmOlive Company in Africa in the Lagos Free Zone. Colgate PalmOlive brought in an estimated investment of $50 million into Nigeria. With this, the country is saving billions of dollars that would have been used in importing all the home goods produced by this company.
Besides, there is Eko Atlantic Free Zone, which is located in an entirely new coastal city called Eko Atlantic City, being built on Victoria Island in Lagos.
It is regarded as a focal point for investors capitalising on rich development growth based on massive demand and a gateway to emerging markets of the continent.
The Lagos Government under Governor Bola Ahmed Tinubu struck this deal that salvaged Victoria Island’s estimated $170 billion investments from being washed off by perennial ocean surges. Today, the action of insightful leadership provided by President Bola Tinubu, when he was the state governor, has bestowed international status on that area of Lagos with many springing economic opportunities including harbouring the world’s largest Embassy of the United States of America.
Another one, Dangote Refinery, a $ 19 billion investment, recently inaugurated by former President Muhammadu Buhari was an idea by the visionary leadership of the Lagos State government. In fact, the receptiveness of the Lagos State government also created the right ambience for the Private Public Partnership to birth the petroleum refinery owned by Alhaji Aliko Dangote.
The Dangote Refinery, a free trade zone lying sprawlingly in the Lekki peninsula, is expected to have the capacity to process about 650,000 barrels per day of crude oil, making it the largest single-train refinery in the world.
Notwithstanding the huge investments and massive infrastructure development in the free zones and achievements recorded, there are still some gaps that need to be covered.
Executive Secretary, of Nigeria Economic Zones Association, Mr. Toyin Elegbede, said, “There is a need to revisit a lot of the policies that protect the free zones establishment. On the issue of whether the free zone is a tax-free haven or not, there is the need to look at the law and explain to people like the FIRS that Section 8 invites investors and promises them a lot of things in terms of incentives. But it’s unfortunate that the FIRS is now holding the investors to ransom and varying how they pay tax. Investors are complaining about that.”
Elegbede also noted that the current legislative frameworks- NEPZA Act 63 of 1992 & Oil and Gas Free Zones Authority (OGFZA) Act of 1996- that guide the operations of the Free Zone Scheme in Nigeria are obsolete. “It is pertinent to have an up-to-date SEZ law to reflect current global realities for optimal regulation, development, management, and operations of Special Economic Zones aimed at accelerating economic growth and industrial development of Nigeria. A new Special Economic Zone bill has been presented to the National Assembly for enactment, but this is yet to be finalised and passed into law,” he stated.
The executive secretary also mentioned that the offshore banking guidelines are to ease doing business in the free zones by reducing the bottlenecks associated with accessing and sourcing foreign capital, as well as repatriating profits, thereby enhancing investors’ confidence in doing business in the Free Zones. “In order to actualise this, an inter-agency committee was constituted which subjected the guidelines to national consultations with stakeholders arriving at a draft,” he added.
The federal government, according to him, is graciously requested to intervene for the Central Bank of Nigeria to expedite action in approving the offshore banking guidelines for banking operations in the Free Zones which has since been finalized and ready for adoption.
On the relationship with Federal Inland Revenue Service( FIRS), Elegbede disclosed that there were grey areas identified in the MOU signed with the tax authority that were being streamlined to complement the mandates and roles of NEPZA, OGFZA, and FIRS in the discharge of their statutory responsibilities. This should be concluded expeditiously.
Interestingly, Tinubu, in his inaugural speech, has promised local and foreign investors to review all their complaints about multiple taxations and various anti-investment inhibitions. He also assured investors and foreign businesses of the repatriation of their “hard-earned dividends and profits home.”
Elegbede expressed pleasure on the assurances from the president. “We know Mr. President’s pedigree in the free trade zone scheme in Nigeria and we shall take his words for it. We are also willing to partner with all relevant stakeholders to ensure that Mr. President’s promises are kept.”
Also raising some specific concerns is Lagos Free Zone, a major stakeholder in the special economic zones. LFZ is also a member of the Nigeria Economic Zones Association.
The Managing Director of LFZ, Mr. Dinesh Rathi, noted that some existing trade agreements reached to boost intra-Africa and global trade did not favour SEZs. “For example, according to the ECOWAS Trade Liberalisation Scheme (ETLS), SEZs are excluded from the ‘’country of origin” definition, thereby prohibiting free trade of SEZ-manufactured products within West Africa and creating a prejudice against SEZs. This means that SEZs in Nigeria cannot be leveraged as hubs for West African Exports due to this scheme. On the contrary, the inclusion of SEZs in the definition of “country of origin” would ensure that Nigerian SEZ-manufactured products are eligible for free trade within West Africa,” he stated.
Besides, he also pointed out, there has not been a deliberate effort by the federal government to attract Foreign Direct Investment and position Nigeria as the manufacturing bowl of Africa. According to him, it is imperative for the federal government to launch a sustained and concerted investment promotion campaign to present Nigeria as a compelling investment destination for global manufacturers. “This is critical to unlock the full extent of benefits that could accrue to Nigeria under the African Continental Free Trade Area. Most ideal source markets for such a campaign would be USA, UK, EU, China, India and Japan. All government agencies like NEPZA, NIPC and NIPC should present a concerted campaign together with private sector developers of free zones in Nigeria. “
Acknowledging that the NEPZA Act and the Free Zone regime had stood the test of time over the past three decades and had allowed for the growth of Free Zones in Nigeria to date, Rathi, however, expressed the belief that the current FZ ecosystem had outgrown the original Act of 1992 in more ways than one. For example, he pointed out, the FZ entities are currently excluded from listing on the capital market. Notwithstanding, he said, there is already an amendment to the Act which is in its second reading, asking the federal government to give its support to have this Amendment passed expeditiously and implemented to solve this and other issues such as the nebulous legal personality of FZ entities.
The chief executive is also asking that the objectives of this new Nigeria Customs Service Free Zones command, domiciled at the LFZ be aligned with NEPZA’s goals and that the new systems for duty computation of SEZ-related trade be well-implemented in letter and spirit. NCS’s trade facilitation efforts will be catalytic to growing the Free Zone regime in Nigeria. While saying the stationing of the new command at the LFZ to service all the different zones is a great step in the direction of ease of doing business, he believes the alignment would further improve the customs collection at the Free Zone.
By addressing the challenges of the economic zones with a view to enabling them to achieve the purposes for which they were established, the new administration will be putting Nigeria on the path of industrialisation, development and economic glory.