BusinessDay

Nigeria’s free trade zones crawling 29 years after

Nigeria has not derived any significant benefit from Free Trade Zones (FTZs) 29 years after the country adopted the model from China to drive industrialisation, diversify the economy and increase foreign direct investment (FDI) due to what stakeholders described as persisting barriers to trade in the country.

According to the stakeholders and economic experts, inter-agency rivalry, infrastructural deficit, unreliable utilities, insecurity, ambiguous and outdated policies remain major bottlenecks in the development of these zones across Nigeria.

The country adopted the free trade zone model in 1992 following the enactment of Nigeria Export Processing Zones Act 63 in 1989, after China achieved rapid, inclusive and sustainable industrialisation, job creation, and diversified export earnings on the back of Special Economic Zones. China has been able to use the model to control the world’s markets, logistics and services.

Today, there are over 3,000 special zones in China and each has up to 500 companies. Dubai, Singapore, South Africa, Kenya, Ethiopia, and Malaysia are examples of other countries that are leveraging these zones to leapfrog development. Kenya and Ghana have the highest number of zones in Africa, numbering about 160 to 200 each.

But Africa’s largest economy has only 42 active zones according to the Nigeria Export Processing Zones Authority (NEPZA), and about 500 companies in all the zones combined.

Read Also: Nigeria’s free trade zones could unlock Africa’s digital economy

Martins Odeh, spokesperson of NEPZA acknowledges that the development of FTZs in Nigeria has been slow as several factors are working against investment inflows. He notes, however, that it took Dubai about 30 years to attain its current feat using FTZs.

Experts stress that the creation of FTZs is one of the fastest ways to boost industrialisation, but regret that many of the zones across Nigeria are in a ‘pathetic state’ while the country’s level of industrialisation, non-oil export and annual FDI at $2billion is still very low.

“FTZs in Nigeria have not had any significant impact due to infrastructural deficiency. The logistics of taking goods to and from the trade zones is a nightmare. This makes it difficult to facilitate production and export. FTZs in Nigeria are just glorified industrial layouts,” Johnson Chukwu, economic expert and chief executive officer, Cowry Asset Management Ltd., said.

According to him, Nigeria does not have the level of infrastructure particularly logistics, needed to produce competitive goods. Chukwu stressed that Nigeria must create the logistic supply routes from ports to trade zones as well as proper linkages through rail and road to maximize the benefits of the zones.

Available records show that the Calabar Free Trade Zone stopped booming due to logistic challenges as investors in Calabar take their goods from Onne and Lagos at an extra cost.

An investor who does not want his name mentioned, said free trade zones are capital intensive and investors are careful of investing in Nigeria due to the unfavourable macroeconomic environment.

In addition to infrastructure, he said another leading bottleneck is the rivalry between NEPZA and other agencies, particularly the Nigerian Customs Service (NCS), the Nigeria Ports Authority (NPA), and the Nigeria Immigrations Service (NIS).

According to him, Customs still considers the free trade zones as part of the country and imposes duties, and this is discouraging investors.

He argued that the Act establishing the zones should be reviewed to clearly spell out roles and powers of all relevant agencies, clarify issues relating to duties, taxation, and the status of FTZs in the country.

Sam Nzekwe, another economic analyst said Nigeria has not reaped the benefits of the zones as it ought to, even as the goal to diversify the economy from non-oil exports is still far from reality.

“The lack of infrastructure remains a key challenge, there is also insecurity in many parts of the country,” he said.

Nzekwe alluded to the fact that there is a lack of clarity on the mandates of the zones and relevant agencies; hence government needs to redefine its purpose for potential investors to understand.

More so, these zones suffered neglect for many years and are still not receiving the needed attention from the government. In 2020, the Federal Government suspended the issuance of licences for the operation of FTZs in the country.

Adeniyi Adebayo, minister of industry, trade and investment recently said the FTZs have not performed to expectations in terms of impacting on the industrial development of the country as witnessed in developed countries, due to poor implementation.

“We are yet to take delivery of the dynamic potentials of FTZs as an instrument for economic growth,” the minister stated.

There were also concerns by stakeholders that the purpose of the FTZs in the country has been defeated by some managers, who make investments only on the papers, and turned the zones into mere tax avoidance schemes.

Consequently, a panel was inaugurated to evaluate the performance of the FTZs and how to maximise their benefits. But the panel which was headed by the minister of trade, and also has the minister of state in the ministry, Mariam Katagum, as a member, failed to execute its mandate.

An official at the NEPZA said the minister only announced the panel because he was under pressure and no report was submitted by the panel, but the suspension on issuance of licence has been lifted.

The level of industrialisation achieved in Lagos so far further underscores the potentials of these zones if well positioned. But in the nation’s capital, the Centenary City and the Abuja Technology Free Trade Zones are yet to kick off after years of securing approval.

“The development of the Abuja Technology Village has been very slow; the investors are still trying to address infrastructure. There are still lingering political issues between the Federal Government and Centenary City on registration and constitution of the Board of Trustees and other challenges that yet to be rectified, the case is still in court,” Martins Odeh, head of corporate communications, NEPZA said.

The Abuja Centenary City project was approved in 2014 and expected to create about 250,000 jobs, attract foreign and local investments, promote world-class urban infrastructural development, boost leisure and entertainment in Abuja and its environs. In 2004, Abuja Technology Village was conceived by the Federal Capital Territory Administration (FCTA) as one of the strategic tools to diversify Nigeria’s economy and enhance the country’s competitiveness. A visit to this zone showed it has been overtaken by herdsmen.

The Lagos Free Trade Zone currently has about 16 companies that have invested more than $150 million, providing nearly 1,000 jobs. The zone is integrated with a deep seaport development, scheduled to be completed in 2022. The Lekki Free Trade Zone is home to the Dangote Group’s new 650,000m barrel-per-day oil refinery and fertiliser factory. The investment by the 36 companies there is valued at $432 million, with well over 1,000 jobs created.

But Odeh said FTZs are becoming archaic and the government wants to focus on special economic zones (SEZs). Unlike FTZs, he said SEZs will boost local direct investment and investors are expected to pay taxes, and Customs duties.

He further explained that six SEZs were underway in Kwara, Lagos, Katsina, Ebonyi, Benue, Gombe, and Nigeria would benefit more from them than FTZs.

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