Nigeria: Zonal awareness

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While a large number of free zones have been established in Nigeria since the 1990s, offering a host of encouraging regulatory and fiscal incentives and bringing in billions in direct investment, many of them have yet to reach their full potential, with operators continuing to face some broader challenges, including infrastructural bottlenecks.

Speaking at the third annual Free Trade Zone (FTZ) Nigeria Conference and Exhibition held in early April in Lagos, Adesina Agboluaje, the managing director of the Nigeria Export Processing Zones Authority, the government body responsible for the licensing, monitoring and regulation of free zone schemes in Nigeria, said the country’s FTZs have in total attracted more than $13.6bn of investment thus far.

Around $5.3bn of this amount has been directed towards the FTZ in Onne, while the other zones combined received the balance of $8.3bn. Agboluaje added that the government has earned duty payments of more than N150bn ($949.88m) from the country’s FTZs.

The FTZ at Onne, which opened in 1997, is located in Rivers State. Dedicated entirely to the oil and gas industry, it is home to more than 30 international players in the sector. However, Onne is just one of many FTZs in Nigeria, which is home to a total of 25 zones in operation, under construction or in the planning stages. Some, like Onne, are focused on specific sectors, while others are more broad-based, such as the FTZ currently under construction at Lekki.

Development of the Lekki FTZ, which is being built on some 16,500 ha of land southeast of Lagos, began in 2004. The multi-use facility will have zones for several sectors of the economy, including oil and gas, industry, manufacturing, media and tourism, and others.

The project at Lekki, like several other zones in Nigeria, is a public-private partnership, owned by a consortium of Chinese investors (60%) and the Lagos state government (40%). Other FTZs are either fully owned by the private sector or the federal or state government.

To make the zones attractive to private investors, the federal government has put in place numerous incentives, including tax breaks; waived duties on imported machinery, equipment and semi-finished materials; discounted rent; repatriation of profits; and the ability to operate without a partnership with a local investor.

A further and more unusual incentive is the provision by which companies operating in Nigeria’s FTZs are not restricted to export activities, but can also sell goods directly into the domestic market. In certain cases, the government has also supported the development of infrastructure in and around the country’s free zones. For example, at the Onne FTZ, the government invested heavily in Onne’s port by upgrading two terminals and improving quayside facilities, communication links and other services.

However, when it comes to infrastructure, challenges remain for some FTZ operators. In April, Chen Xiaoxing, the managing director of the Lekki FTZ, told local newspaper The Nation that poor infrastructure could delay the opening of the zone. He specifically identified a lack of offshore banking facilities, poor power supply and lack of access roads to other parts of the state as challenges.

“The zone is confronted with several infrastructure challenges, which hinder completion and prospects of the zone. We hope, however, that when both the federal and state governments come to our aid, all the issues will be addressed,” he said.

Resolving these challenges is in the best interest of the government, as FTZs bring many benefits to the country, including job creation, diversification of the country’s revenue base away from the hydrocarbons sector and an increase in exports, which can help Nigeria earn much-needed foreign exchange.

However, perhaps one of the most crucial areas the FTZs can help is by encouraging knowledge transfer through direct investment projects, particularly in light of the country’s new regulatory framework on local content in the oil and gas sectors.

Indeed, it is the transfer of knowledge and techniques to Nigerians that may in fact be the greatest benefit of FTZs to the country. Boosting the skillset of the labour force sill serves to support the development of locally owned and managed firms, which will help Nigeria climb up the value-added ladder.

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