Lagos Free Zone offers a great value proposition for investors looking at Nigeria and West Africa, says Dinesh Rathi, MD16 June, 2023
Could you talk about port availability, its ease of logistics, and the export opportunity at LFZ? In addition to these, what are the other elements for global investors to set up their space at LFZ?
If you look at Nigeria, there are four key challenges. One is the code logistics, which gets solved because we have a port inside the Free Zone. The second is power because the local grid available is not sufficient to power the needs of business operatives. For this, we have our own power plant with an integrated grid which you can plug into and use. The third is the presence of a secure environment.
LFZ offers the highest level of security, and it gives you peace of mind to operate. The fourth thing, as you must be aware, people generally face in a country like Nigeria, or any other emerging market is the ease of doing business. So, when you look at LFZ, we offer a one-stop shop for all business operators. We have set up that infrastructure where the government regulatory agencies, are all housed, under one roof. And we as zone managers handle all the government-related matters. The entire documentation happens through our office and it’s very seamless.
Another aspect is the presence of applicability of fiscal incentives and benefits, which are over and above the four advantages narrated. If we take that into cognizance, then it’s a great value proposition for people looking at Nigeria and West Africa, to come and set up their businesses inside our zone.
I would like you to elaborate on the fiscal incentive aspect. Is the central or the regional government of Lagos involved in helping the investors set up? What are the concrete incentives that are being provided?
All Special Economic Zones in Nigeria are governed under an act of the central government or federal government. For Nigeria, it is the export processing zones act. The act allows you to operate in a tax-free manner. There are no federal, state or local government taxes you have to pay when you are doing business inside the Free Zone. So that’s a huge advantage.
The tax concession is one part. What else?
You don’t have an expatriate quota, so you can hire as many expatriates as possible. You just need a residence permit. You don’t need an expatriate quota. So that’s also a huge advantage. Apart from that there are concessions around custom duty. You can import duty-free inside the zone.
How do you sustain if you have this particular tax concession?
Interestingly, indirect taxation is still there. The customs duty and VAT for the products which are sold back in the Nigerian market are dutiable and you end up paying VAT on that as well. Those are good enough collections for the Government of Nigeria to facilitate an income tax concession.
On one hand, while you give the concession; the other hand, you are collecting the indirect taxation in the form of customs duty and VAT, which is far greater from a value-add perspective to the government than income tax.
Are investors bounds to have an investment guarantee as a part of your free zone? For example, a startup from India has an interest in spreading out its market in Africa beyond Lagos. How does it work?
If they’re looking for land, we are expecting them to take at least one to two hectares of land, and if they are looking at leasing warehousing or standard factories, then we are looking at 3,000 square meters minimum lease from our facilities.
That is the minimum benchmark we have for engaging with any of the clients. In terms of the commercial office space, we are happy with 500 square meters. We offer all solutions from a real estate perspective. We are a real estate boutique under one roof offering our solutions to anyone looking at establishing their business in Nigeria.
There have been two billion dollars of investment so far. Is it the real investment or the MoU?
These are real investments that have already happened. The port alone is $ 1.1 billion and the zone itself has taken up 500 million dollars. The port is a public-private partnership. So, it is the private sector which is the 75% owner- Tolaram i.e., Lagos Free Zone and China Harbour and engineering company are the private sector players.
Then we have the Nigerian government at 5% and there’s the Lagos State government at 20%. 25% is with the government entities and 75% is with the private sector players.
Is there any scope of funding for the investors as they wish to scale up?
They get soft funding but there is no concept of a grant within the Nigerian government’s policy framework at the moment. Although we have been advocating for it to promote FDI. There’s a new government now that would be looking at opportunities and ways to increase the FDI in Nigeria.
People look for transparency when they invest, and we know that global players like China and other countries are investing in your zone. So, do you think such transparency can be maintained when Chinese investments are so large?
The Chinese are the only part owners in the port. The zone 100% belongs to Tolaram. So, when they are dealing, they are dealing with 100% ownership of the zone management which is with Tolaram.
We are the people who will be chasing that, and we operate in a very transparent and fair manner. The Chinese interest is limited to the port and the terminal operation is with a French company called CMA CGM.