Economic View

On using free zones as cornerstones of economic growth

How has the free zone scheme developed since its inception in 1992?

EMMANUEL JIME: Nigeria has adopted a model of development that uses free zones to diversify its economy. For a long time, the economy has been reliant on oil exports, and because oil has its own challenges, we have been exposed to all the ups and downs of this dependency. 

In 1992 NEPZA was established with a mandate to administer the free zones scheme, both as an operator and as a regulator. Recently, the government has embarked on the creation of six new industrial parks. There are presently 38 zones that are run via public-private partnerships (PPPs), and we are still registering more, with 10 currently under review. By the end of 2018 we expect to have nearly 50 such entities. 

Recognising the need to boost the activities of NEPZA, the administration decided to increase the authority’s budgetary allocation to N50bn ($161.6m), with this sum projected to increase to roughly N100bn ($323.3m) in 2020. Free zones are expected to have the kind of infrastructure that cannot be found elsewhere in the country. Nigeria has an infrastructure deficit at the moment. Power, water and even a functioning road network are not guaranteed nationwide. The decision has been made to empower free zones to create oases of great infrastructure. The idea is to develop these particular platforms to a level where they can compete with other such zones based around the world. We plan to follow the examples set by Ireland, the UAE and China.

The injection of capital into the free zone scheme is a demonstration of the government’s will to drive real improvement in the way that we deliver on infrastructure. The scheme provides incentives for foreign direct investment in a way that is not available elsewhere in Nigeria. For example, raw materials are imported tax-free, and finished products are exported tax-free. In addition, foreigners are permitted to retain 100% ownership of their companies, without the participation of Nigerian nationals or firms. The law even provides for six years of rent-free use of facilities from the inception of each free zone. Moreover, NEPZA offers a one-stop shop for addressing all of the required bureaucratic matters, such as visas and Customs services. 

How can the establishment and growth of PPPs be promoted in the free zones?

JIME: These zones provide the legal and regulatory frameworks necessary to ensure investors that their assets are safe and that they can do business without any constraints. Nigeria is a signatory to all international conventions that are supportive of businesses. Moreover, the judiciary has sufficient independence and robustness to deliver justice swiftly. The job of NEPZA is to educate people and establish the foreign contacts necessary to build the platforms on which firms are able to operate. The government, both at the federal and state levels, does not have the resources to go it alone. NEPZA encourages participation from the private sector and engages with the states to provide a platform that they can use to invite foreign investors and their private resources.

Where have you identified the greatest potential for economic growth?

JIME: Although oil is still the biggest earner of foreign currency, the Nigerian economy is focused on agriculture. In the past, businesses had problems connecting with the right government agencies to get the proper licences. NEPZA has a responsibility to encourage their participation in the economy, in part by solving those problems.

Our free zones enable all kinds of commercial activities. For instance, NEZPA has had some interesting discussions with Chinese textile producers and in the long term, we are looking forward to encouraging local and international ICT companies to do business in Nigeria.