Free Trade Zones and Nigeria

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The federal government of Nigeria and indeed the whole world, expect a lot from companies operating in the Free Trade Zones (FTZs). The government expects the FTZs to boost national exports, create jobs and help diversify the Nigerian economy by bringing in new activities.

With incentives offered to corporations in the FTZs, it is expected that they will attract foreign direct investments, increase foreign exchange earnings, promote technology transfer and develop export oriented industries in Nigeria.

Presently, 39 FTZs have been created, 14 are at different levels of operation, with the rest under construction. More than 300 licensed Free Zones’ enterprises are currently operating in Nigeria’s various FTZs.

 FTZs businesses are exempted from normal regime applicable in Nigeria, particularly with regards to Customs duty and tax.

The Nigerian Export Processing Zone Authority (NEPZA) is specially created to manage all FTZs in Nigeria. While the Oil & Gas Free Zone Authority was created to manage the Oil & Gas Free Zone in Onne.

NEPZA is also responsible for promoting and facilitating local and international investments in Nigeria into licensed FTZs. The NEPZA Act also envisages private and public sector involvement or a combination of both in the operation and development of Zones, all under the supervision and approval of NEPZA.

Customs plays a very significant role in the zones operation, The Act legitimises the receipt in foreign currency by an approved entity for payment for goods and services supplied to customers within Nigeria FTZs.

Thus foreign investors can charge for services in their own currency, and are not bound by the restrictive provisions of the Central Bank of Nigeria Act 2007 and recent regulations mandating the payment for goods and services in naira.

However, for the purposes of such payment, the rules and regulations regarding the importation of goods and services into Nigeria are applicable.

Approved entities are also entitled to import into any FTZ, free of Customs duty, any capital goods, consumer goods, raw materials, components or articles intended to be used for the purposes of and in connection with an approved activity, including any article for the construction, alteration, reconstruction, extension or repair of premises in an FTZ or for equipping such premises.

However, notwithstanding the removal of Customs duties, the Act prescribes for the provisions of the Customs and Excise Management Act and any regulation made thereunder to be applicable where goods that are dutiable on entry into Nigeria are sent from an EPZ into Nigeria.

NEPZA’s consent must be obtained, and the Customs authorities must be satisfied that all relevant import restrictions have been complied with and all duties payable in connection with the importation into Nigeria have been paid, particularly where goods are intended to be disposed of in Nigeria.

All these build a firm and solid wall covering for the FTZs. it also gives assurance to investors, exporters that their businesses are very safe. It encourages businesses with other countries on a lighter level where government bottlenect and unnecessary bureaucracy are removed to pave way to business flow.

The NEPZA Regulations have also liberalised the investment procedures and approval process in FTZs, thereby eradicating the bureaucratic bottlenecks that can accompany regulatory procedures and approvals in Nigeria.

The incentives for approved entities within the FTZs include legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations do not apply.

Others are repatriation of foreign capital investment at any time with capital appreciation of the investment; remittance of profits and dividends earned by foreign investors is allowable and no import or export licences shall be required.

Up to 100% of production may be sold in Nigeria against a valid permit and on payment of appropriate duties; rent-free land at construction stage, thereafter rent shall be as determined by NEPZA; up to 100% foreign ownership of business is permitted; and foreign managers and qualified personnel may be employed by companies in the FTZs.

Another advantage is the huge consumer market in Nigeria – which has a population of over 184m – and ECOWAS, which has a total population of over 250m. There is also the availability of abundant natural resources such as rubber, palm oil, gum arabic, sesame seeds, cocoa, wood, food crops and more, which can be accessed in the general Nigerian territory for the purpose of manufacturing in or carrying out business in the FTZs.

Furthermore, while the expatriate quota scheme in Nigeria is designed by the government to prevent the indiscriminate employment of expatriates where there are qualified Nigerians to occupy certain positions, there is a liberalised regime for employment of expatriates in FTZs. This is because the NEPZ Regulations stipulate that all approved enterprises shall be exempt from being subject to expatriate quotas. The NEPZ Regulations also prescribe that all employers in an EPZ are at liberty to draw their labour force from any part of the world.

Other incentives for operating within the FTZs relate to labour and employment. Due to the potential adverse effects strikes could have on business activities in terms of output, the Act specifically prohibits employees from embarking on strike actions or lock-outs for a period of 10 years following the commencement of operations within a FTZ, therefore any trade dispute arising within an FTZ shall be resolved by NEPZA.

Nigeria has various trade arrangements with many global economic organisations, including the World Trade Organisation, ECOWAS (through the ECOWAS Trade Liberalisation Scheme), the Commonwealth of Nations and the D-8 Organisation for Economic Cooperation. These agreements can have a positive impact on enterprises in the FTZs.

Taking a look at some of the Free Zones in the country; LADOL Free Zone, Lekki & Lagos Free zones in Lekki, Tinapa & Calabar Free zones in Calabar, Kano Free zone, Maigateri Border Free zone, Snake Island Onne Oil & Gas Free zone etc all accommodating a range of local and foreign enterprises, are expected to improve the production level of the country, especially in this time when the continent is entering into a single market agreement (AfCFTA).

Lekki Free Trade Zone (LFTZ)  LFTZ is located on Lekki Peninsula in Lagos and covers 16,500 ha. It offers easy access to the existing international airport and sea port of Lagos. In May 2006 a Chinese consortium – China Civil Engineering Construction Corporation-Beyond International Investment & Development Company – entered into a joint venture with the Lagos state government and Nigerian partner Lekki Worldwide Investment to establish the Lekki Free Zone Development Company, the sole entity authorised to develop, operate and manage the LFTZ project.

LFTZ is in the south-eastern part of Lagos State, facing the Atlantic Ocean to the south and Lekki Lagoon to the north. It is bordered by 5 km of coastline and stretches 50 km from Lagos city centre. It is 70 km from Murtala Mohammed International Airport and 10 km from the proposed site of Lekki International Airport. The zone is also 50 km from Apapa Port, West Africa’s largest port.

A licensed enterprise does not need to comply with the rules of local incorporation in Nigeria, which are governed by the provisions of the Companies and Allied Matters Act 1990.

The Act permits the one-stop-shop approval level to the Free zones Authority for ease of operation. With the bundle of incentives available to investors, production cost is supposed to be pointing nose down thereby enable them to compete favourably at the international market.