Nigeria’s free zones: Powering inward investment and industrial growth
07 April, 2025
Nigeria’s economic landscape has been significantly shaped by the emergence and growth of its free zones. However, the free zone policy in the country has been drawing a lot of negative attention over the past few weeks in the context of ongoing dialogue on tax reforms and the proposed wide-ranging changes to the extant policy regulating the incentives available for free zone entities.
These designated areas, designed to offer a business-friendly environment through fiscal incentives and simplified procedures, have become vital engines for attracting Foreign Direct Investment (FDI) and driving industrialisation across the nation. While discussions around their regulation persist, the fundamental role of free zones in Nigeria’s economic advancement cannot be overstated.
Since their inception, Nigerian free zones (including all free zones regulated by NEPZA and OGFZA) have attracted substantial foreign capital of over $65 billion. Many of these designated free zones are promoted by the private sector, where the developers risk billions of long-term capital to attract foreign investors by developing the trunk infrastructure within the zones and providing a relatively high ease of doing business for the incoming investors. These inward investments have led to the creation of critical industrial enclaves with reliable infrastructure and indigenisation of manufacturing that have culminated in the creation of over 500,000 direct and indirect jobs. Furthermore, the presence of free zones can facilitate skill development and technology transfer, which can lead to the creation of higher-quality jobs requiring specialised expertise. The significant number of indirect jobs associated with free zones indicates a broader positive economic impact. These indirect jobs are created within supply chains, logistics networks, and in local communities surrounding the zones, demonstrating a multiplier effect on employment. The statistics on revenue generated for the government speak for themselves. As of January 2024, the regulatory authorities of free zones in Nigeria, the Nigeria Export Processing Zone Authority (NEPZA) and the Oil and Gas Export Free Zone Authority (OGFZA), confirm that over Two Hundred Billion United States Dollars ($200,000,000,000) in foreign investment and Nine Hundred Billion Naira (₦900,000,000,000) in local investment have been made in Nigeria’s free zones. In the past five years, the zones administered by these two regulators have generated over Six Hundred Fifty Billion Naira (₦650,000,000,000) for the government through various agencies and schemes, including the Nigeria Customs Service, Nigeria Ports Authority, Nigeria Immigration Service, and P.A.Y.E.
These figures clearly demonstrate the power of free zones as revenue generators and magnets for international investment, injecting crucial capital into the Nigerian economy. The return on investments made by Nigeria through the incentives extended to free zone entities are very attractive due to the indigenisation of manufacturing and creation of vast employment opportunities for our youth.
This success story is exemplified by notable Free Zones such as the Lagos Free Zone (which includes the Lekki Deepsea Port), Alaro City Free Zone, Lekki Free Zone, Bundu Free Zone, Dangote Industries Free Zone, Snake Island Free Zone, Eko Atlantic Free Zone, Ogun Guangdong Free Zone, and Onne Oil & Gas Free Zone, amongst others. These zones are strategic economic assets that contribute to Nigeria’s global competitiveness and add tremendous value to the Nigerian economy.
Let us look at the impact generated by some of the projects based in these designated free zones that underscore the success stories of the policy. Dangote Refinery, the largest single-train refinery in the world, has fundamentally altered Nigeria’s energy landscape. By significantly reducing reliance on imported fuel and increasing domestic refining capacity, it has not only ensured energy security but has also positioned Nigeria as an emerging net exporter of refined petroleum products, strengthening the country’s foreign exchange earnings and economic resilience.
Lekki Deep Sea Port, situated in Lagos Free Zone, started commercial operations in April 2023 and is the deepest port in the country, projected to become the biggest hub for gateway and transhipment cargo in Nigeria. It was set up with a total FDI commitment of $1.05 billion, majorly contributed by China Harbour Engineering Company (from China) and Tolaram (from Singapore). The project is estimated to generate over 160,000 jobs at full capacity.
Similarly, Ariel Foods, situated in Alaro City, is a top supplier to UNICEF and the World Food Programme globally and currently exports its products to over 17 countries. It plays a major role in food and population security in West Africa through the production of Ready-to-Use Therapeutic Foods to feed malnourished children.
The Oil and Gas Free Zones (OGFZA) also represent a major success story. They have attracted significant investment from major International Oil Companies (IOCs), which has been crucial for the development of Nigeria’s oil and gas infrastructure and related services. The Onne Oil and Gas Free Zone has been recognised as a highly successful free zone on a global scale, enhancing Nigeria’s reputation as an investment destination within the oil and gas sector. Beyond these prominent examples, other companies like Quits Aviation Services FZE demonstrate that both multinational corporations and local businesses can thrive within the free zone framework.
Notwithstanding the success stories, the concern that the challenges of sharp practices and regulatory loopholes within Nigerian free zones is a valid one. There is a critical need for us to strengthen the regulatory oversight and enforcement capabilities of free zone regulators. This includes increasing the frequency and rigour of monitoring and inspections within the zones and imposing robust penalties on businesses found to be in violation of regulations. Nigeria can also learn from the best practices adopted by successful and well-regulated free zone models in other countries, such as those in Panama, the UAE, or China, adapting relevant strategies to the local context. The right approach would be for Nigeria to develop its own model for regulating free zones and to enhance the systemic checks and balances without compromising the benefits of this policy to itself or incoming investors.
The Nigerian government stands at a critical juncture. To dismantle the framework that has yielded billions in investment and hundreds of thousands of jobs due to isolated incidents would be a grave misstep. Instead, by implementing robust regulatory measures, leveraging technology, and adopting best practices, Nigeria can ensure that its free zones continue to serve as powerful engines of economic growth, benefiting both investors and the Nigerian people alike. We urge policymakers to strengthen, not dismantle, this vital component of our national economic strategy. We must recognise that collective punishment, while convenient, may not be the best solution over the long term.
